10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2007

OR

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

For the transition period from                                           to                                          

Commission file number 1-11238.

NYMAGIC, INC.

(Exact name of registrant as specified in its charter)

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

The registrant’s telephone number, including area code: (212) 551-0600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Name of each exchange on which registered:
Common Stock, $1.00 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

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

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

MARKET VALUE

The aggregate market value of the outstanding common stock held by non-affiliates of the registrant, as of June 30, 2007, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $358,419,703, based on the closing price of the stock on the New York Stock Exchange on that date.

OUTSTANDING STOCK

As of March 1, 2008, there were 8,707,013 outstanding shares of common stock, $1.00 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference from the registrant’s definitive proxy statement relating to its 2008 Annual Meeting of Shareholders to be filed with the Commission within 120 days after the close of the registrant’s fiscal year.

NYMAGIC, INC.

	PAGE
PART I
Forward-looking Statements		ii
Item 1. Business		1
Item 1A. Risk Factors		32
Item 1B. Unresolved Staff Comments		37
Item 2. Properties		37
Item 3. Legal Proceedings		37
Item 4. Submission of Matters to a Vote of Security Holders		37
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		37
Item 6. Selected Financial Data		39
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		54
Item 8. Financial Statements and Supplementary Data		55
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		55
Item 9A. Controls and Procedures		55
Item 9B. Other Information		56
PART III
Item 10. Directors, Executive Officers and Corporate Governance		56
Item 11. Executive Compensation		56
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		56
Item 13. Certain Relationships and Related Transactions, and Director Independence		56
Item 14. Principal Accounting Fees and Services		56
PART IV
Item 15. Exhibits, Financial Statement Schedules		57
Signatures		61
Index to Consolidated Financial Statements		F-1
EX-10.57: 2004 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN AWARD AGREEMENT
EX-10.58: 2004 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN AWARD AGREEMENT
EX-10.59: EMPLOYMENT AGREEMENT
EX-10.60: SEVERENCE AGREEMENT
EX-10.61: LEASE
EX-21.1: SUBSIDIARIES OF THE REGISTRANT
EX-23.1: CONSENT OF KPMG LLP
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

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FORWARD — LOOKING STATEMENTS

This report contains certain forward-looking statements concerning the Company’s operations, economic performance and financial condition, including, in particular, the likelihood of the Company’s success in developing and expanding its business. Any forward-looking statements concerning the Company’s operations, economic performance and financial condition contained herein, including statements related to the outlook for the Company’s performance in 2008 and beyond, are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon a number of assumptions and estimates which inherently are subject to uncertainties and contingencies, many of which are beyond the control of the Company. Some of these assumptions may not materialize and unanticipated events may occur which could cause actual results to differ materially from such statements. These include, but are not limited to, the cyclical nature of the insurance and reinsurance industry, premium rates, investment results, hedge fund results, the frequency and severity of loss events, the estimation of loss reserves and loss reserve development, fluctuations in asset values, uncertainties related to writing new lines of business, uncertainties associated with asbestos and environmental claims, including difficulties with assessing latent injuries and the impact of litigation settlements, bankruptcies and potential legislation, the uncertainty surrounding the loss amounts related to the attacks of September 11, 2001 and Hurricanes Katrina and Rita, the occurrence and effects of severe weather, earthquakes, wars and acts of terrorism, net loss retention, the effect of competition, the ability to collect reinsurance receivables and the timing of such collections, the availability and cost of reinsurance, the possibility that the outcome of any litigation or arbitration proceeding is unfavorable, the ability to pay dividends, regulatory changes, changes in the ratings assigned to the Company by rating agencies, failure to retain key personnel, the possibility that our relationship with Mariner Partners, Inc. could terminate or change, and the fact that ownership of our common stock is concentrated among a few major stockholders and is subject to the voting agreement, as well as assumptions underlying any of the foregoing and are generally expressed with words such as “intends,” “intend,” “intended,” “believes,” “estimates,” “expects,” “anticipates,” “plans,” “projects,” “prospects” “forecasts,” “goals,” “could have,” “may have” and similar expressions. These risks could cause actual results for the 2008 year and beyond to differ materially from those expressed in any forward-looking statements made herein. The Company undertakes no obligation to update publicly or revise any forward-looking statements made herein.

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Part I

Item 1. Business

General

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

Insurance Companies and Lloyd’s Corporate Capital Vehicle:

New York Marine and General Insurance Company (“New York Marine”), Gotham Insurance Company (“Gotham”), Southwest Marine and General Insurance Company, which was formerly known as Arizona Marine And General Insurance Company (“Southwest Marine”), MMO UK, Ltd. (“MMO UK”) and MMO EU, Ltd. (“MMO EU”). Both MMO UK and MMO EU have been inactive since 2002. MMO UK was sold in 2005 and MMO EU was liquidated in February 2007.

Insurance Underwriters and Managers:

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

Investment Interests:

Mariner Tiptree (CDO) Fund I, L.P. (“Tiptree”).

In 2003, the Company obtained an interest in substantially all of a limited partnership hedge fund, Mariner Tiptree (CDO) Fund I, L.P. (“Tiptree”), that invests in Collateralized Debt Obligations (CDO) securities, Credit Related Structured Product (CRS) securities and other structured products that are arranged, managed or advised by a Mariner affiliated company. See “Relationship with Mariner Partners, Inc.” The investment in Tiptree was previously consolidated in the Company’s financial statements. On August 18, 2006, the Company entered into an Amended and Restated Limited Partnership Agreement of Tricadia CDO Fund, L.P. (“Tricadia”), effective as of August 1, 2006, with Tricadia Capital, LLC, the general partner, and the limited partners named therein (the “Amended Agreement”) to amend and restate the Limited Partnership Agreement of Mariner Tiptree (CDO) Fund I, L.P. entered into in 2003 (the “Original Agreement”). The Amended Agreement changed the name of the partnership, amended and restated in its entirety the Original Agreement and provides for the continuation of the partnership under applicable law upon the terms and conditions of the Amended Agreement. The Amended Agreement, among other items, substantially changed the fee income structure as well as provides for the potential conversion of limited partnership interests to equity interests. The fee income was changed in the Amended Agreement from 50% of the fee received by the investment manager in connection with the management of CDOs in Tricadia to a percentage of fees equal to the pro-rata portion of the CDO equity interest held by Tricadia. In no event, however, will the fee be less than 12.5% of the fee received by the investment manager. The Amended Agreement also provides for an additional CDO fee to be determined based upon the management fees earned by the investment manager. These changes resulted in a reduction in the variability of Tricadia thereby lowering or decreasing its expected losses as well as represented a change in the entity’s governing documents or contractual arrangements that changed the characteristics of Tricadia’s equity investment at risk. As a result of these substantive changes to the Original Agreement, the Company concluded that it is no longer the party most closely associated with Tricadia and deconsolidated Tricadia, formerly known as Tiptree, from its financial statements as of August 1, 2006 and has since included Tricadia as a limited partnership investment at equity in the financial statements.

Approximately $6.9 million in uses of cash flows in 2006 resulted from the effect of deconsolidation of the Tricadia limited partnership investment. The deconsolidation had no impact on the Company’s Statement of Income for the year ended December 31, 2006.

As a result of the turmoil in the U.S. housing industry in 2007 and 2008 and its effect on mortgage backed securities and illiquid securities, Tricadia is not assembling any CDO assets as market conditions preclude any meaningful activity. Tricadia also has an investment in Tiptree Financial Partners LP who maintains trading activities in their CLO operations. While the Company is committed to providing an additional $15.4 million to Tricadia in 2008, it is uncertain whether such funds will be drawn to fund the operations of Tricadia or Tiptree Financial Partners LP.

New York Marine and Gotham each currently holds a financial strength rating of A (“Excellent”) and Southwest Marine currently holds a financial strength rating of A- (“Excellent”) and an issuer credit rating of “a-” from A.M. Best Company. These are the third and fourth highest of fifteen rating levels in A.M. Best’s classification system. Many of the Company’s insureds rely on ratings issued by rating agencies. Any adverse change in the rating assigned to New York Marine, Gotham and Southwest Marine by a rating agency could adversely impact our ability to write premiums. The Company has specialized in underwriting ocean marine, inland marine, other liability and aircraft insurance through insurance pools managed by MMO, PMMO, and Midwest (collectively referred to as “MMO and affiliates”) since 1964. However, the Company has not written any new policies covering aircraft risks since March 31, 2002. The Company decided to exit the commercial aviation insurance business because it is highly competitive, had generated underwriting losses for most years during the 1990’s, and because it is highly dependent on the purchase of substantial amounts of reinsurance, which became increasingly expensive after the events of September 11, 2001. This decision has enabled the Company to concentrate on its core lines of business, which include ocean marine, inland marine/fire and other liability.

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In addition to managing the insurance pools as discussed below, the Company participates in the risks underwritten for the pools through New York Marine and Gotham. All premiums, losses and expenses are pro-rated among pool members in accordance with their pool participation percentages.

In 1997, the Company formed MMO EU as a holding company for MMO UK, which operated as a limited liability corporate vehicle to provide capacity for syndicates within Lloyd’s. Lloyd’s consists of a number of syndicates whose purpose is to serve as risk taking entities. Syndicates maintain a certain amount of capacity, depending upon the level of capital provided by the syndicate’s investors. This capacity is then allocated to investors in the syndicate based upon their ratio of capital provided to the syndicate.

In 1997, the Company acquired ownership of a Lloyd’s managing agency, which was subsequently renamed MMO Underwriting Agency, Ltd., and commenced underwriting in 1998 for the Company’s wholly owned subsidiary MMO UK. In 2000, MMO UK provided 100%, or $29.8 million, of the capacity for Lloyd’s Syndicate 1265, which primarily wrote marine insurance. The Company sold MMO Underwriting Agency Ltd. in 2000, in exchange for a minority interest in Cathedral Capital PLC, which managed Lloyd’s Syndicate 2010, and Lloyd’s Syndicate 1265 was subsequently placed into runoff. “Runoff” is a term used to refer to an insurer that has ceased writing new insurance policies but that continues to exist for the purpose of paying claims on policies that it has already written. In 2001, its last active year of underwriting, MMO UK provided approximately 11.2%, or $13.6 million, of the capacity for Lloyd’s Syndicate 2010, which primarily writes assumed property and aviation insurance. In 2001, the Company initiated a withdrawal from its London operations, which was subsequently completed in 2002. In 2003, the Company sold its minority interest in Cathedral Capital PLC for approximately $2.8 million. MMO EU, MMO UK, Lloyd’s Syndicate 1265 and Lloyd’s Syndicate 2010 are collectively hereinafter referred to as “MMO London.”

MMO UK has not provided capacity to any Lloyd’s syndicate since 2002. In 2005 the Company sold MMO UK to the Robertson Group Limited and the Edinburgh Woollen Mill (Group) Limited in consideration for two Pounds Sterling, and an additional minimum consideration estimated at approximately $436,000 based upon the parties’ entry into a Taxation Deed executed in connection with the sale. The Company incurred approximately $200,000 in expenses in connection with the sale of MMO UK. Neither the sale of the Company’s interest in Cathedral Capital nor the sale of MMO UK had a material effect on the Company’s results of operations.

MMO EU was liquidated in February 2007.

The Pools

MMO, located in New York, PMMO, located in San Francisco, and Midwest, located in Chicago (the “Manager” or the “Managers”), manage the insurance pools in which the Company participates. In May 2007, the Company closed the PMMO office and its management activities were taken over by MMO and Midwest.

The Managers accept, on behalf of the pools, insurance risks brought to the pools by brokers and others. All premiums, losses and expenses are pro-rated among the pool members in accordance with their percentage participation in the pools. Originally, the members of the pools were insurance companies that were not affiliated with the Managers. New York Marine and Gotham joined the pools in 1972 and 1987, respectively. Subsequent to their initial entry in the pools, New York Marine and Gotham steadily increased their participation, while the unaffiliated insurance companies reduced their participation or withdrew from the pools entirely. Since 1997, the only pool members are New York Marine, and Gotham who together write 100% of the business produced by the pools. Southwest Marine reinsures business written by New York Marine and Gotham effective for policies attaching on or after January 1, 2007 through a 5% quota share treaty.

Assets and liabilities resulting from the insurance pools are allocated to the members of the insurance pools based upon the pro rata participation of each member in each pool in accordance with the terms of the management agreement entered into by and between the pool participants and the Managers.

Pursuant to the pool management agreements, the pool members have agreed not to accept ocean marine insurance, other than ocean marine reinsurance, in the United States, its territories and possessions and the Dominion of Canada unless received through the Managers or written by the pool member on its own behalf and have authorized the Managers to accept risks on behalf of the pool members and to effect all transactions in connection with such risks, including the issuance of policies and endorsements and the adjustment of claims. As compensation for its services, the Managers receive a fee of 5.5% of gross premiums written by the pools and a contingent commission of 10% on net underwriting profits, subject to adjustment. Since the 1997 policy year, all management commissions charged by MMO have been eliminated in consolidation.

As part of its compensation, the Managers also receive profit commissions on pool business ceded to reinsurers under various reinsurance agreements. Profit commissions on business ceded to reinsurers are calculated on an earned premium basis using inception to date underwriting results for the various reinsurance treaties. Adjustments to commissions, resulting from revisions in coverage or audit premium adjustments, are recorded in the period when realized. Subject to review by the reinsurers, the Managers calculate the profitability of all profit commission agreements placed with various reinsurance companies.

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Two former pool members, Utica Mutual Insurance Company (“Utica Mutual”) and Arkwright Mutual Insurance Company (“Arkwright”), which is currently part of the FM Global Group, withdrew from the pools in 1994 and 1996, respectively, and retained the liability for their effective pool participation for all loss reserves, including losses incurred but not reported (“IBNR”) and unearned premium reserves attributable to policies effective prior to their withdrawal from the pools.

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

Segments

The Company’s domestic insurance companies are New York Marine, Gotham and Southwest Marine. New York Marine and Gotham underwrite insurance business by accepting risks generally through insurance brokers. They engage in business in all 50 states and also accept business risks in such worldwide regions as Europe, Asia, and Latin America. Southwest Marine, which is currently licensed to engage in the insurance business in six states including Arizona, has written business in a number of jurisdictions, including New York, where it writes excess and surplus lines business.. See “Regulation.” The Company’s domestic insurance agencies are MMO, PMMO and Midwest. These agencies underwrite all the business for the domestic insurance companies.

The Company considers the four lines of business underwritten by its domestic insurance/agency companies as appropriate segments to report its business operations. The Company’s overall performance is evaluated through its four main business segments. For additional segment disclosure information, see note 15 of Notes to Consolidated Financial Statements.

Ocean marine insurance is written on a direct and assumed reinsurance basis and covers a broad range of classes as follows:

Hull and Machinery Insurance: Provides coverage for loss of or damage to commercial watercraft.

Hull and Machinery War Risk Insurance: Provides coverage for loss of or damage to commercial watercraft as a result of war, strikes, riots, and civil commotions.

Cargo Insurance: Provides coverage for loss of or damage to goods in transit or temporary storage.

Cargo War Risk Insurance: Provides coverage for loss of or damage to goods in transit as a result of war, which can be extended to include strikes, riots and civil commotions.

Protection and Indemnity: Provides primary and excess coverage for liabilities arising out of the operation of owned watercraft, including liability to crew and cargo.

Charters’ Legal Liability: Provides coverage for liabilities arising out of the operation of leased or chartered watercraft.

Shoreline Marine Liability Exposures: Provides coverage for ship builders, ship repairers, wharf owners, stevedores and terminal operators for liabilities arising out of their operations.

Marine Contractor’s Liability: Provides coverage for liabilities arising out of onshore and offshore services provided to the marine and energy industries.

Maritime Employers Liability (Jones Act): Provides coverage for claims arising out of injuries to employees associated with maritime trades who may fall under the Jones Act.

Marine Umbrella (Bumbershoot) Liability: Provides coverage in excess of primary policy limits for marine insureds.

Onshore and Offshore Oil and Gas Exploration and Production Exposures: Provides coverage for physical damage to drilling rigs and platforms, associated liabilities and control of well exposures.

Energy Umbrella (Bumbershoot) Liability: Provides coverage in excess of primary policy limits for exploration and production facilities as well as commercial general liability and automobile liability.

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Petroleum and Bulk Liquid Cargo: Provides coverage for loss and damage to petroleum and liquid bulk cargo.

Inland marine/fire insurance traditionally covers property while being transported, or property of a movable, or “floating,” nature and includes the following:

Contractor’s Equipment: Provides coverage for physical damage to various types of fixed and mobile equipment used in the contracting and service industries.

Motor Truck Cargo: Provides coverage for cargo carried aboard trucks.

Transit Floaters: Provides coverage for physical damage to property while being transported on various conveyances and while in storage.

Commercial Property: Provides primary property coverage for owners and operators of commercial, residential and mercantile properties.

Surety: Provides contract bonds for small construction risks and commercial bonds for various industries.

Inland marine also includes excess and surplus lines property coverage on unique or hard to place commercial property risks that do not fit into standard commercial lines coverages. Excess and surplus lines property risks are written through Gotham and Southwest Marine.

Non-marine liability insurance is written on a direct and assumed reinsurance basis and includes:

Professional Liability including:

Accountants Professional Liability: Provides primary liability coverage for the errors and omissions of small to medium-sized accounting firms.

Lawyers Professional Liability: Provides primary liability coverage for small law firms, including those with an emphasis on intellectual property and specialty firms.

Miscellaneous Professional Errors & Omissions: Includes primary and excess liability coverage for non-medical professionals written on a claims-made basis. The book includes liability for music producers, patent holders, web site designers, information technology consultants, insurance agents and brokers, real estate agents, title agents, home inspectors and other design, engineering and consulting firms.

Casualty including:

Contractors Liability: Provides primary liability coverage for commercial and high-end residential contractors.

Commercial and Habitational Liability: Provides primary liability coverage for commercial property owners and lessors of habitational properties.

Products Liability: Provides primary liability coverage for manufacturers and distributors of commercial and consumer products.

Other Lines including:

Excess Workers’ Compensation: Provides excess liability coverage for self-insured workers’ compensation trusts and other qualified self-insurers.

Commercial Automobile: Provides physical damage and liability insurance for commercial mid-sized trucking fleets located primarily in New York State.

Employment Practices Liability: Provides primary liability insurance to small and medium-sized businesses for employment-related claims brought by employees.

Since January 1, 2001, the Company has entered into a number of new specialty lines of business identified above, including professional liability, commercial real estate, employment practices liability, surety, excess workers’ compensation and commercial automobile insurance. The Company continues to look for appropriate opportunities to diversify its business portfolio by offering new lines of insurance in which

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management believes the Company has sufficient underwriting and claims expertise. However, because of the Company’s limited history in these new lines, it may impact management’s ability to successfully develop these new lines or appropriately price and reserve for the ultimate loss associated with these new lines. Due to the Company’s limited history in these lines, management may have less experience managing the development and growth of such lines than some of our competitors. Additionally, there is a risk that the lines of business into which the Company expands will not perform at the level it anticipates.

Aircraft insurance provides insurance primarily for commercial aircraft and includes hull and engine insurance, liability insurance as well as products liability insurance. Coverage is written on a direct and assumed reinsurance basis. The Company ceased writing any new policies covering aircraft insurance as of March 31, 2002.

MMO London consisted of insurance participation in Lloyd’s. Lloyd’s provided worldwide venues for MMO London to underwrite insurance. MMO London has not provided capacity to any Lloyd’s syndicate since January 1, 2002. Accordingly, there have been no underwriting activities from MMO London for the years ended 2007, 2006 and 2005. Business written by MMO London through Syndicate 1265 has been historically included in the ocean marine insurance segment.

The following tables set forth the Company’s gross and net written premiums, after reinsurance ceded.

NYMAGIC Gross Premiums Written	Year Ended December 31,
By Segment	2007				2006				2005
	(Dollars in thousands)
Ocean Marine	$	98,689	43	%	$	104,876	43	%	$	105,628	53	%
Inland Marine/Fire		18,625	8	%		21,595	9	%		25,000	12	%
Other Liability		110,986	49	%		114,754	48	%		69,346	35	%
Subtotal		228,300	100	%		241,225	100	%		199,974	100	%
Run off lines (Aircraft)		88	—			84	—			396	—
Total	$	228,388	100	%	$	241,309	100	%	$	200,370	100	%

NYMAGIC Net Premiums Written	Year Ended December 31,
By Segment	2007				2006				2005
	(Dollars in thousands)
Ocean Marine	$	68,192	41	%	$	75,243	49	%	$	70,596	53	%
Inland Marine/Fire		6,935	4	%		7,097	4	%		8,452	6	%
Other Liability		92,618	55	%		72,231	47	%		54,592	41	%
Subtotal		167,745	100	%		154,571	100	%		133,640	100	%
Run off lines (Aircraft)		108	—			289	—			252	—
Total	$	167,853	100	%	$	154,860	100	%	$	133,892	100	%

Reinsurance Ceded

Ceded premiums written to reinsurers in 2007, 2006 and 2005 amounted to $60.5 million, $86.4 million and $66.5 million, respectively.

A reinsurance transaction takes place when an insurance company transfers (cedes) a portion or all of its liability on insurance written by it to another insurer. The reinsurer assumes the liability in return for a portion or the entire premium. The ceding of reinsurance does not legally discharge the insurer from its direct liability to the insured under the policies including, but not limited to, payment of valid claims under the policies.

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The Company, through the pools, cedes the greater part of its reinsurance through annual reinsurance agreements (treaties) with other insurance companies. These treaties, which cover entire lines or classes of insurance, allow the Company to automatically reinsure risks without having to cede liability on a policy by policy (facultative) basis, although facultative reinsurance is utilized on occasion.

Generally, the Managers place reinsurance with companies which initially have an A.M. Best rating of A- (Excellent) or greater or which have sufficient financial strength, in management’s opinion, to warrant being used for reinsurance protection. The Managers also examine financial statements of reinsurers and review such statements for financial soundness and historical experience. In addition, the Company, through the pools, may withhold funds and/or obtain letters of credit under reinsurance treaties in order to collateralize the obligations of reinsurers. The Company monitors the financial status of all reinsurers on a regular basis.

The Company attempts to limit its exposure from losses on any one occurrence through the use of various excess of loss, quota share and facultative reinsurance arrangements and endeavors to minimize the risk of default by any one reinsurer by reinsuring risks with many different reinsurers. The Company utilizes many separate reinsurance treaties each year, generally with a range of 1 to 15 reinsurers participating on each treaty. Some reinsurers participate on multiple treaties. The Company utilizes both quota share (i.e., proportional) and excess of loss (i.e., non-proportional) reinsurance arrangements. In a quota share reinsurance contract, the reinsurers participate on a set proportional basis in both the premiums and losses. Conversely, in an excess of loss reinsurance arrangement, the reinsurers, in exchange for a pre-determined provisional premium, subject to upward adjustment based upon premium volume, agree to pay for that part of each loss in excess of an agreed upon amount. The Company’s retention of exposure, net of these treaties, varies among its different classes of business and from year to year, depending on several factors, including the pricing environment on both the direct and ceded books of business and the availability of reinsurance.

The Company has made certain changes in reinsurance strategies over the past three years. In 2005, the Company decreased its exposure in the ocean marine line to a net loss retention of up to $3 million for any one occurrence from $4 million in 2004. In 2006, the Company increased its exposure in the ocean marine line to a net loss retention of $6 million for any one occurrence and $5 million on any one risk; in 2007 the Company maintained its net loss retention of $5 million per risk and $6 million per occurrence in the ocean marine line; however, the Company could absorb an additional amount up to $5 million depending upon the gross loss to the Company in excess of $5 million. There were no known ocean marine losses in 2007 that exceeded this threshold. These decisions were based upon the availability and cost of reinsurance in the ocean marine market.

In the wake of substantial losses arising from Hurricanes Katrina and Rita, the excess of loss reinsurance market for the marine and energy line of business significantly contracted in 2006 and 2007, resulting in increases in both reinsurance costs and net loss retentions ($5 million per risk and $6 million per occurrence). This compared to a net loss retention of $3 million per risk or occurrence in 2005. As a result of the increasing cost of reinsurance, the Company excluded energy business with exposures in the Gulf of Mexico from its ocean marine reinsurance program for 2006 and 2007. However, the Company purchased quota share reinsurance protection in 2006 and 2007 for 80% of this portion of its energy business to reduce the potential impact of future catastrophe losses to the Company. The Company also monitored its overall concentration of rig exposures in the Gulf of Mexico, which resulted in a reduction in policy count in 2006, when compared to 2005 and a smaller reduction in policy count in 2007 when compared to 2006.

Effective January 1, 2008, the Company maintained its net retention in the ocean marine line when compared to 2007; however, the Company’s net retention could be as low as $1 million for certain classes within ocean marine. While the quota share reinsurance protection for energy business also remains in effect for 2008, energy business once again is included within the ocean marine reinsurance program.

For the year ended December 31, 2005, the Company wrote excess workers’ compensation insurance on behalf of certain self-insured workers’ compensation trusts. Specifically, the Company wrote a $500,000 layer in excess of each trust’s self insured retention of $500,000. The gross premiums written for each year were reinsured under a 50% quota share reinsurance treaty. Beginning in 2006, the Company provided gross statutory limits on the renewals of its existing in force excess workers’ compensation policies to these trusts. Accordingly, the reinsurance structure was changed to accommodate the increase in gross limits. A general excess of loss treaty was secured in order to protect the Company up to $3 million on any one risk. The resulting net retention was then subject to a 70% quota share reinsurance treaty. In 2007, the Company increased its net retention to $5 million per occurrence covering two or more lives and eliminated the 70% quota share treaty. As a result of these changes in underwriting and reinsurance structures, the gross, ceded and net premiums written changed substantially in this class of business in 2007 when compared to 2006, and in 2006 when compared to 2005.

In 2007 the Company completed novation agreements with CRM Holdings, Ltd. and certain of its affiliates (“CRM”). In these transactions, CRM assumed the Company’s rights and obligations with respect to all but one of the excess workers’ compensation policies and associated reinsurance agreements that the Company had written in conjunction with CRM during the past several years. As a result of these transactions, the Company remitted a total of $10.1 million to CRM and reduced its existing net unpaid loss reserves by $16.6 million. The transactions reduced gross unpaid loss reserves and reinsurance receivables on unpaid losses by $41.5 million and $24.9 million, respectively.

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With respect to the casualty and professional liability lines, the Company’s maximum retention net of reinsurance is generally limited to $2,000,000 per insured for any one claim or occurrence. With regard to the property, inland marine and commercial automobile lines, the Company’s maximum retention net of reinsurance is generally limited to $500,000 per insured for any one occurrence.

Other than as specifically described above, management is not aware of any limitations on the Company’s ability to cede future losses on a basis consistent with historical results.

The Company attempts to limit its exposure from catastrophes through the purchase of general excess of loss reinsurance, which provides coverage in the event that multiple insureds incur losses arising from the same occurrence. These coverages require the Company to pay a minimum premium, subject to upward adjustment based upon premium volume. These reinsurance treaties, which extend, in general, for a twelve-month period, obligate the reinsurers to pay for the portion of the Company’s aggregate losses (net of specific reinsurance) that fall within each treaty’s coverage.

In the event of a loss, the Company may be obligated to pay additional reinstatement premiums under its excess of loss reinsurance treaties. This amount may be in excess of the original premium paid under such treaties. Every effort is made to purchase sufficient reinsurance coverage, including adequate reinstatements of the underlying reinsurance layers, to protect the Company against the cumulative impact of several losses arising from a single occurrence, but there is no guarantee that such reinsurance coverage will prove sufficient.

In 2005 the Company incurred gross losses of approximately $70.8 million in connection with Hurricanes Katrina and Rita, but because of the availability of its reinsurance the Company incurred $6.6 million in net losses. In addition, the Company incurred approximately $14.7 million in reinsurance reinstatement premium costs in connection with these losses. While the estimate for these gross losses increased to approximately $105.8 million as of December 31, 2007 as a result of our insureds’ reassessments of the impact of these hurricane losses, the net loss estimate remained substantially unaffected. However, cumulative reinsurance reinstatement premium costs related to these losses increased to $16.6 million as of December 31, 2007.

The Company reinsures risks with several domestic and foreign reinsurers as well as syndicates of Lloyd’s. The Company’s largest unsecured reinsurance receivables as of December 31, 2007 were from the following reinsurers:

Reinsurer	Amounts		A.M. Best Rating
	(in millions)
Lloyd’s Syndicates (1)	$	61.3	A (Excellent)
Swiss Reinsurance America Corp.		27.4	A+ (Superior)
Lloyd’s (Equitas) (2)		11.5	NR-3 (Rating Procedure Inapplicable)
Platinum Underwriters Reinsurance Co.		8.3	A (Excellent)
Folksamerica Reinsurance Company		6.6	A- (Excellent)
XL Reinsurance America Inc.		5.8	A+ (Superior)
Liberty Mutual Insurance Company		5.3	A (Excellent)
Transatlantic Reins. Co.		5.1	A+ (Superior)
FM Global (Arkwright)		4.8	A+ (Superior)
Berkley Insurance Company		3.8	A+ (Superior)
General Reins. Corp.		3.7	A++ (Superior)
Axis Reins. Co.		3.6	A (Excellent)
Everest Reinsurance		2.6	A+ (Superior)
Munich Reinsurance America		2.3	A+ (Superior)
Total	$	152.1

The reinsurance contracts with the above listed companies are generally entered into annually and provide coverage for claims occurring while the relevant agreement was in effect, even if claims are made in later years. The contract with Arkwright was entered into with respect to their participation in the pools.

(1) Lloyd’s maintains a trust fund, which was established for the benefit of all United States ceding companies. Lloyd’s receivables represent amounts due from approximately 95 different Lloyd’s syndicates.

(2) Equitas, a Lloyd’s company, was established to settle claims for underwriting years 1992 and prior. On March 30, 2007, Equitas completed a reinsurance transaction with National Indemnity Company, a member of the Berkshire Hathaway group of insurance companies. As a result, National Indemnity now reinsures all Equitas’ liabilities by providing an additional $5.7 billion of reinsurance cover to Equitas. The Company is currently engaged in an arbitration proceeding with Equitas to collect approximately $6.2 million of recoverables ceded to them covering various asbestos claims. Equitas has contested coverage and has not paid such amounts to the Company. While the Company is confident in its recovery procedures, there can be no assurance as to the ultimate outcome of the arbitration and an unfavorable resolution of these arbitration proceedings would be material to our results of operations.

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At December 31, 2007, the Company’s reinsurance receivables from reinsurers other than those listed above were approximately $131.7 million, including amounts recoverable for paid losses, case loss reserves, IBNR losses and unearned premiums, and net of ceded balances payable. This amount is recoverable collectively from approximately 500 reinsurers or syndicates, no single one of whom was liable to the Company for an unsecured amount in excess of approximately $2 million.

Approximately 86% of the Company’s total reinsurance receivables as of December 31, 2007 are fully collateralized by letters of credit and or funds withheld, or reside with entities rated “A-” or higher by A.M. Best Company, or are subject to offsetting balances.

In addition to Equitas, other reinsurers to which we previously ceded premiums are contesting coverage issues and their obligations to reinsure claims we paid on liability policies written during the period 1978 to 1985. The paid balances due from these companies collectively amount to approximately $1 million as of December 31, 2007. These reinsurers may also contest coverage on loss reserves ceded to them that will be paid in future periods. We are vigorously enforcing collection of these reinsurance receivables through arbitration proceedings and/or commutation, but an unfavorable resolution of these arbitration proceedings and commutation negotiations could be material to our results of operations. The Company maintains an estimate for amounts due from financially impaired reinsurers in our reserves for doubtful accounts on reinsurance receivables of $14.1 million and $13.9 million as of December 31, 2007 and December 31, 2006, respectively. There can be no assurance that this reserve will be adequate to provide for the ultimate loss from such reinsurers.

Ceded reinsurance activities had an impact on the Company’s financial position as follows:

1.	As of December 31, 2007 and 2006, the Company reported total ceded reinsurance payable of $27.1 million and $44.8 million, respectively.
2.	As of December 31, 2007 and 2006, the Company reported total reinsurance receivables on paid losses of $38.8 million and $47.5 million, respectively.
3.	As of December 31, 2007 and 2006, the Company reported total reinsurance receivables on unpaid losses of $250.1 million and $286.2 million, respectively.
4.	As of December 31, 2007 and 2006, the Company reported prepaid reinsurance premiums of $21.7 million and $29.6 million, respectively.

Reinsurance receivables on paid losses decreased in 2007 primarily due to the collection of a large loss payment made for asbestos losses at 2006 year-end as well as collections on gross payments of hurricane Katrina and Rita losses. Reinsurance receivables on unpaid losses decreased in 2007 primarily due to the closing of novation agreements for certain excess workers’ compensation policies that resulted in a decrease of $24.9 million in reinsurance receivables on unpaid losses.

Ceded reinsurance payable and prepaid reinsurance premiums decreased mainly as a result of the payment of quota share reinsurance premiums, as well as lower ceded premiums written, in the excess workers’ compensation class. The 70% quota share treaty covering excess workers’ compensation was eliminated at the end of 2006.

Ceded reinsurance activities had an impact on the Company’s results from operations as follows:

1.	For the years ended December 31, 2007, 2006 and 2005 the Company reported total ceded premiums earned of $68.4 million, $79.1 million and $65.7 million, respectively.
2.	For the years ended December 31, 2007, 2006 and 2005 the Company reported ceded incurred losses and loss adjustment expenses of $31.1 million, $63.3 million and $90.5 million, respectively.

Ceded premiums earned decreased in 2007 when compared to 2006 primarily as a result of the elimination of the 70% quota share treaty covering excess workers’ compensation risks at the end of 2006. Ceded premiums earned increased in 2006 when compared to 2005 primarily as a result of additional ceded premiums in the energy class in the ocean marine line and the excess workers’ compensation class of the other liability line. Ceded incurred losses and loss adjustment expenses decreased in 2007 when compared to 2006 as a result of the elimination of the 70% quota share treaty covering excess workers’ compensation risks at the end of 2006 coupled with less than anticipated development of prior year losses as a result of the closing of novation agreements for certain excess workers’ compensation policies. Ceded incurred losses and loss adjustment expenses were greater in 2005 than 2006 as a result of $64.2 million of incurred losses resulting from hurricanes Katrina and Rita.

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Ceded reinsurance activities had an impact on the Company’s cash flows as follows:

1.	The Company made reinsurance premium payments of $78.3 million, $77.4 million and $56.3 million for the years ended December 31, 2007, 2006 and 2005, respectively.
2.	The Company received reinsurance collections on paid losses of $75.9 million, $57.2 million and $25.1 million for the years ended December 31, 2007, 2006 and 2005, respectively.

The increase in reinsurance premium payments in 2007 and 2006 reflected reinsurance payments made under the excess workers’ compensation 70% quota share treaty and 80% energy quota share treaty as well as larger reinsurance reinstatement premium payments from hurricanes Katrina and Rita. Cash collections of reinsurance recoverables increased in 2007 and 2006 primarily due to hurricane losses.

Reserves

We maintain reserves for the future payment of losses and loss adjustment expenses with respect to both case (reported) and IBNR (incurred but not reported) losses under insurance policies issued by the Company. IBNR losses are those losses, based upon historical experience, industry loss data and underwriter expectations, that the Company estimates will be reported under these policies. Case loss reserves are determined by evaluating reported claims on the basis of the type of loss involved, knowledge of the circumstances surrounding the claim and the policy provisions relating to the type of loss. Case reserves can be difficult to estimate depending upon the class of business, claim complexity, judicial interpretations and legislative changes that affect the estimation process. Case reserves are reviewed periodically and monitored on a regular basis, which may result in changes (favorable or unfavorable) to the initial estimate until the claim is ultimately paid and settled.

The Company considers a variety of factors in its estimate of loss reserves. These elements include the length of the reporting tail (i.e. occurrence versus claims made coverage), the nature of the risk insured (i.e. property versus liability), the level of net retention per loss, large case reserve estimates or shock (large) losses, the emergence of identifiable trends in the statistical analysis of paid and incurred loss data, and the level of catastrophe losses incurred during the period,

We evaluate loss reserves in three categories:

1) Classes of business where we have sufficient and adequate historical loss data.

Where we believe we have adequate historical loss data for a sufficient number of years to enable us to project losses we estimate IBNR using our best estimate after a review and evaluation of ultimate losses under four methods: the paid loss method, the incurred loss method and the Bornheutter-Ferguson methods (paid and incurred). This category includes some classes that have short tail business (hull, cargo, rig, and inland marine/fire, non marine liability-claims made basis) and other classes with long tail business (ocean marine liability, other liability, aviation liability). Each method uses different assumptions and no one method is considered better than the others in all circumstances. The paid method is based upon the historical development of paid losses to arrive at the ultimate loss. The incurred method focuses on the historical development of incurred losses to arrive at the ultimate loss. The Bornheutter-Ferguson methods (paid and incurred) focus on the historical development of paid and incurred losses, in addition to the level of premiums earned, to arrive at the ultimate loss.

2) New specialty classes of business where we lack historical data.

In new classes of business in which we believe we lack historical loss data, we estimate IBNR using our best estimate after considering industry loss ratios, underwriting expectations, internal and external actuarial evaluations and anticipated loss ratios based upon known experience. Industry loss ratios are considered from published sources such as those produced by the A.M. Best Company, a leading supplier of industry data. Underwriting expectations are considered based upon the specific underwriter’s review and assessment of the anticipated loss ratio of the business written. Internal actuarial evaluations are considered if such evaluations are available. Anticipated loss ratios based upon known experience are considered if the new business written has similar characteristics to business currently written. For example, loss estimates used for general contractors liability (more recently written business) may be based upon those used for subcontractors’ liability (historically written business). This category includes some short tail classes of business (surety) and other classes of long tail business (excess workers’ compensation and commercial auto liability).

Since January 1, 2001, the Company has entered into a number of new specialty classes of business including excess workers’ compensation, professional liability, commercial automobile and employment practices liability insurance as well as surety. The Company has limited history in these new classes, and accordingly there may be a higher degree of variability in our ability to estimate the ultimate losses associated with these new classes. Consequently, we are more likely to recognize unfavorable development as a trend, and increase estimates of ultimate losses, and less likely to recognize favorable development as a trend, until we have confirmed the trend in light of the uncertainty surrounding actual reporting, case reserve estimates and settlement tails,

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3) Asbestos and environmental liabilities.

The Company establishes reserves (case and IBNR) for asbestos and environmental liabilities after evaluating information on specific claims including plaintiffs, defendants and policyholders’, as well as judicial precedent and legislative developments. The appropriateness of these estimated reserves is then evaluated through an analysis’ of the reserves under the following reserving methodologies: (i) ground up analysis, which reviews the Company’s potential exposures based upon actual policies issued; (ii) industry survival ratios; and (iii) market share statistics per loss settlement. The first, a specific ground up analysis, reviews potential exposures based upon actual policies issued by the Company that are known to have exposure to asbestos related losses. We may not have received specific reported losses from some of these assureds due to the high attachment point of the policies issued, but, given the Company’s experience with asbestos claims, and the fact that the evaluation of asbestos loss exposure is conducted by attorneys and consultants who are experts in the asbestos arena, we believe our estimate of these reserves is adequate. The second methodology evaluates this reserve using industry survival ratios (loss payments expected over a certain number of years) and the third methodology utilizes market share statistics per loss settlement (comparing favorably or unfavorably with the industry on settlements of known assureds).

Asbestos and environmental policies have unique loss development characteristics, and they add a challenging dimension to establishing loss reserves. We have identified the following as unique development characteristics of asbestos and environmental liabilities: the long waiting periods between exposure and manifestation of any bodily injury or property damage, the difficulty in identifying the source of the asbestos or environmental contamination, and the long reporting delays and difficulty in allocating liability for the asbestos or environmental damage. In addition, we believe that judicial and legislative developments affecting the scope of insurers’ liability, which can be difficult to predict, also contribute to uncertainties in estimating reserves for asbestos and environmental liability as does the increasing trend in the number of companies seeking bankruptcy protection as a result of asbestos-related liabilities that impact the Company by significantly accelerating and increasing its loss payments.

Under these methodologies for evaluating loss reserves, an ultimate loss is obtained which is then reduced by incurred losses (paid losses plus case reserves) to derive an IBNR amount that is used for the financial statements.

Reserves estimated in accordance with the methods above are then summarized in the appropriate segment classification (ocean marine, inland marine/fire, other liability and the runoff aircraft business).

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

By contrast, other classes of insurance that we write, such as property, which includes certain ocean marine classes (hull and cargo) and our inland marine/fire segment, and claims-made non-marine liability, historically have had shorter periods of time between the occurrence of an insurable event, reporting of the claim to the Company and final settlement. The reserves for these shorter tail classes are estimated as described above, but these reserves are less likely to be readjusted, as losses are settled quickly and result in less variability from expected loss development, shock or large losses, changes in loss payout patterns and material adjustments to case reserves.

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

In estimating loss reserves, we gather statistical information by each class, which has its own unique loss characteristics, including loss development patterns consistent with long tail or short tail business. Accordingly, any differences inherent in long tail versus short tail lines are accounted for in the loss development factors used to estimate IBNR. We consider the development characteristics of shock losses, changes in loss payout trends and loss development adjustments and amounts of net retention to be equally relevant to both our long and short tail businesses.

The procedures we use for determining loss reserves on an interim basis are similar to the procedures we use on an annual basis. Case reserves are established in a consistent manner as at year end and IBNR at each interim period is determined after we consider actual loss development versus expected loss development for each business segment in evaluating the prior year’s loss development. Any favorable or adverse trends in loss development are compared with the prior year end established loss reserves. Any shock losses, changes in loss payout patterns or material adjustments to case reserves are evaluated to ascertain whether the previously established provision for IBNR was adequate to support the loss development from these additional changes and changes to reserves are made as appropriate.

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In addition, internal actuaries review reserves for several significant classes of business at year-end, and we develop internally specific loss development factors for our various classes of business annually at year-end based upon a review of paid and incurred loss activity during the year. Management collaborates with the Company’s internal actuary in an effort to determine its best estimate of reserves.

The key assumptions that materially affect the estimate of the reserve for loss and loss adjustment expenses are, net loss retention, large severity or shock losses, loss reporting tail, frequency of losses, loss estimates for new classes of business, loss estimates for asbestos and environmental reserves and catastrophe losses. These assumptions affect loss estimates as follows:

Net Loss Retention:

Our level of net loss retention increased from $3 million in 2005 to $5 million per risk in 2006 and 2007 in the ocean marine line business. This level of loss retention compares to $4 million in 2004 and $2 million in 2003. The net loss retention in all other segments generally remained the same in 2007, 2006 and 2005 with the exception of excess workers’ compensation, which increased from $250,000 in 2005 to approximately $900,000 in 2006 and further increased to $5 million in 2007. The Company recognized favorable loss development in the ocean marine segment in 2007, 2006 and 2005 due in part to the net loss retention increasing in the ocean marine line over the past several years, and the actual loss emergence for the estimated higher net loss retention in those prior accident years was less than we had previously anticipated.

Shock Losses:

A large part of our business is characterized by claims that are of low frequency, but high severity. Estimates of such reserves are sensitive to a few key assumptions made by our claims department. All significant losses are subject to review by our Senior Vice President of Claims and in certain cases the Chief Underwriting Officer and Chief Executive Officer. As such, the estimates for these claims require substantial judgment.

Our level of shock losses or large severity losses (excluding catastrophe losses) increased in 2007 when compared to 2006 and 2005 in the ocean marine segment. This was primarily the result of a $2.5 million cargo loss in 2007. However, severity losses decreased in the inland marine/fire segment in 2007 when compared to 2006 and 2005 and contributed to lower loss ratios in 2007 when compared to 2005 and 2006. During 2007 two large claims occurring in the 2006 accident year contributed $3.0 million of adverse development in the professional liability class.

Loss Reporting Tail:

Policies written on an occurrence basis have a longer loss reporting tail than policies written on a claims made basis. Claims may be reported to the Company after the policy period for those policies written on an occurrence basis, provided that such claims occurred within the policy term. The time between the occurrence of a claim and the reporting of the claim to the Company could be significant and makes the estimation of the ultimate loss more uncertain. Writing new classes of occurrence based policies has created additional uncertainties in the reserve estimation process.

Our assumptions for the loss reporting tail in the other liability line changed with respect to contractor’s liability in 2005. We reached this conclusion after we re-evaluated its loss development factors based upon paid and incurred loss development. As a result, we reported favorable development in years prior to 2002 resulting from a lower than expected emergence of losses attributable to a shorter loss reporting tail than we had originally estimated. The shorter loss reporting tail was the result of a change in the mix of our liability business by deemphasizing policies covering elevator contractor liability and subcontractor liability and focusing more on policies covering general contractors and owner developers. As a result of this change in product mix, we determined that reserves previously established under loss development patterns established for our older book of business were not developing in accordance with the loss emergence from the more recent general contractor’s book. Consequently, we concluded in 2005, that the loss reporting tail would be shorter than we had previously anticipated, and this resulted in approximately $1.2 million in favorable loss development in 2005. While there was no significant loss experience noted in 2006 as a result of this assumption, we did see favorable loss development in 2007 as a result of the emergence of this shorter loss reporting tail.

Frequency of Losses:

The level of frequency of losses in the inland marine/fire segment decreased in 2007 and 2006 when compared to 2005. The number of losses reported in the most recent accident year in the inland marine/fire segment was 140 in 2007 and 139 in 2006 as compared to 178 in 2005.

Loss Estimates:

Our loss estimates for new classes of business, including excess workers’ compensation and professional liability, were derived by employing industry loss ratios, internal actuarial evaluations, as well as by evaluating each class based upon discussions with underwriters. The excess workers’ compensation class recorded $6.2 million in favorable net loss development in 2007 as a result of the novation of substantially all of our 2006 and prior policy year writings written by one of our former agents. The professional liability class was adversely affected by a few shock losses in the 2006 accident year that contributed to adverse development in 2007.

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Our other liability line of business changed substantially in 2002 primarily due to the mix of business written. In 2007, the Company recorded favorable loss development in accident years subsequent to 2002 due in part to the level of paid and reported loss activities. While the initial paid and incurred results indicate the potential for favorable development, if such trends continue in subsequent periods for accident years 2002 and thereafter, we may have additional favorable development to report for those periods. However, we cannot be certain that such favorable trends will continue, and accordingly, our estimate does not yet anticipate the potential for further favorable loss reserve development. We cannot estimate the quantitative impact of this potential favorable or unfavorable development until a subsequent evaluation of loss development in future quarters is made by comparing actual versus expected results.

The assumptions we used in estimating asbestos and environmental liabilities in 2007 and 2006 have remained consistent with 2005. We considered a specific ground up analysis, which reviewed our potential exposure based upon actual policies issued, industry survival ratios and market share statistics per loss settlement. While there were no major changes in net losses noted in 2007 to 2006, gross incurred losses and loss adjustment expenses amounted to $5.9 million and $9.9 million in 2007 and 2006, respectively.

Catastrophe Losses:

Catastrophe losses may be difficult to estimate due to the inability of the insured and claims adjusters to provide an adequate assessment of the overall loss. The difficulties of establishing reserves include the inability to access insured’s premises and certain legal issues surrounding the estimation of the insured loss.

There were no major catastrophes recorded in 2007 and 2006. Our level of catastrophe loss activity was substantial in 2005 due to claims related to Hurricanes Katrina and Rita, which contributed $6.6 million to net losses and loss adjustment expenses incurred in 2005. Cumulative reinsurance reinstatement premium costs related to these losses increased to $16.6 million as of December 31, 2007.

Other than as specifically described above with respect to the change in business mix in the other liability line, we have not identified any key assumptions as of December 31, 2007 that are premised on future emergence that are inconsistent with our historical loss reserve development patterns.

The Company believes that the uncertainty surrounding asbestos/environmental exposures, including issues as to insureds’ liabilities, ascertainment of loss date, definitions of occurrence, scope of coverage, policy limits and application and interpretation of policy terms, including exclusions, the ingenuity of the plaintiff’s bar, legislative initiatives and unpredictable judicial results creates significant variability in determining the ultimate loss for asbestos/environmental related claims. Given the uncertainty in this area, losses from asbestos/environmental related claims may develop adversely and accordingly, management is unable to estimate reasonably likely changes in assumptions that could arise from asbestos/environmental related claims. Accordingly, the Company’s net unpaid loss and loss adjustment expense reserves in the aggregate, as of December 31, 2007, represent management’s best estimate of the losses that arose from asbestos and environmental claims. See “Asbestos and Environmental Reserves”.

In our second category of reserves, we estimate losses for excess workers’ compensation, surety and commercial automobile liability. Since we do not believe we have either the historical experience, or sufficient information about these lines, to quantify the impact of changes in the assumptions we have made in evaluating reserves for losses in this area, we are unable to estimate what the effect would be of any reasonably likely changes in assumptions on these lines of business. Therefore, we provide our best estimate of loss reserves in this category as well.

Our first category of reserves comprises estimates for losses in those classes of business that the company has historically written in the ocean marine segment, inland marine/ fire classes, contractors’ liability class and more recently, the professional liability classes. Losses occurring in these segments are generally characterized by low frequency and high severity, and enjoy the benefit of our multi-tiered reinsurance program. The factors that have caused prior differences in actual versus estimated loss reserves include: changes in net loss retention, changes in loss reporting tail, the level of shock losses, changes in frequency of losses and catastrophe loss estimates. We believe that changes in such factors could occur in future periods as well; however, we are uncertain as to the magnitude of such changes currently.

Accordingly, even though we have adequate historical loss data to evaluate reserves in this area, we are unable to quantify changes in the assumptions we make in estimating these reserves, because they are subject to numerous and interactive variables, and we do not believe that the resultant product would either reflect all reasonably possible outcomes or lend itself to a meaningful presentation. Instead, we calculate the Company’s loss reserves on the basis of management’s best estimate after a review of all historical data.

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For example, a change in the net loss retention by itself could result in a significant upward or downward adjustment of our reserve estimate. But, a change in the net loss retention assumption cannot be considered in isolation; it must be analyzed in light of its interplay with other assumptions including for instance, changes in the frequency of losses and changes in the level of shock losses and their effect on our reinsurance program. While the initial change to the level of net loss retention may result in a potential reserve adjustment, such change may at the same time be influenced by an increase in the frequency of losses. This would depend upon our ability to recover from our reinsurance program, which is a function of whether or not our losses can be aggregated. The combination of the changes in these assumptions may also trigger the exhaustion of one layer of reinsurance and the implication of another layer of reinsurance, with the concomitant result that there would be no change to, or an upward or downward adjustment to our loss reserve estimate. Similarly, we may vary our estimates of catastrophe losses or shock losses, but, because of the interplay between these losses and our reinsurance program, we may not change our estimate of net reserves. While anticipating larger catastrophe losses may have a significant impact on the gross loss reserve level, the effect of that change in assumption at the net level may be negligible, because of the applicability of reinsurance. This was evident in our experience with losses associated with hurricanes Katrina and Rita in 2005. While our combined gross and net loss reserve estimates as of December 31, 2005 were approximately $70.8 million and $6.6 million, respectively, the Company could suffer significant adverse gross loss development in periods after 2005 without making a material adjustment to the net loss reserve level as a result of the operation of the Company’s reinsurance program. Approximately $16 million and $20 million of adverse gross loss development occurred during 2007 and 2006, respectively, for which we determined no adjustment to the net loss level was necessary.

Unpaid losses and loss adjustment expenses for each segment on a gross and net of reinsurance basis as of December 31, 2007 were as follows:

	Gross		Net
	(in thousands)
Ocean marine	$	197,511	$	112,288
Inland marine/fire		22,693		7,795
Other liability		211,182		156,238
Aircraft		125,149		30,084
Total	$	556,535	$	306,405

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

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

In 2006 the Company recorded adverse loss development of approximately $850,000 in the aircraft line of business resulting primarily from losses assumed from the World Trade Center attack which were partially offset by a reduction in reserves relating to the loss sustained at the Pentagon after re-estimating the reserve based upon lower than expected settlements of claims paid during the year. There were no material changes in loss estimates for the WTC Attack in 2007.

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Asbestos and Environmental Reserves

Our insurance subsidiaries are required to record an adequate level of reserves necessary to provide for all known and unknown losses on insurance business written. Our insurance subsidiaries have not had difficulties in maintaining reserves in recent years at aggregate levels which management believes to be adequate based on management’s best estimates, but the loss reserving process is subject to many uncertainties as further described herein.

The difficulty in estimating our reserves is increased because the Company’s loss reserves include reserves for potential asbestos and environmental liabilities. Asbestos and environmental liabilities are difficult to estimate for many reasons, including the long waiting periods between exposure and manifestation of any bodily injury or property damage, difficulty in identifying the source of the asbestos or environmental contamination, long reporting delays and difficulty in properly allocating liability for the asbestos or environmental damage. Legal tactics and judicial and legislative developments affecting the scope of insurers’ liability, which can be difficult to predict, also contribute to uncertainties in estimating reserves for asbestos and environmental liabilities.

The Company participated in the issuance of both umbrella casualty insurance for various Fortune 1000 companies and ocean marine liability insurance for various oil companies during the period from 1978 to 1985. Depending on the calendar year, the insurance pools’ net retained liability per occurrence after applicable reinsurance ranged from $250,000 to $2,000,000. Subsequent to this period, the pools substantially reduced their umbrella writings and coverage was provided to smaller assureds. The Company’s effective pool participation on such risks varied from 11% in 1978 to 59% in 1985. Ocean marine and non-marine policies issued during the past three years also provide some coverage for environmental risks.

At December 31, 2007, the Company’s gross, ceded and net loss and loss adjustment expense reserves for all asbestos/environmental policies amounted to $52.4 million, $41.5 million and $10.9 million, as compared to $55.4 million, $43.2 million and $12.2 million at December 31, 2006.

The Company believes that the uncertainty surrounding asbestos/environmental exposures, including issues as to insureds’ liabilities, ascertainment of loss date, definitions of occurrence, scope of coverage, policy limits and application and interpretation of policy terms, including exclusions renders it difficult to determine the ultimate loss for asbestos/environmental related claims. Given the uncertainty in this area, losses from asbestos/environmental related claims may develop adversely and accordingly, management is unable to reasonably predict the range of possible losses that could arise from asbestos/environmental related claims. Accordingly, the Company’s net unpaid loss and loss adjustment expense reserves in the aggregate, as of December 31, 2007, represent management’s best estimate of the losses that arise from asbestos and environmental claims.

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The following table sets forth the Company’s net loss and loss adjustment expense experience for asbestos/environmental policies for each of the past three years:

	Year ended December 31,
	2007			2006			2005
	(in thousands)
Asbestos/Environmental
Net unpaid losses and loss adjustment expenses (including IBNR) at the beginning of the period	$	12,222		$	12,960		$	12,759
Net incurred losses and loss adjustment expenses		(43	)		576			(237	)
Net paid loss settlements		(766	)		(945	)		638
Net loss adjustment expenses payments (cost of administering claims)		(549	)		(369	)		(200	)
Net unpaid losses and loss adjustment expenses (including IBNR) at end of period	$	10,864		$	12,222		$	12,960

The following sets forth a reconciliation of the number of claims relating to asbestos/environmental policies for each of the past three years:

	Year ended December 31,
	2007			2006			2005
Number of claims pending at beginning of period		401			469			475
Number of claims reported		74			80			96
Number of claims settled/dismissed or otherwise resolved		(91	)		(148	)		(102	)
Number of claims pending at end of period		384			401			469

Claims reported involve a large number of relatively small individual claims of a similar type. Additional asbestos claims continue to be reported to the Company by assureds as a result of claims brought by individuals who do not appear to be impaired by asbestos exposure. There is also an increasing trend in the number of companies seeking bankruptcy protection as a result of asbestos-related liabilities. These bankruptcy proceedings may impact the Company by significantly accelerating and increasing loss payments made by the Company. As a result of these trends, there is a high degree of uncertainty with respect to future exposure from asbestos claims, which may be material to the Company.

Other Reserves

The insurance pools have written coverage for products liability as part of other liability insurance policies issued since 1985. The insurance pools’ maximum loss per risk is generally limited to $1,000,000 and the Company’s participation percentage ranges from 59% to 100% based upon policy year. The Company believes that its reserves with respect to such policies are adequate to cover the ultimate resolution of all such products liability claims.

Loss Reserve Table

The following table shows changes in the Company’s reserves in subsequent years from prior years’ reserves. Each year the Company’s estimated reserves increase or decrease as more information becomes known about the frequency and severity of losses for past years. As indicated in the chart, a “redundancy” means the original estimate of the Company’s consolidated liability was higher than the current estimate, while a “deficiency” means that the original estimate was lower than the current estimate.

The first line of the table presents, for each of the last ten years, the estimated liability for net unpaid losses and loss adjustment expenses at the end of the year, including IBNR losses. The estimated liability for net unpaid losses and loss adjustment expenses is determined quarterly and at the end of each calendar year.

Below this first line, the first triangle shows, by year, the cumulative amounts of net loss and loss adjustment expenses paid as of the end of each succeeding year, expressed as a percentage of the original estimated net liability for such amounts.

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The second triangle sets forth the re-estimates in later years of net incurred losses, including net payments, as a percentage of the original estimated net liability for net unpaid losses and loss adjustment expenses for the years indicated. Percentages less than 100% represent a redundancy, while percentages greater than 100% represent a deficiency.

The net cumulative redundancy (deficiency) represents, as of December 31, 2007, the aggregate change in the estimates over all prior years. The changes in re-estimates have been reflected in results from operations over the periods shown.

The gross cumulative redundancy (deficiency) of unpaid losses and loss adjustment expenses represents the aggregate change in the estimates of such losses over all prior years starting with the 1997 calendar year.

The Company calculates its loss reserves on the basis of management’s best estimate and does not calculate a range of loss reserve estimates. In 9 out of the past 10 years, the Company has recorded redundancies in its net loss reserve position. The Company’s considered view, in light of this history, is that management is highly sensitive to the nuances of the Company’s lines of business and that establishing net loss reserves based upon management’s best estimate gives the Company greater assurance that its net loss reserves are appropriate. It is the Company’s position that calculating a range of loss reserve estimates may not reflect all the volatility between existing loss reserves and the ultimate settlement amount. The low frequency and high severity of many of the risks we insure coupled with the protracted settlement period make it difficult to assess the overall adequacy of our loss reserves. Based upon the foregoing, the Company believes that its history of establishing adequate net loss reserves using its best estimate compares favorably with industry experience.

The Company considers a variety of factors in its estimate of loss reserves. These elements include, but are not necessarily limited to, the level of catastrophe losses incurred during the period, the length of the reporting tail (i.e. occurrence versus claims made coverage), the nature of the risk insured (i.e. property versus liability), the level of net retention per loss and the emergence of identifiable trends in the statistical analysis of paid and incurred loss data. Case loss reserves are determined by evaluating reported claims on the basis of the type of loss involved, knowledge of the circumstances surrounding the claim and the policy provisions relating to the type of loss. IBNR losses are estimated on the basis of statistical information with respect to the probable number and nature of losses which have not yet been reported to the Company. The Company uses various actuarial methods in calculating IBNR including an evaluation of IBNR by the use of historical paid loss and incurred data utilizing the Bornheutter-Ferguson method.

Since January 1, 2001, the Company has entered into a number of new specialty lines of business including professional liability, commercial real estate, employment practices liability, surety, excess workers’ compensation and commercial automobile insurance. Because of the Company’s limited history in these new lines, it may impact management’s ability to appropriately reserve for the ultimate loss associated with these new lines. As such, the Company is more likely to react quickly to unfavorable trends, and less likely to respond quickly to favorable development until subsequent confirmation of the favorable loss trend. Management considers many factors when estimating the ultimate loss ratios for these various classes, including industry loss ratios and anticipated loss ratios based upon known experience.

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	Year Ended December 31,
	1997			1998			1999			2000			2001			2002			2003			2004			2005			2006			2007
	(Dollars in thousands)
Estimated Liability for Net Unpaid Losses and Loss Adjustment Expenses
		222,335			213,589			196,865			199,685			210,953			208,979			242,311			255,479			289,217			292,941			306,405
Cumulative Amount of Net Losses and Loss Adjustment Expenses Paid as a Percentage of Original Estimate:
1 Year Later		19	%		20	%		24	%		28	%		30	%		8	%		18	%		17	%		25	%		22	%
2 Years Later		32	%		35	%		39	%		56	%		30	%		24	%		27	%		33	%		38	%
3 Years Later		43	%		43	%		53	%		64	%		41	%		32	%		38	%		45	%
4 Years Later		49	%		51	%		58	%		70	%		47	%		43	%		49	%
5 Years Later		54	%		55	%		63	%		72	%		55	%		53	%
6 Years Later		57	%		59	%		64	%		79	%		62	%
7 Years Later		61	%		60	%		70	%		84	%
8 Years Later		61	%		65	%		74	%
9 Years Later		66	%		68	%
10 Years Later		69	%
Net Liability Re-estimated including Cumulative Net Paid Losses and Loss Adjustment Expenses as a Percentage of Original Estimate:
1 Year Later		91	%		94	%		96	%		105	%		102	%		99	%		94	%		95	%		97	%		95	%
2 Years Later		87	%		87	%		94	%		108	%		101	%		94	%		89	%		90	%		91	%
3 Years Later		83	%		84	%		95	%		104	%		96	%		90	%		86	%		88	%
4 Years Later		81	%		85	%		91	%		103	%		94	%		88	%		86	%
5 Years Later		81	%		82	%		92	%		102	%		92	%		90	%
6 Years Later		80	%		83	%		90	%		102	%		94	%
7 Years Later		81	%		82	%		90	%		103	%
8 Years Later		81	%		82	%		91	%
9 Years Later		81	%		82	%
10 Years Later		81	%
Net Cumulative		41,382			37,635			17,461			(6,169	)		13,405			20,670			32,848			29,952			24,889			13,820
Redundancy/(Deficiency)
Gross Unpaid		388,402			401,584			425,469			411,267			534,189			516,002			518,930			503,261			588,865			579,179			556,535
Losses and Loss Adjustment Expenses
Reinsurance		166,067			187,995			228,604			211,582			323,236			307,023			276,619			247,782			299,648			286,238			250,130
Recoverable on Unpaid Losses and Loss Adjustment Expenses
Reserve		430,041			451,902			465,380			474,302			573,949			506,468			484,596			470,173			596,696			561,591
Re-estimated Gross
Reserve		249,088			275,948			285,975			268,448			376,401			318,159			275,133			244,646			332,367			282,470
Re-estimated Reinsurance Recoverable
Gross Cumulative		(41,641	)		(50,318	)		(39,911	)		(63,035	)		(39,760	)		9,534			34,334			33,088			(7,831	)		17,588
Redundancy/(Deficiency)

The net loss reserve deficiency reported for the 2000 calendar year reflects adverse development from the Company’s operations in MMO London due to higher than expected claim frequencies and the emergence of longer than expected loss development patterns. MMO London operations were placed into runoff in 2001. Also contributing to the increase were provisions made for insolvent or financially impaired reinsurers and adverse development from the Company’s other liability line reflecting umbrella exposures. The 2000 calendar year reported deficiency was partially offset by favorable development in the ocean marine line of business.

Gross loss reserve deficiencies were reported in six out of ten years. Even though gross loss reserve deficiencies were reported in those years, the Company reported redundancies in net loss reserves in all but one year. The gross loss reserve deficiencies were brought about primarily by adverse development from MMO London in 1998-2001 and adverse gross loss development in its umbrella (other liability) losses as a result of the additional development of asbestos losses occurring from the 1970s and 1980s. Asbestos and environmental liabilities are difficult to estimate

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for many reasons, including the long waiting periods between exposure and manifestation of any bodily injury or property damage, difficulty in identifying the source of the asbestos or environmental contamination, long reporting delays and difficulty in properly allocating liability for the damage. Legal tactics and judicial and legislative developments affecting the scope of insurers’ liability, which can be difficult to predict, also contribute to uncertainties in estimating reserves for asbestos and environmental liabilities. However, much of this gross loss reserve deficiency in the other liability line resulted in smaller net deficiencies due to a substantial amount of the gross loss reserve being reinsured. The smaller net deficiencies were more than offset by redundancies occurring in the Company’s ocean marine line. In addition during 1998-2000, a few large severity losses in the Company’s core lines also contributed to adverse gross loss development. These losses were also substantially reinsured and thereby resulted in an insignificant impact on net loss development. The adverse gross loss development in 2005 is largely attributable to additional gross loss development on hurricanes Katrina and Rita as a result of our insured’s reassessment of the impact of these hurricane losses. All of the gross development from hurricanes Katrina and Rita is reinsured and results in an insignificant impact on net development.

The favorable development of net incurred losses for the 2001 year reflect reductions made in gross and net reserves of approximately $15.5 million and $7.5 million, respectively, as a result of favorable revisions of loss reserves relating to the terrorist attacks of September 11, 2001 on the Pentagon and the hijacked airliner that crashed in Pennsylvania.

The following table provides a reconciliation of the Company’s consolidated liability for losses and loss adjustment expenses at the beginning and end of 2007, 2006 and 2005:

	Year ended December 31,
	2007			2006			2005
	(In thousands)
Net liability for losses and loss adjustment expenses at beginning of year	$	292,941		$	289,217		$	255,479
Provision for losses and loss adjustment expenses occurring in current year		103,664			93,803			105,537
Increase (decrease) in estimated losses and loss adjustment expenses for claims occurring in prior years (1)		(13,820	)		(7,667	)		(13,247	)
Net loss and loss adjustment expenses Incurred		89,844			86,136			92,290
Less:
Losses and loss adjustment expense payments for claims occurring during:
Current year		12,136			9,641			15,453
Prior years		64,244			72,771			43,099
		76,380			82,412			58,552
Net liability for losses and loss adjustment expenses at year end		306,405			292,941			289,217
Ceded unpaid losses and loss adjustment expenses at year end		250,130			286,238			299,648
Gross unpaid losses and loss adjustment expenses at year end	$	556,535		$	579,179		$	588,865

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(1)	The adjustment to the consolidated liability for losses and loss adjustment expenses for losses occurring in prior years reflects the net effect of the resolution of losses for other than full reserve value and subsequent readjustments of loss values.
	The $13.8 million decrease in 2007 was largely caused by favorable development in the 2003-2005 accident years for the ocean marine line, which generally resulted from favorable loss trends in the risk class. Another factor contributing to the decrease was $6.2 million recorded on the novation of excess workers’ compensation policies in the other liability line for accident years 2004-2006,which was partially offset by adverse development of $3.0 million in the professional liability class as a result of two large claims in the 2006 accident year. The inland marine/fire segment also reported favorable loss development partially due to lower reported severity losses. The favorable development in 2007 was partially offset by approximately $3.3 million in adverse development from the runoff aviation class.
	The $7.7 million decrease in 2006 primarily reflected favorable development in the 2005 and 2004 accident years of ocean marine due in part to lower settlements of case reserve estimates, higher than expected receipts of salvage and subrogation recoveries and lower emergence of actual versus expected losses. Partially offsetting this benefit was adverse development in the 2005 and 2004 accident years in both of the commercial auto and surety classes as a result of higher than initially anticipated loss ratios. 2004 was the first full year of writing commercial auto and surety premiums.
	The $13.2 million decrease in 2005 primarily reflected the recognition of favorable development in the ocean marine line of business, particularly in the 2001 to 2003 accident years. The Company’s net loss retention per risk, or occurrence, increased substantially in the ocean marine line during the 2001-2003 accident years from previous years. Our net loss retentions in the ocean marine line of business for the 1998, 1999 and 2000 years were $50,000, $50,000 and $100,000, respectively. This compared to net loss retentions in the ocean marine line of business for the 2001, 2002 and 2003 years of $1,500,000, $2,000,000 and $2,000,000, respectively. The Company estimated higher IBNR amounts in the 2001 to 2003 accident years to correspond to the larger net loss retentions. Our subsequent analysis of our 2004 actual loss development, however, indicated a trend, which continued in 2005, that the actual loss emergence for the larger net retention years of 2001 to 2003 was not developing as we had originally anticipated. These results compared favorably with those obtained through a statistical evaluation of losses using the Bornheutter-Ferguson, paid and incurred methods. The other liability line also reported favorable development in years prior to 2002 resulting from a lower than expected emergence of losses attributable to a shorter loss reporting tail than originally estimated. Further contributing to the increase was the favorable development of aircraft loss reserves largely attributable to the 2001 accident year. The favorable loss development in 2005 was partially offset by net adverse loss development resulting from provisions made for insolvent, financially impaired reinsurers and commuted reinsurance contracts, partly as a result of an increase in ceded incurred losses relating to a few specific asbestos claims.

The principal differences between the consolidated liability for unpaid losses and loss adjustment expenses as reported in the Annual Statement filed with state insurance departments in accordance with statutory accounting principles and the liability based on generally accepted accounting principles shown in the above tables are due to the Company’s assumption of loss reserves arising from former participants in the insurance pools, and reserves for uncollectible reinsurance. The loss reserves shown in the above tables reflect in each year salvage and subrogation accruals of approximately 1% to 6% of case reserves and IBNR. The estimated accrual for salvage and subrogation is based on the line of business and historical salvage and subrogation recovery data. Under neither statutory nor generally accepted accounting principles are loss and loss adjustment expense reserves discounted to present value.

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The following table sets forth the reconciliation of the consolidated net liability for losses and loss adjustment expenses based on statutory accounting principles for the domestic insurance companies to the consolidated amounts based on accounting principles generally accepted in the United States of America (“GAAP”) as of December 31, 2007, 2006 and 2005:

	Year ended December 31,
	2007		2006		2005
	(In thousands)
Net liability for losses and loss adjustment expenses reported based on statutory accounting principles	$	289,912	$	275,296	$	267,955
Liability for losses and loss adjustment expenses assumed from two former pool members (excludes $3,370, $3,379 and $3,000 at December 31, 2007, 2006 and 2005, accounted for in the statutory liability for losses and loss adjustment expenses)		7,667		9,438		11,609
Other, net		8,826		8,207		9,653
Net liability for losses and loss adjustment expenses reported based on GAAP		306,405		292,941		289,217
Ceded liability for unpaid losses and loss adjustment expenses		250,130		286,238		299,648
Gross liability for unpaid losses and loss adjustment expenses	$	556,535	$	579,179	$	588,865

Regulation

The Company’s domestic insurance companies are regulated by the insurance regulatory agencies of the states in which they are authorized to do business. New York Marine is licensed to engage in the insurance business in all states. Gotham is permitted to write excess and surplus lines insurance on a non-admitted basis in all states other than New York. Gotham is licensed to engage in the insurance business in the state of New York and, as such, cannot write excess and surplus business in that state. Southwest Marine is licensed to engage in the insurance business in Arizona as well to engage in surety business in six additional states and it is authorized to write excess and surplus lines insurance in New York.

Many aspects of the Company’s insurance business are subject to regulation. For example, minimum capitalization must be maintained; certain forms of policies must be approved before they may be offered; reserves must be established in relation to the amounts of premiums earned and losses incurred; and, in some cases, schedules of premium rates must be approved. In addition, state legislatures and state insurance regulators continually re-examine existing laws and regulations and may impose changes that materially adversely affect the Company’s business.

The domestic insurance company subsidiaries also file statutory financial statements with each state in the format specified by the NAIC. The NAIC provides accounting guidelines for companies to file statutory financial statements and provides minimum solvency standards for all companies in the form of risk-based capital requirements. The authorized control level of Risk Based Capital for New York Marine, Gotham and Southwest were $36.1 million, $4.9 million and $0.6 million at December 31, 2007, respectively. The policyholders’ surplus (the statutory equivalent of net worth) of each of the domestic insurance companies is above the minimum amount required by the NAIC.

The NAIC’s project to codify statutory accounting principles was approved by the NAIC in 1998. The purpose of codification was to provide a comprehensive basis of accounting for reporting to state insurance departments. The approval of codified accounting rules included a provision for the state insurance commissioners to modify such accounting rules by practices prescribed or permitted for insurers in their state. However, there were no differences reported in the statutory financial statements for the years ended 2007, 2006 and 2005 between the prescribed state accounting practices and those approved by the NAIC.

The insurance industry recently has been the focus of certain investigations regarding insurance broker and agent compensation arrangements and other practices. The Attorney General of New York State as well as other regulators have made investigations into such broker and agent contingent commission and other sales practice arrangements. Although the Company has not been notified that it is, nor does it have any reason to believe that it is a target of these investigations, we did review our existing arrangements with our brokers and reinsurers and found that we did not engage in any conduct that we believe is the subject of these investigations.

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New York Marine and Gotham are subject to examination by the Insurance Department of the State of New York. The examinations of New York insurance companies normally occur every three to five years. Their most recent report on examinations were for the year ended December 31, 2000. There were no significant adjustments which resulted from those examinations. New York Marine’s and Gotham’s financial statements for the years 2001 through 2005 are currently under examination by the Insurance Department of the State of New York, and we expect that a report of these examinations will be issued in 2008. Southwest Marine is subject to examination by the Arizona Department of Insurance, but because it was only recently authorized to engage in the insurance business in Arizona, we do not expect it to be examined for several years.

The following table shows, for the periods indicated, the Company’s consolidated domestic insurance companies’ statutory ratios of net premiums written (gross premiums less premiums ceded) to policyholders’ surplus:

	Year ended December 31,
	2007		2006		2005		2004		2003
	(Dollars in thousands)
Net premiums written	$	167,853	$	154,860	$	133,892	$	137,128	$	98,307
Policyholders’ surplus		203,162		197,289		186,848		181,633		186,325
Ratio		.83 to 1		.78 to 1		.72 to 1		.75 to 1		.53 to 1

While there are no statutory requirements applicable to the Company which establish permissible premium to surplus ratios, guidelines established by the NAIC provide that the statutory net premiums written to surplus ratio should be no greater than 3 to 1. The Company is well within those guidelines.

NYMAGIC’s principal source of income is dividends from its subsidiaries, which are used for payment of operating expenses, including interest expense, loan repayments and payment of dividends to NYMAGIC’s shareholders. The maximum amount of dividends that may be paid to NYMAGIC by the domestic insurance company subsidiaries is regulated by the states in which the Company’s insurance subsidiaries are domiciled. Within these limitations, the maximum amount which could be paid to the Company out of the domestic insurance companies’ surplus to the holding company was approximately $20.3 million as of December 31, 2007.

The Company’s subsidiaries have paid dividends to the Company of $14.5 million, $13.2 million and $8.5 million for the years ended December 31, 2007, 2006 and 2005, respectively. There were no extraordinary dividends paid during this period.

Each of New York Marine and Gotham is required to invest an amount equal to the greater of its minimum capital or its minimum policyholder surplus in obligations of the United States, obligations of the State of New York or its political subdivisions, obligations of other states and obligations secured by first mortgage loans. Sixty percent of that amount is required to be invested in obligations of the United States or obligations of the State of New York or its political subdivisions. In addition, each of New York Marine and Gotham is required to invest an amount equal to 50% of the aggregate amount of its unearned premium, loss and loss adjustment expense reserves in the following categories: cash, government obligations, obligations of U.S. institutions, preferred or guaranteed shares of U.S. institutions, loans secured by real property, real property, certain permitted foreign investments and development bank obligations. Investments in the foregoing categories are also subject to detailed quantitative and qualitative limitations applicable to individual categories and to an overall limitation that no more than 10% of each insurance company’s assets may be invested in any one institution. After each of New York Marine and Gotham invests an amount equal to 50% of its unearned premium, loss and loss adjustment reserves in the foregoing investments, each of New York Marine and Gotham may invest in equity and partnership interests, securities issued by registered investment companies and other otherwise impermissible investments, subject to applicable laws and regulatory requirements. Southwest Marine is also subject to certain investment limitations imposed by the state of Arizona, but invests in U.S. Treasury securities and high grade short-term securitites.

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Several states have established guaranty funds which serve to provide the assured with payments due under policies issued by insurance companies that have become insolvent. Insurance companies that are authorized to write in these states are assessed a fee, normally based on direct writings in a particular state, to cover any payments made or to be made by guaranty funds. The Company’s insurance subsidiaries are subject to such assessments in the various states. The amounts paid for such assessments were approximately $230,000, $330,000 and $194,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

The Terrorism Risk Insurance Act of 2002 (“TRIA”) became effective on November 26, 2002 and has been extended through December 31, 2014. TRIA applies to all licensed and surplus lines insurers doing business in the United States, including Lloyd’s and foreign insurers, who are writing commercial property or casualty insurance. Under TRIA, insurers are required to offer terrorism insurance for most domestic property, casualty, workers compensation, inland marine and ocean marine and energy risks, as well as U.S. Flag vessels and aircraft on a worldwide basis. In return, the federal government will provide the insurance industry with assistance in the event there is a loss from certain acts of terrorism.

Each insurer has an insurer deductible under TRIA, which is based upon the prior year’s direct commercial earned premiums that are subject to the Act. The professional liability, commercial automobile, surety and reinsurance lines are not subject to the act. For 2007, that deductible was 20% of direct commercial earned premiums in 2006. For the years 2008 through 2014, the insurer’s deductible is 20% of the prior year’s direct earned premium and the federal government will reimburse the insurer for 85% of insured losses that exceed the deductible. The Company’s insurer deductible under TRIA was approximately $21 million in 2005, $25 million in 2006 and $24 million in 2007.

TRIA will assist the Company to mitigate exposure in the event of loss from an act of terrorism. In addition, part of the insurer deductible might be satisfied by recoveries under the Company’s existing reinsurance program. In 2005 the Company further minimized its potential loss from an act of terrorism by purchasing reinsurance protection for a one year period covering a limit of $12,000,000 in excess of the first $4,000,000 retained losses to the Company arising from terrorist acts. The Company elected not to purchase such reinsurance for 2006 or 2007.

Investment Policy

The Company follows an investment policy, which is reviewed quarterly and revised periodically by management and is approved by the Finance Committee of the Board of Directors. The investments of the Company’s subsidiaries conform to the requirements of the applicable state insurance laws and regulations, as well as the National Association of Insurance Commissioners (the “NAIC”) (See “Regulations”). The Company recognizes that an important component of its financial results is the return on invested assets. As such, management establishes the appropriate mix of traditional fixed income securities and other investments (including equity and equity-type investments; e.g. hedge funds) to maximize rates of return while minimizing undue reliance on low quality securities. Overall investment objectives are to (i) seek competitive after-tax income and total return as appropriate, while being cognizant of the impact certain investment decisions may have on the Company’s shareholders’ equity, (ii) maintain, in aggregate, medium to high investment grade fixed income asset quality, (iii) ensure adequate liquidity and marketability to accommodate operating needs, (iv) maintain fixed income maturity distribution commensurate with the Company’s business objectives and (v) provide portfolio flexibility for changing business and investment climates. The Company’s investment strategy incorporates guidelines (listed below) for asset quality standards, asset allocations among investment types and issuers, and other relevant criteria for the investment portfolio. In addition, invested asset cash flows, from both current income and investment maturities, are structured after considering the amount and timing of projected liabilities for losses and loss adjustment expenses under the Company’s insurance subsidiaries’ insurance policies using actuarial models.

The investment policy for NYMAGIC as of December 31, 2007 was as follows:

Liquidity Portfolio: The Company may invest, without limitation, in liquid instruments. Investments in the Liquidity Portfolio may include, but are not necessarily limited to, cash, direct obligations of the U.S. Government, repurchase agreements, obligations of government instrumentalities, obligations of government sponsored agencies, certificates of deposit, prime bankers acceptances, prime commercial paper, corporate obligations and tax-exempt obligations rated Aa3/AA- or MIG2 or better. The liquidity portfolio shall consist of obligations with one year’s duration or less at the time of purchase and will be of sufficient size to accommodate the Company’s expected cash outlays for the immediate six-month period.

Fixed Income Portfolio: Obligations of the U.S. Government, its instrumentalities and government-sponsored agencies will not be restricted as to amount or maturity. Asset backed securities, corporate obligations, tax-exempt securities and preferred stock investments with sinking funds will not be restricted as to maturity. At least 50% of the fixed income and liquidity portfolio, collectively, shall be rated at minimum Baa2 by Moody’s or BBB by S&P.

Equity and Equity-Type Securities (Hedge Funds): Investments in this category (including convertible securities) may be made without limitation. With respect to Hedge Fund investments, no more than 10% of assets allocated to hedge funds shall be invested in any single fund without the prior approval of the Finance Committee of the Board of Directors. Similarly, no more than 40% of assets allocated to hedge funds shall be concentrated in any one strategy without the prior approval of the Finance Committee of the Board of Directors.

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The investment policy for New York Marine as of December 31, 2007 was as follows:

Liquidity Portfolio: At least $20,000,000 will be maintained in liquid funds. Investments in the liquidity portfolio shall be limited to cash, direct obligations of the U.S. Government, repurchase agreements, obligations of government instrumentalities, obligations of government sponsored agencies, certificates of deposit, prime bankers acceptances, prime commercial paper, corporate obligations and tax-exempt obligations rated Aa3/AA- or MIG2 or better by Standard & Poor’s (“S&P”) or Moody’s. No investment in the liquidity portfolio will exceed a duration of one year from the time of purchase. No investment in the liquidity portfolio will exceed 5% of policyholders’ surplus at the time of purchase as last reported to the New York State Insurance Department except for direct obligations of the U.S. Government or its instrumentalities or repurchase agreements collateralized by direct obligations of the U.S. Government or its instrumentalities in which case there will be no limit.

Fixed Income Portfolio: Obligations of the U.S. Government, its instrumentalities, and government sponsored agencies will not be restricted as to amount or maturity. At least 75% of the corporate and tax-exempt investments in the fixed income portfolio will be restricted to those obligations rated, at a minimum, Baa3 by Moody’s or BBB- by S&P. For purposes of this calculation, the liquidity portfolio also will be included. Concentration will not exceed 5% of policyholder’s surplus at the time of purchase as last reported to the New York State Insurance Department. However, individual investments in floating rate super senior mortgages rated AAA by S&P, will not exceed 15% of policyholders’ surplus and collectively will not exceed 50% of total invested assets. For those securities with fixed interest rates, maturities will not exceed 30 years from date of purchase. At least 75% of the investments in asset backed securities shall similarly be rated, at a minimum, Baa3 by Moody’s or BBB- by S&P. Individual issues will be restricted to 5% of policyholders’ surplus at the time of purchase as last reported to the New York State Insurance Department. For those securities with fixed interest rates, maturities will not exceed 30 years from date of purchase. At least 75% of preferred stock investments with sinking funds will, at a minimum, be rated Baa3 by Moody’s or BBB- by S&P. Individual issues will be limited to 5% of policyholder’s surplus. Individual issues will be limited to 5% of policyholders’ surplus. All individual issues of Fannie Mae and Freddie Mac preferred stocks shall not exceed 10% of policyholders’ surplus. Prior notice to the Company is required in the event of a planned sale of a security in a loss position that exceeds 10% of its cost.

Equity and Equity-Type Securities (Hedge Funds): Investments in this category (including convertible securities) will not exceed in aggregate 50% of policyholders’ surplus or 30% of total investments whichever is greater. Equity investments in any one issuer will not exceed 5% of policyholders’ surplus at the time of purchase as last reported to the New York State Insurance Department. Investments in any individual hedge fund will not exceed 5% of policyholders’ surplus. For the purposes of this 5% limitation, in the event that an individual hedge fund is comprised of a pool (basket) of separate and distinct hedge funds, then this 5% limitation will apply to the individual funds within the pool (or basket).

Subsidiaries

New York Marine’s investments in subsidiary companies are excluded from the requirements of New York Marine’s investment policy.

The investment policy of Gotham is identical to that of New York Marine, except that at least $5,000,000 will be maintained in the liquidity portfolio. The investment policy for Southwest Marine is that it is authorized to invest only in investment grade publicly traded securities.

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The following sets forth the allocation of our investment portfolio as of the dates indicated:

			Average							Average
	December 31, 2007		S&P Rating		Percent			December 31, 2006		S&P Rating		Percent
Fixed maturities
Available for Sale (Fair Value):
U.S. Treasury securities	$	14,335,541	AAA			2.04	%	$	11,042,269	AAA			1.66	%
Municipal obligations		7,810,318		A1		1.11	%		7,802,878		A1		1.17	%
Corporate securities		5,853,942	BB+			0.83	%		12,138,485	BBB			1.83	%
Mortgage-backed securities		134,890,799	AAA			19.25	%		296,582,893	AAA			44.61	%
Subtotal	$	162,890,600	AAA			23.23	%	$	327,566,525	AAA			49.27	%
Trading (Fair Value):
Municipal obligations		70,243,560	AA+			10.02	%		—				—
Commercial middle market debt		8,293,725		B+		1.18	%		—				—
Total fixed maturities	$	241,427,885	AA+			34.43	%	$	327,566,525	AAA			49.27	%
Equity securities trading (Fair Value):
Preferred stock		66,325,265	AA-			9.46	%		—				—
Short-term investments (at Cost)		165,000	AAA			0.02	%		136,601,455	AAA			20.55
Cash		204,913,343				29.23	%		18,379,401				2.76	%
Total fixed maturities, equity securities, cash and short-term investments	$	512,831,493				73.14	%	$	482,547,381				72.58	%
Limited partnership hedge funds (at Equity)		188,295,547				26.86	%		182,324,313				27.42	%
Total investment portfolio	$	701,127,040				100.00	%	$	664,871,694				100.00	%

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Details of the mortgage-backed securities portfolio as of December 31, 2007 are presented below:

					Average		Average
					Underlying		FICO
					Loan to		Credit		Moody’s	S&P
Security description	Issue date		Fair value		Value % (1)		Score (1)		Rating	Rating
American Home Mortgage Assets		7/1/2006	$	20,220,609		88.80		706	AAA	AAA
Bear Stearns Mortgage Funding		9/29/2006		12,921,619		83.30		710	AAA	AAA
Countrywide Alt Loan Trust A1		11/1/2005		13,001,835		82.60		697	AAA	AAA
Countrywide Alternative Loan Trust		12/1/2005		14,083,927		81.70		699	AAA	AAA
Residential Accredit Loans, Inc.		10/28/2005		12,608,860		78.70		704	AAA	AAA
Residential Accredit Loans, Inc.		12/1/2005		15,836,094		82.50		700	AAA	AAA
Washington Mutual		12/21/2005		11,607,434		79.10		715	AAA	AAA
Washington Mutual		7/1/2006		17,288,400		79.20		731	AAA	AAA
Washington Mutual 2006-AR13 1A		9/1/2006		17,322,021		76.20		729	AAA	AAA
			$	134,890,799

(1) At issue date

The Company has investments in residential mortgage backed securities amounting to $135 million at December 31, 2007. There were no unrealized investment losses on such securities at December 31, 2007. The Company recorded $6.5 million in declines in fair value considered to be other-than-temporary on such securities in 2007. These securities are the highest tranche in their credit structure and are commonly referred to as “super senior” residential mortgage backed securities. These super senior securities, consisting of nine “Alt A” mortgage securities, have floating interest rates and are rated AAA/Aaa by S&P/Moody’s. “Alt A” securities are residential home loans made to individuals that maintain credit scores similar to those individuals receiving prime loans, but provide less than full documentation required for a prime loan. The fair value of each security is provided by pricing services or security dealers. There has been considerable amount of turmoil in the U.S. housing market in 2007 and 2008, which has led to market declines in such securities. The markets for these types of securities can be illiquid and, therefore, the price obtained on these securities is subject to change, depending upon the underlying market conditions of these securities. We may be subject to a large degree of variability in pricing on such securities that can have a material effect on the Company.

As of March 12, 2008, the fair value of these super senior securities has declined by an additional $30 million before taxes. The decrease in the fair value of such securities is primarily the result of technical factors including the distressed sale of similar type securities by hedge funds and other large institutions.

Relationship with Mariner Partners, Inc.

The Company’s investments are monitored by management and the Finance Committee of the Board of Directors. The Company entered into an investment management agreement with Mariner Partners, Inc. (“Mariner”) effective October 1, 2002 that was amended and restated on December 6, 2002. Mariner is an investment management company founded by William J. Michaelcheck, a member of our Board of Directors. Mr. Michaelcheck is the beneficial owner of a substantial amount of the stock of Mariner. One of Mariner’s wholly-owned subsidiaries, Mariner Investment Group, Inc., which we refer to as the Mariner Group, was founded in 1992 and, together with its affiliates, provides investment management services to investment funds, reinsurance companies and a limited number of institutional managed accounts. The Mariner Group has been a registered investment adviser since May 2003. As described in more detail under “Mariner Investment Management Agreement,” under the terms of the agreement, Mariner manages the Company’s, New York Marine’s and Gotham’s investment portfolios. Fees to be paid to Mariner are based on a percentage of the investment portfolio as follows: .20% of liquid assets, .30% of fixed maturity investments and 1.25% of hedge fund (limited partnership) investments. Southwest Marine entered into an investment management agreement, the substantive terms of which are identical to those set forth above, with the Mariner Group, effective March 1, 2007. In addition to Mr. Michaelcheck, George R. Trumbull, Chairman, and a director of the Company, A. George Kallop, President and Chief Executive Officer and a director of the Company, and William D. Shaw, Jr., Vice Chairman and a director of the Company, are also associated with Mariner.

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Mariner also entered into a voting agreement with Mark W. Blackman, Blackman Investments, LLC (now Lionshead Investments, LLC) and certain trusts and foundations affiliated with Louise B. Tollefson, of which Robert G. Simses, a director of the Company, is trustee, on February 20, 2002. As described in more detail under “Voting Agreement,” Mariner, with the approval of two of the three voting agreement participating shareholders, is generally authorized to vote all of the common shares covered by the voting agreement, which constituted approximately 15.5% of the Company’s issued and outstanding shares of common stock as of March 1, 2008.

The voting agreement also gives Mariner the right to purchase up to 1,350,000 shares of the Company’s common stock from the voting agreement participating shareholders. The option exercise price per share is based on the date the option is exercised. At the time the voting agreement was signed, the option exercise price was $19.00, with the exercise price increasing $0.25 per share every three months, subject to deduction for dividends paid. The exercise price of the option as of March 1, 2008 was $23.66. Generally, Mariner’s option will expire 30 days after the termination of the voting agreement, which is scheduled to terminate on December 31, 2010, if not terminated earlier.

Voting Agreement

On February 20, 2002, shareholders who are affiliated with the Blackman/Tollefson family entered into a voting agreement with Mariner which affected approximately 15.5% of the voting power of NYMAGIC as of March 1, 2008.

The shares subject to the voting agreement were originally held by John N. Blackman, Sr., who founded the Company in 1972 and died in 1988. The shareholders who are parties to the voting agreement are either heirs of Mr. Blackman, whom we refer to as our founder, or entities established or controlled by them. Three of those shareholders are designated in the voting agreement as “participating shareholders” and have the specific rights described below. The participating shareholders are as follows:

• Mark W. Blackman, a son of our founder and Louise B. Tollefson, is a participating shareholder in his individual capacity. He was a member of our Board of Directors from 1979 until May 2004 and served as our President from 1988 to 1998. He has been our Chief Underwriting Officer since June 2002 and our Executive Vice President since September 2005.

• John N. Blackman, Jr., a son of our founder and Louise B. Tollefson, acts as a participating shareholder in his dual capacity as controlling member of Lionshead Investments LLC and co-trustee of the Blackman Charitable Remainder Trust dated April 1, 2001. He was a member of our Board of Directors from 1975 until May 2004 and served as Chairman of the Board from 1988 to 1998.

• Robert G. Simses acts as a participating shareholder in his capacity as sole trustee of the Louise B. Tollefson 2000 Florida Intangible Tax Trust dated December 12, 2000 and the Louise B. Blackman Tollefson Family Foundation dated March 24, 1998. We refer to these trusts and foundations as the Tollefson trusts. The settlor of these trusts, Louise B. Tollefson, is the former wife of our founder and was a member of our Board of Directors from 1986 to 2001. Mr. Simses has been a member of our Board of Directors since 2001. He is also Managing Partner of the law firm of Simses & Associates and President and Chief Operating Officer of The William H. Pitt Foundation Inc.

Amendments to the Voting Agreement

The voting agreement provides that it may be amended or extended by the unanimous written consent of the participating shareholders and Mariner. The voting agreement was amended on January 27, 2003 to extend the duration of the agreement from February 15, 2005 to February

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15, 2007 in order to provide Mariner with additional time to improve the performance of NYMAGIC, and in order to allow for the appointment of an eleventh director and David W. Young was chosen for this newly created Board position. Mr. Young is affiliated with Conning Capital Partners VI, L.P., which owns 600,000 shares of our common stock and options to purchase an additional 300,000 shares of our common stock and which we refer to as Conning. The voting agreement was further amended on March 12, 2003 to allow for the appointment of a twelfth director and John T. Baily was chosen for this newly created Board position. In addition, as discussed under “Transferability of NYMAGIC Shares,” a limited waiver was agreed with respect to certain transferability restrictions.

Following the sale of common stock in December 2003 by certain shareholders that are parties to the voting agreement, the Company was no longer a “controlled company” as defined in the New York Stock Exchange Listed Company Manual. Accordingly, the Company was required to have a majority of independent directors by December 16, 2004. In order to permit the Company to comply with this requirement certain provisions of the voting agreement relating to the nomination of directors and the size of the Board of Directors were amended on February 24, 2004. On October 12, 2005 the voting agreement was amended and restated to (i) limit the number of shares subject to the voting agreement; (ii) reduce the number of shares subject to Mariner’s option from 1,800,000 to 1,350,000, (iii) extend the termination date of the voting agreement from February 15, 2007 to December 31, 2010; and, (iv) to adjust the rights of the parties to nominate candidates to the Board of Directors.

Voting Rights of Mariner

The participating shareholders retained significant voting rights over their shares under the amended and restated voting agreement. Mariner may only vote the shares that are subject to the amended and restated voting agreement with the written approval of two of the three participating shareholders. If two of the three participating shareholders fail to approve any vote by Mariner on any matter, then Mariner is not permitted to vote on that matter and generally the participating shareholders are also not permitted to vote on that matter. However, if one of the following types of matters is under consideration and two of the three participating shareholders fail to approve the vote by Mariner, the participating shareholders are entitled to vote their shares instead of Mariner:

• the merger or consolidation of NYMAGIC into or with another corporation;

• the sale by NYMAGIC of all or substantially all of its assets;

• the dissolution and/or liquidation of NYMAGIC; or

• any recapitalization or stock offering of NYMAGIC.

Election of Directors

Provided that the candidates of the participating shareholders would not be legally disqualified from serving as directors of NYMAGIC, Mariner is required to vote all shares that are subject to the amended and restated voting agreement in favor of the election of those candidates, or any successor or replacement candidates, nominated by the participating shareholders. Mariner is not permitted to vote the shares subject to the amended and restated voting agreement to remove any director nominated by a participating shareholder without the consent of that participating shareholder. In accordance with the general voting provisions discussed above under the heading “Voting Rights of Mariner,” Mariner is permitted to vote the shares subject to the amended and restated voting agreement to elect its own candidates only with the written approval of two of the three participating shareholders. In connection with the election of directors at the annual meeting of shareholders in 2007, all three of the participating shareholders approved the voting of those shares to elect the three candidates nominated by Mariner.

Nomination of Directors

Prior to the amendment and restatement of the voting agreement dated October 12, 2005, the voting agreement provided for our Board of Directors to consist of nine directors. Pursuant to an action taken by our Board of Directors on September 14, 2005 without reference to the voting agreement, the size of the Board was increased in number from nine to 11, and Messrs. A. George Kallop, our President and Chief Executive Officer, who served on our Board of Directors from 2002 to May 2004, and Glenn R. Yanoff, who served on our Board of Directors from 1999 to May 2004, were elected to the Board.

On March 5, 2008, John R. Anderson, Glenn Angiolillo, John T. Baily, A. George Kallop, David E. Hoffman, William J. Michaelcheck, William D. Shaw, Jr., Robert G. Simses, George R. Trumbull, III, Glenn R. Yanoff and David W. Young were nominated for election to the Board at the next annual meeting of shareholders.

• Prior to the amendment and restatement of the voting agreement, Mariner was entitled to nominate three candidates to the Board. Following the amendment and restatement of the voting agreement, Mariner is entitled to nominate four candidates for election to the Board. The four current directors who were nominated by Mariner are William J. Michaelcheck, George R. Trumbull, III, who serves as our Chairman, William D. Shaw, Jr., who serves as our Vice Chairman and A. George Kallop, the President and Chief Executive Officer of the Company.

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• Prior to the amendment and restatement of the voting agreement, each participating shareholder was entitled to nominate one candidate to the Board. Following the amendment and restatement of the voting agreement, each of Mark W. Blackman and Lionshead Investments, LLC is entitled to nominate one candidate for election to the Board and Robert G. Simses is entitled to nominate two candidates to the Board, provided that the candidates nominated by Mark W. Blackman and Lionshead Investments, LLC and one of the candidates nominated by Mr. Simses shall qualify as independent directors under the rules of the New York Stock Exchange and all other applicable laws and regulations. The two current directors nominated by Mark W. Blackman and Lionshead Investments, LLC are Glenn Angiolillo and John R. Anderson, and the two current directors nominated by Robert G. Simses are Robert G. Simses and Glenn R. Yanoff.

• Prior to the amendment and restatement of the voting agreement, our Chief Executive Officer was entitled to nominate three candidates to the Board. Following the amendment and restatement of the voting agreement, our Chief Executive Officer is entitled to nominate three candidates for election to the Board, all of whom shall qualify as independent directors under the rules of the New York Stock Exchange and all other applicable laws and regulations. The three current directors who were nominated by Mr. Kallop are David W. Young, John T. Baily and David E. Hoffman.

If any participating shareholder does not nominate a candidate for election to the Board, then, in addition to its other rights, Mariner, instead of that participating shareholder, may nominate a number of candidates equal to the number not nominated by the participating shareholders. In addition, the participating shareholders have agreed, consistent with their fiduciary duties, to cause their nominees to the Board to vote for one of the Mariner-nominated directors, as designated by Mariner, as Chairman of each meeting.

Termination Provisions

The amended and restated voting agreement will terminate upon the earliest to occur of the following dates:

• December 31, 2010;

• the merger or consolidation of NYMAGIC into another corporation, the sale of all or substantially all its assets or its dissolution and/or its liquidation;

• immediately upon the resignation of Mariner as an advisor to NYMAGIC, INC.; or

• upon written notice of such termination to Mariner from all of the participating shareholders.

Mariner Stock Option

The amended and restated voting agreement also gives Mariner the right to purchase at any time and from time to time up to an aggregate of 1,350,000 shares of our common stock from the participating shareholders in the amounts set forth below opposite each participating shareholder’s name:

•     Mark W. Blackman	225,000 shares
•     Lionshead Investments, LLC	225,000 shares
•     Robert G. Simses, as trustee of the Tollefson trusts	900,000 shares

In the event Mariner exercises this option, Mr. Simses will have the sole right to determine the number of shares to be provided by either one of the Tollefson trusts.

The option exercise price per share is based on the date the option is exercised. At the time the voting agreement was signed, the option exercise price was $19.00, with the exercise price increasing $0.25 per share every three months. The initial exercise price of $19.00 was approximately equal to the mid-point of the market price of our common stock and the book value of our common stock during the period in which the voting agreement was negotiated. The final exercise price, for exercises between November 15, 2010 and December 31, 2010 is $27.75 per share. The exercise price will be adjusted by deducting the cumulative amount of dividends paid by us in respect of each share of its common stock from January 31, 2003 through the date Mariner exercises its option. This option was granted with the intention of aligning Mariner’s interests with the interests of all of our shareholders. The exercise price of the option as of March 1, 2008 was $23.66 per share.

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Generally, Mariner’s option will expire 30 days after the termination of the amended and restated voting agreement. However, if the amended and restated voting agreement is terminated prior to December 31, 2010 by unanimous written notice from the participating shareholders, then the option will continue in full force and effect until the close of business on December 31, 2010.

Transferability of the Option

The option granted to Mariner is not transferable except in the following instances, with the assignee agreeing to be bound to the voting agreement:

• Mariner is permitted to assign the option, in whole or in part, to any one or more of William J. Michaelcheck, William D. Shaw, Jr., George R. Trumbull and A. George Kallop or any other individual employed by or acting as a consultant for Mariner in connection with NYMAGIC.

• With the written consent of at least two participating shareholders, Mariner or any assignee as described above is permitted to assign the option, in whole or in part, to any one or more other persons.

On April 4, 2002, Mariner entered into an agreement with each of William D. Shaw, Jr., the Company’s Vice Chairman, and A. George Kallop, the Company’s President and Chief Executive Officer, whereby Mariner agreed to hold a portion of the option covering 315,000 shares of NYMAGIC as nominee for each of Mr. Shaw and Mr. Kallop. Effective January 1, 2005, Mr. Shaw waived his interest in the option covering 315,000 shares of NYMAGIC and became a shareholder of Mariner. On April 12, 2005, Mariner and George R. Trumbull, the Company’s Chairman, entered into an agreement pursuant to which Mariner agreed to hold a portion of the option covering 450,000 shares of NYMAGIC as nominee for Mr. Trumbull, and on October 12, 2005 they amended the agreement by reducing the number of option shares to 337,500. On October 12, 2005 Mariner and Mr. Kallop amended their agreement by reducing the number of option shares to 236,250.

Consideration to Mariner

Mariner did not pay any cash consideration to the participating shareholders, nor did the participating shareholders pay any cash consideration to Mariner, in connection with the voting agreement or the amended and restated voting agreement. Mariner’s sole compensation for entering into the voting agreement, as opposed to the investment management arrangement discussed below, is the option to purchase NYMAGIC shares from the participating shareholders. To date, Mariner has not exercised this option, but should it elect to do so, it would pay the option exercise price to the participating shareholders at that time.

Transferability of NYMAGIC Shares

The participating shareholders retain the right to transfer any of the shares covered by the amended and restated voting agreement, provided that the transferred shares remain subject to the amended and restated voting agreement. Mariner waived the requirement that assignees be bound by the voting agreement with respect to 2,150,000 shares sold pursuant to a public offering in December 2003, and 1,092,735 shares purchased by the Company in January 2005.

Mariner Investment Management Arrangement

In addition to the voting agreement, Mariner entered into an investment management agreement with NYMAGIC, New York Marine and Gotham effective October 1, 2002, which was amended and restated on December 6, 2002. Under the terms of the investment management agreement, Mariner manages the Company’s, New York Marine’s and Gotham’s investment portfolios. Mariner may purchase, sell, redeem, invest, reinvest or otherwise trade securities on behalf of the Company. Mariner may, among other things, exercise conversion or subscription rights, vote proxies, select broker dealers and value securities and assets of the Company. Under the terms of the investment management agreement the Company’s investments have been reallocated into the following three categories:

• the liquidity portfolio (cash management);

• the fixed-income portfolio (fixed-income investments); and,

• the hedge fund and equity portfolio (alternative investment vehicles and common and preferred equities).

Southwest Marine entered into an investment management agreement with the Mariner Group effective March 1, 2007, which is virtually identical to the investment management agreement between the Company and Mariner.

The investment management agreements do not have a specific duration period and may be terminated by either party on 30 days’ prior written notice. Fees to be paid to Mariner under the investment management agreements are based on a percentage of the investment portfolio as follows: 0.20% of liquid assets, 0.30% of fixed maturity investments and 1.25% of hedge fund (limited partnership) investments.

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The Company incurred Mariner investment expenses of $2,951,404, $2,887,985 and $3,356,928 pursuant to the investment management agreements in 2007, 2006 and 2005, respectively. Assuming these agreements are in effect in 2008, the Company would not anticipate any significant change in investment expenses. In the event that assets in the hedge fund and equity portfolio are invested in alternative investment vehicles managed by Mariner or any of its affiliates, the 1.25% advisory fee is waived with respect to those investments, although any fees imposed by the investment vehicles themselves are nonetheless payable.

In 2003, the Company entered into a limited partnership hedge fund (Tiptree) that invests in Collateralized Debt Obligations (CDO) securities, Credit Related Structured Products (CRS) securities and other structured products that are structured, managed or advised by a Mariner affiliated company. In 2003, the Company made an investment of $11.0 million, representing a 100% interest in Tiptree, which is consolidated in the Company’s financial statements through August 1, 2006. Additional investments of $6.25 million, $2.7 million and $4.65 million were made in Tiptree in 2007, 2005 and 2004, respectively. The Company is committed to providing an additional $15.4 million, or a total of approximately $40 million, in capital to this limited partnership. On August 18, 2006, the Company entered into an Amended and Restated Limited Partnership Agreement of Tricadia CDO Fund, L.P. (“Tricadia”), effective as of August 1, 2006, with Tricadia Capital, LLC, the general partner, and the limited partners named therein (the “Amended Agreement”) to amend and restate the Limited Partnership Agreement of Mariner Tiptree (CDO) Fund, I, L.P. entered into in 2003 (the “Original Agreement”). The Amended Agreement changed the name of the partnership, amended and restated in its entirety the Original Agreement and provides for the continuation of the partnership under applicable law upon the terms and conditions of the Amended Agreement. The Amended Agreement, among other items, substantially changed the fee income structure as well as provides for the potential conversion of limited partnership interests to equity interests. The fee income was changed in the Amended Agreement from 50% of the fee received by the investment manager in connection with the management of CDOs in Tricadia to a percentage equal to the pro-rata portion of the CDO equity interest held by Tricadia. In no event, however, will the fee be less than 12.5%. The Amended Agreement also provided for an additional CDO fee to be determined based upon the management fees earned by the investment manager. As a result of these substantial changes to the Original Agreement, the Company deconsolidated Tricadia, formerly known as Tiptree, from its financial statements as of August 1, 2006 and has since included Tricadia as a limited partnership investment at equity in the financial statements. Investment expenses incurred and payable under the Tiptree agreement at December 31, 2007 and December 31, 2006 amounted to $(812,646) and $792,144, respectively, and were based upon the fair value of those securities held and sold during 2007 and 2006, respectively. This agreement also provides for other fees payable to the manager based upon the operations of the hedge fund. There were no other fees incurred through December 31, 2007.

William J. Michaelcheck, a director of the Company, is the Chairman of Mariner and is the beneficial owner of a substantial amount of the stock of Mariner. George R. Trumbull, Chairman and a director of the Company, A. George Kallop, President and Chief Executive Officer and a director of the Company, and William D. Shaw, Jr., Vice Chairman and a director of the Company, are also associated with Mariner. Currently, Mr. Shaw is a shareholder of Mariner and Messrs. Trumbull and Kallop have contractual relationships with Mariner relating to consulting services. The Company has a consulting agreement with William D. Shaw, Jr. pursuant to which it paid him $100,000 in 2007 for consulting services relating to the Company’s managing its relations with the investment community and other managerial advice and counsel. As noted above, pursuant to the amended and restated voting agreement, Mariner controlled the vote of approximately 15.5% of NYMAGIC’s outstanding voting securities as of March 1, 2008.

The Company believes that the terms of the investment management agreements are no less favorable to NYMAGIC and its subsidiaries than the terms that would be obtained from an unaffiliated investment manager for the services provided. The investment management fees paid to Mariner were arrived at through negotiations between the Company and Mariner. All then current directors participated in the discussion of the 2002 investment management agreement. In accordance with the Company’s conflict of interest policy, the investment management agreement was approved by an independent committee of the Company’s Board of Directors, which consisted of all directors who were neither Mariner affiliates nor participating shareholders under the voting agreement. Thereafter, the investment management agreement was approved by the entire Board of Directors. Under the provisions of the New York insurance holding company statute, because of the control relationship between Mariner and New York Marine and Gotham, the investment management agreement was submitted for review by the New York State Insurance Department, which examined, among other things, whether its terms were fair and equitable and whether the fees for services were reasonable. Upon completion of that review, the investment management agreement was found to be non-objectionable by the Department. Similarly, the investment management agreement between Southwest Marine and the Mariner Group was approved by an Independent Committee of the Board of Directors and was found by the Arizona Department of Insurance to be non-objectionable.

Subsidiaries

NYMAGIC was formed in 1989 to serve as a holding company for the subsidiary insurance companies. NYMAGIC’s largest insurance company subsidiary is New York Marine which was formed in 1972. Gotham was organized in 1986 as a means of expanding into the excess and surplus lines marketplace in states other than New York and Southwest Marine was organized in 2005 as a means of expanding into excess and surplus lines in New York. New York Marine and Gotham entered into a Reinsurance Agreement, effective January 1, 1987, under the terms of which Gotham cedes 100% of its gross direct business to New York Marine and assumes 15% of New York Marine’s total retained

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business, beginning with the 1987 policy year. Accordingly, for policy year 1987 and subsequent, Gotham’s underwriting statistics are similar to New York Marine’s. As of December 31, 2007, 75% and 25% of Gotham’s common stock is owned by New York Marine and NYMAGIC, respectively. Southwest Marine and New York Marine entered into a reinsurance agreement effective January 1, 2007, under the terms of which, New York Marine cedes 5% of its gross direct business to Southwest Marine. 100% of Southwest Marine’s stock is owned by New York Marine.

Gotham does not assume or cede business to or from other insurance companies. As of December 31, 2007, New York Marine had aggregate receivables due from Gotham of approximately $48 million, or 26% of New York Marine’s policyholders’ surplus, and aggregate receivables due from Southwest Marine of approximately $6 million, or 3% of New York Marine’s policyholders’ surplus. Gotham had aggregate reinsurance receivables due from New York Marine, as of December 31, 2007, of approximately $74 million, or 116% of Gotham’s policyholders’ surplus.

MMO was formed in 1964 to underwrite a book of ocean marine insurance and was acquired in 1991 by NYMAGIC. MMO’s activities expanded over the years and it now underwrites a book of ocean marine, inland marine and other liability insurance.

Midwest was formed in 1978 to underwrite a varied book of business located in the Midwest region and was acquired in 1991 by NYMAGIC.

PMMO was formed in 1975 to underwrite a varied book of business located in the West Coast region and was acquired in 1991 by NYMAGIC; PMMO’s principal office was closed in 2007 and its operations have been absorbed by MMO.

MMO UK was formed in 1997 as a Lloyd’s limited liability corporate capital vehicle, was placed into runoff in 2002 and was sold in 2005.

MMO EU was formed in 1997 as a holding company for MMO UK and was liquidated in February 2007.

The Company has been a 100% limited partner in Tiptree, now Tricadia, that invests in CDO securities, CRS securities and other structured product securities, but because the limited partnership agreement was amended and restated in 2006 the Company ceased consolidating this investment as of August 1, 2006 as a result of an amended agreement that provides for substantial changes in the source of revenues and the potential conversion of limited partnership interests to equity interests. The Company includes this investment in limited partnerships at equity.

Competition

The insurance industry is highly competitive and the companies, both domestic and foreign, against which the Company competes, are often larger and could have greater capital resources than the Company and the pools. The Company’s principal methods of competition are pricing and responsiveness to the individual insured’s coverage requirements.

We compete in the United States and international markets with domestic and international insurance companies. In the area of our primary focus, ocean marine liability, there are approximately 50 insurance companies writing almost $3.1 billion in annual premiums for ocean, drill rig, hull, war, cargo and other marine liability. Our main competitors and their respective shares of this market, as determined by Best’s Aggregates and Averages, 2007 Edition (which used 2006 data), are: American International Group, 13.1%; Travelers Insurance Companies, 9.8%; ACE INA Group, 8.7%; CNA Insurance Companies, 8.5%; Chubb Group of Insurance Companies, 6.1%; Allianz of America, Inc., 5.8%; American Steamship Owners Mutual, 5.3%; White Mountains Insurance Group, 5.1%; Navigators Insurance Group, 4.0%; and Markel Corporation Group, 2.5%. Our market share is approximately 2.4%.

With regard to the Company’s other lines of business, the magnitude of the market is such that our market share is insignificant. Within the overall property, casualty and professional liability insurance markets, the Company seeks to take advantage of attractive niche opportunities. Much of this business is written on a surplus lines basis, which gives the company considerable flexibility in terms of forms and rates. While the Company is a significant writer of excess workers compensation business, overall excess workers compensation writings are a small fraction of overall workers compensation writings.

The Company believes it can successfully compete against other companies in the insurance market due to its philosophy of underwriting quality insurance, its reputation as a conservative well-capitalized insurer and its willingness to forego unprofitable business.

Employees

The Company currently employs 152 persons, of whom 23 are insurance underwriters. None of our employees is covered by a collective bargaining agreement and management considers the relationship with our employees to be good.

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Code of Conduct and Corporate Governance Documents

The Company maintains a separate, independent, as defined under the New York Stock Exchange rules, Audit Committee of four directors who have been appointed by the Board of Directors: Messrs. Glenn Angiolillo, John T. Baily (chairman and financial expert), David E. Hoffman and David W. Young.

The Company has adopted a Code of Ethics for Senior Executive and Financial Officers as well as a code of Business Conduct and Ethics for Directors, Officers and Employees, copies of which are available free of charge, upon request directed to Corporate Secretary, NYMAGIC, INC., 919 Third Avenue, New York, NY 10022.

The Company’s Corporate Governance Guidelines and the charters of the Audit, Human Resources and Nominating/Corporate Governance Committees of the Company’s Board of Directors and the Company’s Code of Ethics for Senior Executive and Financial Officers as well as its Code of Business Conduct and Ethics for Directors, Officers and Employees are available on the Company’s Internet web site www.nymagic.com and are available in print to any shareholder upon request to the Corporate Secretary, NYMAGIC, INC. 919 Third Avenue, 10th Floor, New York, NY 10022.

Available Information

We maintain an Internet site at www.nymagic.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as the annual report to stockholders and other information, are available free of charge on this site. The Internet site and the information contained therein or connected thereto are not incorporated by reference into this Form 10-K.

Item 1A. Risk Factors.

The Company’s business involves various risks and uncertainties, including, but not limited to those discussed in this section. This information should be considered carefully, together with the other information contained in this report including the consolidated financial statements and the related notes. If any of the following events actually occur, the Company’s business, results of operations and financial condition could be adversely affected.

Our inability to assess underwriting risk accurately could reduce our net income.

Our underwriting success is dependent on our ability to assess accurately the risks associated with the businesses on which the risk is retained. We rely on the extensive experience of our underwriting staff in assessing these risks and the failure to retain or hire similarly experienced personnel could adversely affect our ability to accurately make those determinations. If we fail to assess accurately the risks we retain, we may fail to establish appropriate premium rates and our reserves may be inadequate to cover our losses, which could reduce our net income. The underwriting process is further complicated by our exposure to unpredictable developments, including weather-related and other natural catastrophes, as well as war and acts of terrorism.

Exposure to catastrophe or severity losses in loss reserves.

We are required to maintain reserves to cover our estimated ultimate liability of losses and loss adjustment expenses for both reported and unreported claims incurred. These reserves are only estimates of what we think the settlement and administration of claims will cost based on our assumptions and facts and circumstances known to us. The low frequency and high severity of many of the risks we insure coupled with the protracted settlement period make it difficult to assess the overall adequacy of our loss reserves. Because of the uncertainties that surround estimating loss reserves and loss adjustment expenses, we cannot be certain that ultimate losses will not exceed these estimates of losses and loss adjustment reserves. The level of catastrophe losses has fluctuated in the past and may fluctuate in the future. In 2005 the Company incurred significant catastrophe losses from hurricanes Katrina and Rita. After tax losses resulting from catastrophes in 2007, 2006 and 2005 amounted to $0, $0.7 million and $13.9 million, respectively. If our reserves were insufficient to cover our actual losses and loss adjustment expenses, we would have to augment our reserves and incur a charge to our earnings. These charges could be material.

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Decreases in rates or changes in terms for property and casualty insurance could reduce our net income.

We write property and casualty insurance. The property and casualty industry historically has been highly cyclical. Rates for property and casualty insurance are influenced primarily by factors that are outside of our control, including competition and the amount of available capital and surplus in the industry. For example, the substantial losses in the insurance industry arising from the events of September 11, 2001 caused rates in the insurance industry to rise. However, new capital has since flowed into the insurance industry. To the extent that more capital is available, there may be downward pressure on premium rates as a result of increased supply. These factors affecting rates for the industry in general impact the rates we are able to charge. Any significant decrease in the rates for property and casualty insurance could reduce our net income. While rates impact our net income, there is not necessarily a direct correlation between the level of rate increases or decreases and net income because other factors, such as the amount of catastrophe losses and the amount of expenses, also affect net income. Even as rates rise, the percentage average rate increases can fluctuate greatly and be difficult to predict. Prevailing policy terms and conditions in the property and casualty insurance market are also highly cyclical. Changes in terms and conditions unfavorable to insurers, which tend to be correlated with declining rates, could further reduce our net income.

If rating agencies downgrade their ratings of our insurance company subsidiaries, our future prospects for growth and profitability could be significantly and adversely affected.

New York Marine and Gotham each currently holds an A (“Excellent”) and Southwest Marine holds an A- (“Excellent”) financial strength rating from A.M. Best Company. These are the third and fourth highest of fifteen rating levels within A.M. Best’s classification system. Financial strength ratings are used by insureds, insurance brokers and reinsurers as an important means of assessing the financial strength and quality of insurers. Any downgrade or withdrawal of our subsidiaries’ ratings might adversely affect our ability to market our insurance products or might increase our reinsurance costs and would have a significant and adverse effect on our future prospects for growth and profitability.

Our reinsurers may not satisfy their obligations to us.

We are subject to credit risk with respect to our reinsurers because the transfer of risk to a reinsurer does not relieve us of our liability to the insured and the credit risk of our reinsurers may be negatively impacted by the current volatile investment environment. In addition, reinsurers may be unwilling to pay us even though they are able to do so. The failure of one or more of our reinsurers to honor their obligations to us or to delay payment would impact our cash flow and reduce our net income and could cause us to incur a significant loss. We previously entered into reinsurance contracts with a reinsurer that is now in liquidation and is seeking $2 million from us. Should the Company be unsuccessful in its defenses, this could reduce net income.

If we are unable to purchase reinsurance and transfer risk to reinsurers or if the cost of reinsurance increases, our net income could be reduced or we could incur a loss.

We attempt to limit our risk of loss by purchasing reinsurance to transfer a significant portion of the risks we assume. The availability and cost of reinsurance is subject to market conditions, which are outside of our control. As a result, we may not be able to successfully purchase reinsurance and transfer risk through reinsurance arrangements. A lack of available reinsurance might adversely affect the marketing of our programs and/or force us to retain all or a part of the risk that cannot be reinsured. If we were required to retain these risks and ultimately pay claims with respect to these risks, our net income could be reduced or we could incur a loss. Our existing reinsurance program may prove to have insufficient reinstatement protection to protect the Company from catastrophes or large severity losses and our net income could be reduced or we could incur a loss.

Our business is concentrated in ocean marine, excess and surplus lines property and excess and surplus lines casualty insurance, and if market conditions change adversely or we experience large losses in these lines, it could have a material adverse effect on our business.

As a result of our strategy to focus on specialty products in niches where we believe that we have underwriting and claims expertise and to decline business where pricing does not afford what we consider to be acceptable returns, our business is concentrated in the ocean marine, excess and surplus lines property, casualty and professional liability, and excess workers compensation lines of insurance. If our results of operations from any of these specialty lines are less favorable for any reason, including lower demand for our products on terms and conditions that we find appropriate, flat or decreased rates for our products or increased competition, the reduction could have a material adverse effect on our business.

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If we are not successful in developing our new specialty lines, we could experience losses.

Since January 1, 2001, we have entered into a number of new specialty lines of business including professional liability, commercial real estate, employment practices liability, commercial automobile insurance and workers’ compensation excess liability. We continue to look for appropriate opportunities to diversify our business portfolio by offering new lines of insurance in which we believe we have sufficient underwriting and claims expertise. However, because of our limited history in these new lines, there is limited operating history and financial information available to help us estimate sufficient reserve amounts for these lines and to help you evaluate whether we will be able to successfully develop these new lines or appropriately price and reserve for the likely ultimate losses and expenses associated with these new lines. Due to our limited history in these lines, we may have less experience managing their development and growth than some of our competitors. Additionally, there is a risk that the lines of business into which we expand will not perform at the level we anticipate.

Our industry is highly competitive and we may not be able to compete successfully in the future.

Our industry is highly competitive and has experienced severe price competition over the last several years. The majority of our main competitors have greater financial, marketing and management resources than we do, have been operating for longer than we have and have established long-term and continuing business relationships throughout the industry, which can be a significant competitive advantage. Much of our business is placed through insurance brokers. If insurance brokers were to decide to place more insurance business with competitors that have greater capital than we do, our business could be materially adversely affected. In addition, if we face further competition in the future, we may not be able to compete successfully.

Competition in the types of insurance in which we are engaged is based on many factors, including our perceived overall financial strength, pricing and other terms and conditions of products and services offered, business experience, marketing and distribution arrangements, agency and broker relationships, levels of customer service (including speed of claims payments), product differentiation and quality, operating efficiencies and underwriting. Furthermore, insureds tend to favor large, financially strong insurers, and we face the risk that we will lose market share to larger and higher rated insurers.

The entry of banks and brokerage firms into the insurance business poses new challenges for insurance companies and agents. These challenges from industries traditionally outside the insurance business could heighten the competition in the property and casualty industry.

We may have difficulty in continuing to compete successfully on any of these bases in the future. If competition limits our ability to write new business at adequate rates, our ability to transact business would be materially and adversely affected and our results of operations would be adversely affected.

We are dependent on our key personnel.

Our success has been, and will continue to be, dependent on our ability to retain the services of our existing key executive officers and to attract and retain additional qualified personnel in the future. We consider our key officers to be George Kallop, our President and Chief Executive Officer, George Sutcliffe, our senior vice president-claims, Paul Hart, our senior vice president, general counsel and secretary, Thomas Iacopelli, our senior vice president, chief financial officer and treasurer, Mark Blackman, our executive vice president and chief underwriting officer, Craig Lowenthal, our senior vice president and chief information officer and David Hamel, our controller. In addition, our underwriting staff is critical to our success in the production of business. While we do not consider any of our key executive officers or underwriters to be irreplaceable, the loss of the services of any of our key executive officers or underwriters or the inability to hire and retain other highly qualified personnel in the future could adversely affect our ability to conduct our business, for example, by causing disruptions and delays as workload is shifted to existing or new employees.

If Mariner terminates its relationship with us, our business could be adversely affected.

Mariner is party to a voting agreement and an investment management agreement, each described in more detail under “Voting Agreement” and “Mariner Investment Management Arrangement.” Four of our directors and one of our executive officers are affiliated with Mariner. The voting agreement terminates immediately upon Mariner’s resignation as an advisor to us. Mariner also has the right to terminate the investment management agreement upon 30 days’ prior written notice. If Mariner were to terminate its relationship with the Company, the disruption to our management could adversely affect our business.

The value of our investment portfolio and the investment income we receive from that portfolio could decline as a result of market fluctuations and economic conditions.

Our investment portfolio consists of fixed income securities including mortgage backed securities, short-term U.S. government-backed fixed income securities and a diversified portfolio of hedge funds. Both the fair market value of these assets and the investment income from these assets fluctuate depending on general economic and market conditions.

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For example, the fair market value of our fixed income securities increases or decreases in an inverse relationship with fluctuations in interest rates. The fair market value of our fixed income securities can also decrease as a result of any downturn in the business cycle that causes the credit quality of those securities to deteriorate. Similarly, hedge fund investments are subject to various economic and market risks. The risks associated with our hedge fund investments may be substantially greater than the risks associated with fixed income investments. Consequently, our hedge fund portfolio may be more volatile and the risk of loss greater than that associated with fixed income investments. Furthermore, because the hedge funds in which we invest sometimes impose limitations on the timing of withdrawals from the funds, our inability to withdraw our investment quickly from a particular hedge fund that is performing poorly could result in losses and may affect our liquidity. All of our hedge fund investments have timing limitations. Most hedge funds require a 90-day notice period in order to withdraw funds. Some hedge funds may require a withdrawal only at the end of their fiscal year. We may also be subject to withdrawal fees in the event the hedge fund is sold within a minimum holding period, which may be up to one year.

The Company has investments in residential mortgage backed securities amounting to $135 million at December 30, 2007. There were no unrealized investment losses on such securities at December 31, 2007. The Company recorded $6.5 million in declines in fair value considered to be other-than-temporary on such securities in 2007. These residential mortgage backed securities, consisting of nine “Alt A” mortgage securities, have floating interest rates and are rated AAA/Aaa by S&P/Moody’s. “Alt A” securities are residential home loans made to individuals that maintain credit scores similar to those individuals receiving prime loans, but provide less than full documentation required for a prime loan. The fair value of each security is provided by pricing services or security dealers. There has been considerable amount of turmoil in the U.S. housing market in 2007 which has led to market declines in such securities. The markets for these types of securities can be illiquid and, therefore, the price obtained on these securities is subject to change, depending upon the underlying market conditions of these securities. We may be subject to a large degree of variability in pricing on such securities that can have a material effect on the Company.

As of March 12, 2008, the fair value of these super senior securities has declined by an additional $30 million before taxes. The decrease in the fair value of such securities is primarily the result of technical factors including the sale of similar type securities by hedge funds and other large institutions.

The Company purchased preferred stocks in 2007. The average credit quality of these investments at December 31, 2007 was AA- by Standard & Poors. The purchases were made in the preferred stocks of government sponsored enterprises and large banks and are included in our trading portfolio. The Company may seek to redeploy future investments into preferred stocks. This change in strategy may effect our overall investment yield and create more volatility in investment income results.

Insurance laws and regulations restrict our ability to operate.

We are subject to extensive regulation under U.S. state insurance laws. Specifically, New York Marine and Gotham are subject to the laws and regulations of the State of New York and to the regulation and supervision of the New York State Department of Insurance. Southwest Marine is subject to the laws and regulations of the State of Arizona and to the regulation and supervision of the Arizona Department of Insurance. In addition, each of New York Marine, Gotham and Southwest Marine is subject to the regulation and supervision of the insurance department of each state in which it is admitted to do business. Insurance laws and regulations typically govern most aspects of an insurance company’s operations.

In addition, state legislatures and state insurance regulators continually reexamine existing laws and regulations and may impose changes that could materially adversely affect our business.

Computer system risks

We rely on our computer equipment, software and technical personnel to accumulate data in order to quote new and existing business, record loss reserves, pay claims and maintain historical statistical information. Any disruption of this process would affect many aspects of our business. Computer risks include hardware failures, software defects, incompatibility of related systems, improper inputs from technical and operational personnel, and functional obsolescence due to the rapid advance of technology and the expanding needs of our business to remain completive. Risks also include the costs of testing and implementing new systems to take advantage of new technology and charging off unamortized expenses related to software and equipment that has no further useful life. For example, during 2007 we incurred $3.4 million in after tax charges from the write-off of computer equipment and software after determining that such software did not have the necessary functionality to effectively conduct our business operations and no longer possessed any future service potential. We are evaluating alternative computer systems, but in the event that such systems do not operate as intended, we could suffer from the inability to quote business or pay claims in a timely manner.

Failure to comply with insurance laws and regulations could have a material adverse effect on our business.

While we endeavor to comply with all applicable insurance laws and regulations, we cannot assure you that we have or can maintain all required licenses and approvals or that our business fully complies with the wide variety of applicable laws and regulations or the relevant authority’s interpretation of the laws and regulations. Each of New York Marine, Gotham and Southwest Marine must maintain a license in each state in which it intends to issue insurance policies or contracts on an admitted basis. Regulatory authorities have relatively broad discretion to grant, renew or revoke licenses and approvals. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us. These types of actions could have a material adverse effect on our business, including preventing New York Marine, Gotham or Southwest Marine from writing insurance on an admitted basis in a state that revokes or suspends its license.

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Our holding company structure could prevent us from paying dividends on our common stock.

NYMAGIC is a holding company whose most significant assets consist of the stock of its operating subsidiaries. Thus, our ability to pay dividends on our common stock in the future may be dependent on the earnings and cash flows of our subsidiaries and the ability of the subsidiaries to pay dividends or to advance or repay funds to us. This ability is subject to general economic, financial, competitive, regulatory and other factors beyond our control. As discussed above, payment of dividends and advances and repayments from our operating subsidiaries are regulated by the state insurance laws and regulatory restrictions. Accordingly, our operating subsidiaries may not be able to pay dividends or advance or repay funds to us in the future, which could prevent us from paying dividends on our common stock.

Because of the concentration of the ownership of, and the thin trading in, our common stock, you may have difficulties in selling shares of our common stock.

Currently, the ownership of our stock is highly concentrated. Historically, the trading market in our common stock has been thin. In 2005, our average monthly trading volume was 213,000 shares. In 2006, our average monthly trading volume was 448,000 shares. In 2007, our average monthly trading volume was 761,000 shares. In 2005, we had three days on which none of our shares traded and in 2006 we had two days on which none of our shares traded. In 2007, there were no such non-trading days. We cannot assure you that the trading market for our common stock will become more active on a sustained basis. Therefore, you may have difficulties in selling shares of our common stock.

Trading in our common stock has the potential to be volatile.

The stock market has from time to time experienced extreme price and volume fluctuations that have been unrelated to the operating performance of particular companies. The market price of our common stock may be significantly affected by quarterly variations in our results of operations, changes in financial estimates by securities analysts or failures by us to meet such estimates, litigation involving us, general trends in the insurance industry, actions by governmental agencies, national economic and stock market conditions, industry reports and other factors, many of which are beyond our control.

The thin trading in our stock has the potential to contribute to the volatility of our stock price. When few shares trade on any given day, any one trade, even if it is a relatively small trade, may have a strong impact on our market price, causing our share price to rise or fall.

Because part of our outstanding stock is subject to a voting agreement, our other shareholders have limited ability to impact voting decisions.

Several of our shareholders, together with some of their affiliates, have entered into a voting agreement with Mariner which will last until December 31, 2010, unless terminated earlier. This voting agreement authorizes Mariner, with the approval of any two of three participating shareholders under the voting agreement, to vote all the shares covered by the agreement. Among other matters, the voting agreement addresses the composition of our board of directors. The shares covered by the voting agreement currently represent approximately 15.5% of our outstanding shares of common stock as of March 1, 2008. As a result, to the extent that those shares are voted by Mariner in accordance with the voting agreement, Mariner and the participating shareholders could significantly influence most matters on which our shareholders have the right to vote. This means that other shareholders might be less able to impact voting decisions than they would have if they made a comparable investment in a company that did not have a concentrated block of shares subject to a voting agreement.

The voting agreement and the concentration of our stock ownership in the hands of a few shareholders could impede a change of control and could make it more difficult to effect a change in our management.

Because approximately 15.5% of our currently outstanding stock is subject to the voting agreement, it may be difficult for anyone to effect a change of control that is not approved by the parties to the voting agreement. Even if the participating shareholders were to terminate the voting agreement, their collective share ownership would still be substantial, so that they could choose to vote in a similar fashion on a change of control and have a significant impact on the outcome of the voting. And, even without taking into account the voting agreement, the participating shareholders and our directors and executive officers beneficially own approximately 38.7% of our issued and outstanding common stock as of March 1, 2008. The voting agreement and the concentration of our stock ownership could impede a change of control of NYMAGIC that is not approved by the participating shareholders and which may be beneficial to shareholders who are not parties to the voting agreement. In addition, because the voting agreement, together with the concentration of ownership, results in the major shareholders determining the composition of our Board of Directors, it also may be more difficult for other shareholders to attempt to cause current management to be removed or replaced.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company does not own, directly or indirectly, any real estate. The Company subleases office space for day-to-day operations in the following cities:

New York — 68,615 square feet
Chicago — 3,500 square feet
San Francisco — 2,000 square feet

The Company’s principal executive offices are approximately 69,000 square feet in size and are located at 919 Third Avenue, New York, New York 10022. The Company entered into a sublease for approximately 28,000 square feet of this space, which commenced on March 1, 2003 and expires on July 30, 2016. In April 2005, the Company signed an amendment to the sublease, for approximately 10,000 square feet of additional space. The amended sublease expires on July 30, 2016. The minimum monthly rental payments of $141,276 under the amended sublease include the rent paid by the Company for the original sublease. Rent payments under the amended sublease commenced in 2005 and end in 2016, with payments amounting to $20.8 million, collectively, over the term of the agreement. In June 2007, the Company leased an additional 30,615 square feet at the principal executive location in New York City. The lease provides for minimum monthly rental payments of $197,722 beginning in 2008 and $210,478 beginning in 2013. The lease expires on July 30, 2016.

Item 3. Legal Proceedings

The Company previously entered into reinsurance contracts with a reinsurer that is now in liquidation. On October 23, 2003, the Company was served with a Notice to Defend and a Complaint by the Insurance Commissioner of the Commonwealth of Pennsylvania, who is the liquidator of this reinsurer, alleging that approximately $3 million in reinsurance claims paid to the Company in 2000 and 2001 by the reinsurer are voidable preferences and are therefore subject to recovery by the liquidator. The claim was subsequently revised by the liquidator to approximately $2 million. The Company filed Preliminary Objections to Plaintiff’s Complaint, denying that the payments are voidable preferences and asserting affirmative defenses. These Preliminary Objections were overruled on May 24, 2005 and the Company filed its Answer in the proceedings on June 15, 2005. On December 7, 2006 the liquidator filed a motion of summary judgment to which the Company responded on December 19, 2006 by moving for a stay, pending the resolution of a similar case currently pending before the Supreme Court of the Commonwealth of Pennsylvania. As of March 1, 2008 there has been no ruling on the Company’s motion, and no trial date has been set for this matter. The Company intends to defend itself vigorously in connection with this lawsuit. The Company believes it has strong defenses against these claims; however, there can be no assurance as to the outcome of this litigation.

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

The Company did not submit any matters to a vote of security holders during the fourth quarter of 2007.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s common stock trades on the New York Stock Exchange (NYSE Symbol: NYM). The following table sets forth high and low sales prices of the common stock for the periods indicated as reported on the New York Stock Exchange composite transaction tape.

	2007				2006
	High		Low		High		Low
First Quarter	$	42.22	$	35.60	$	29.99	$	24.30
Second Quarter		44.95		39.15		32.80		27.09
Third Quarter		42.02		25.56		32.99		27.85
Fourth Quarter		31.59		19.66		37.50		30.28

As of March 1, 2008, there were 53 shareholders of record. However, management believes there were approximately 1,510 beneficial owners of NYMAGIC’s common stock as of February 28, 2008.

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Dividend Policy

The Company declared a dividend of six cents per share to shareholders of record in March, June, September and December in 2005 and in March 2006, and a dividend of eight cents per share to shareholders of record in June, September and December of 2006 and March, June, September and December of 2007. For a description of restrictions on the ability of the Company’s insurance subsidiaries to transfer funds to the Company in the form of dividends, see “Business — Regulation” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

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Item 6. Selected Financial Data

The following table sets forth selected consolidated financial data, which was derived from our historical consolidated financial statements included in our annual reports on Form 10-K for the years then ended. You should read the following together with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included in “Item 8. Financial Statements and Supplementary Data.”

OPERATING DATA

	Year ended December 31,
	2007			2006			2005			2004		2003
	(In thousands, except per share amounts)
Revenues:
Net premiums earned	$	166,096		$	151,834		$	134,557		$	116,333	$	96,394
Net investment income		35,489			47,897			36,060			23,679		22,394
Commission income (loss)		414			542			1,198			461		(230	)
Net realized investment (losses) gains		(6,903	)		(402	)		(805	)		678		550
Other income (loss), net		(4,659	)		596			334			1,790		1,688
Total revenues	$	190,437		$	200,467		$	171,344		$	142,941	$	120,796
Expenses:
Net losses and loss adjustment expenses incurred	$	89,844		$	86,136		$	92,290		$	66,558	$	55,715
Policy acquisition expenses		37,695			31,336			30,491			25,166		19,430
General and administrative expenses		36,018			31,402			27,183			23,247		19,428
Interest expense		6,726			6,712			6,679			5,353		26
Total expenses	$	170,283		$	155,586		$	156,643		$	120,324	$	94,599
Income before income taxes	$	20,154		$	44,881		$	14,701		$	22,617	$	26,197
Income taxes expense (benefit)
Current		10,509			16,777			6,152			3,835		8,987
Deferred		(3,727	)		(1,746	)		(1,152	)		4,151		117
		6,782			15,031			5,000			7,986		9,104
Net income	$	13,372		$	29,850		$	9,701		$	14,631	$	17,093
BASIC EARNINGS PER SHARE:
Weighted average shares outstanding		8,896			8,807			8,734			9,736		9,673
Basic earnings per share	$	1.50		$	3.39		$	1.11		$	1.50	$	1.77
DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding		9,190			9,177			8,918			9,916		9,828
Diluted earnings per share	$	1.46		$	3.25		$	1.09		$	1.48	$	1.74
Dividends declared per share	$	.32		$	.30		$	.24		$	.24	$	.24

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BALANCE SHEET DATA:

	December 31,
	2007		2006		2005		2004		2003
	(In thousands)
Total cash and investments	$	701,127	$	664,872	$	622,404	$	630,872	$	519,642
Total assets		1,107,977		1,119,296		1,090,419		997,094		875,125
Unpaid losses and loss adjustment expenses		556,535		579,179		588,865		503,261		518,930
Notes payable		100,000		100,000		100,000		100,000		—
Total shareholders’ equity		279,446		270,700		239,284		258,118		244,291
Book value per share	$	31.56	$	29.14	$	26.44	$	25.91	$	24.47

For a description of factors that materially affect the comparability of the information reflected in the Selected Financial Data, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview and Highlights-2007 year

• Net income of $13.4 million or $1.46 per diluted share

• Total shareholders’ equity of $279.5 million, or $31.56 per diluted share

• Net premium growth in core lines of 9% over 2006

• Favorable net loss reserve development reported on prior year loss reserves of $13.8 million

• Loss ratio of 54.1%

• After tax charges of $3.4 million for the write off of inefficient computer software

• After tax charges of $1.1 million for expenses relating to an investment in an asset management company that was not consummated

• Net investment income of $35.5 million

• Realized investment losses of $6.9 million

• Total cash and invested assets of $701.1 million at year end 2007

• A.M. Best Rating of A (excellent) for New York Marine and Gotham

Results of Operations

The Company’s results of operations are derived from participation in pools of insurance covering ocean marine, inland marine, aircraft and other liability insurance managed by MMO and affiliates. Since January 1, 1997, the Company’s participation in the pools has been increased to 100%. The Company formerly wrote aircraft business, but has ceased writing any new policies covering aircraft insurance for periods subsequent to March 31, 2002.

The Company records premiums written in the year policies are issued and earns such premiums on a monthly pro rata basis over the terms of the respective policies. The following tables present the Company’s gross premiums written, net premiums written and net premiums earned for each of the past three years.

NYMAGIC Gross Premiums Written	Year Ended December 31,
By Segment	2007				2006				2005
	(Dollars in thousands)
Ocean Marine	$	98,689	43	%	$	104,876	43	%	$	105,628	53	%
Inland Marine/Fire		18,625	8	%		21,595	9	%		25,000	12	%
Other Liability		110,986	49	%		114,754	48	%		69,346	35	%
Subtotal		228,300	100	%		241,225	100	%		199,974	100	%
Run off lines (Aircraft)		88	—			84	—			396	—
Total	$	228,388	100	%	$	241,309	100	%	$	200,370	100	%

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NYMAGIC Net Premiums Written	Year Ended December 31,
By Segment	2007				2006				2005
	(Dollars in thousands)
Ocean Marine	$	68,192	41	%	$	75,243	49	%	$	70,596	53	%
Inland Marine/Fire		6,935	4	%		7,097	4	%		8,452	6	%
Other Liability		92,618	55	%		72,231	47	%		54,592	41	%
Subtotal		167,745	100	%		154,571	100	%		133,640	100	%
Run off lines (Aircraft)		108	—			289	—			252	—
Total	$	167,853	100	%	$	154,860	100	%	$	133,892	100	%

NYMAGIC Net Premiums Earned	Year Ended December 31,
By Segment	2007				2006				2005
	(Dollars in thousands)
Ocean Marine	$	71,637	43	%	$	78,350	52	%	$	71,688	53	%
Inland Marine/Fire		6,978	4	%		7,793	5	%		7,340	6	%
Other Liability		87,373	53	%		65,402	43	%		55,277	41	%
Subtotal		165,988	100	%		151,545	100	%		134,305	100	%
Run off lines (Aircraft)		108	—			289	—			252	—
Total	$	166,096	100	%	$	151,834	100	%	$	134,557	100	%

Unlike many types of commercial insurance, ocean marine and inland marine premium rates and coverage terms are not strictly regulated by governmental authorities. In addition, much of the Company’s property, casualty and professional liability writings are written on a surplus lines basis or in the New York Free Trade Zone. With respect to these lines, the Company is able to adjust premium rates and coverage terms quickly in response to competition, varying degrees of risk and other factors. In addition, the Company, by virtue of its underwriting flexibility, is able to emphasize specific lines of business in response to advantageous premium rates and its anticipation of positive underwriting results. However, the insurance industry is highly competitive and the companies against which the Company competes may seek to limit any market premium rate.

The property and casualty industry historically has been highly cyclical. Rates for property and casualty insurance are influenced primarily by factors that are outside of our control, including competition and the amount of available capital and surplus in the industry. For example, the substantial losses in the insurance industry arising from the events of September 11, 2001 caused rates in the insurance industry to rise. However, new capital has since flowed into the insurance industry. To the extent that more capital is available, there may be downward pressure on premium rates as a result of increased supply. These factors affecting rates for the industry in general impact the rates we are able to charge. Any significant decrease in the rates for property and casualty insurance could reduce our net income. While rates impact our net income, there is not necessarily a direct correlation between the level of rate increases or decreases and net income because other factors, such as the amount of catastrophe losses and the amount of expenses, also affect net income.

Prevailing policy terms and conditions in the property and casualty insurance market are also highly cyclical. Changes in coverage terms unfavorable to insurers, which tend to be correlated with declining rates, could further reduce our net income. Even as rates rise, the average percentage rate increases can fluctuate greatly and be difficult to predict.

The Company’s general and administrative expenses consist primarily of compensation expense, employee benefits, professional fees and rental expense for office facilities. The Company’s policy acquisition costs include brokerage commissions and premium taxes both of which are primarily based on a percentage of premiums written. Acquisition costs have generally changed in proportion to changes in premium volume. Losses and loss adjustment expenses incurred in connection with insurance claims in any particular year depend upon a variety of factors including the rate of inflation, accident or claim frequency, the occurrence of natural catastrophes and the number of policies written.

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The Company estimates reserves each year based upon, and in conformity with, the factors discussed under “Business-Reserves.” Changes in estimates of reserves are reflected in operating results in the year in which the change occurs.

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006

Net income for the year ended December 31, 2007 was $13.4 million or $1.46 per diluted share, as compared to $29.9 million or $3.25 per diluted share, for the year ended December 31, 2006. Net income for 2007 was adversely affected by lower investment income, increases in realized investment losses and after-tax losses of $3.4 million or $.39 per share, resulting from the write-off of inefficient computer software and after tax losses of $1.1 million or $.13 per share resulting from expenses relating to an investment in an asset management company that was not consummated.

Total revenues for the year ended December 31, 2007 were $190.4 million, down 5%, compared with $200.5 million for the year ended December 31, 2006 primarily reflecting decreases in net investment income, increases in realized investment losses and the write-off of computer software.

Net realized investment losses after taxes for the year ended December 31, 2007 were $4.5 million, or $49 per diluted share, compared with $262,000, or $.03 per diluted share, for 2006. The realized investment losses in 2007 primarily relate to write-downs to the Company’s investments in residential mortgage backed securities that consist of “Alt A” mortgages.

Gross premiums written of $228.4 million decreased by 5% for the year ended December 31, 2007 compared to the same period of 2006. However, net premiums written of $167.9 million increased by 8% for the year ended December 31, 2007 over the same period of 2006, and net premiums earned of $166.1 million for the year ended of 2007 increased by 9% compared with the same period last year.

Premiums for each segment are discussed below:

Ocean marine gross premiums written in 2007 decreased by 6%, primarily reflecting volume decreases in hull premium as a result of not renewing certain unprofitable accounts and declines in production of marine liability business. Rates in the various classes of marine business were generally flat to slightly declining when compared to 2006.

Ocean marine net premiums written and net premiums earned for year ended December 31, 2007 each decreased by 9% when compared to 2006. Net written and earned premiums in 2007 reflected higher excess of loss reinsurance costs primarily as a result of $2.3 million in reinstatement reinsurance costs incurred on a cargo loss in 2007, and lower amounts of earned premium in the energy class due to additional ceded premiums earned.

Effective January 1, 2007, the Company maintained its $5 million per risk and $6 million per occurrence net loss retention in the ocean marine line that was in existence during 2006; however, the Company could incur an additional loss amount, as large as $5 million, depending upon the gross loss to the Company in excess of $5 million. The 80% quota share reinsurance protection for the Company’s energy business, which commenced in 2006, also remained in effect for 2007. The Company terminated its relationship with one of its agents writing cargo business in 2007. As a result of this termination, both gross and net written premiums in the ocean marine class are expected to decline in 2008 when compared to 2007.

Inland marine/fire gross premiums written, net premiums written and net premiums earned for the year ended December 31, 2007 decreased by 14%, 2% and 10%, respectively, when compared to 2006. Premiums in 2007 reflected mildly lower market rates when compared to 2006 as well as declines in production in certain property risks.

Other liability gross premiums written decreased by 3% for the year ended December 31, 2007 when compared to 2006. Net premiums written and net premiums earned for the year ended December 31, 2007 rose by 28% and 34%, respectively, when compared to 2006. The Company writes excess workers’ compensation insurance on behalf of certain self-insured workers’ compensation trusts. In 2006, the Company provided gross statutory limits on the renewals of its then existing in force book of excess workers’ compensation policies to these trusts. The reinsurance structure that was in effect in 2006 included a general excess of loss treaty in order to protect the Company on any one risk or occurrence and the resulting net retention was then subject to a 70% quota share reinsurance treaty. The Company terminated its relationship with its former primary source of excess workers’ compensation premium effective December 31, 2006. However, the Company’s alternative source of excess workers’ compensation production issued substantially all of the Company’s excess workers’ compensation premiums in 2007. These policies also provide excess workers’ compensation insurance on behalf of self-insured workers’ compensation trusts. Moreover, the Company maintains a general excess of loss treaty in order to protect the Company on any one risk or occurrence; however, the 70% quota share reinsurance agreement was terminated at the end of 2006.

As a result of the changes in gross underwriting and reinsurance structures, gross premiums written decreased in the excess worker’s compensation class, while net premiums written and net premiums earned increased in this class during 2007 when compared to 2006. Gross premiums written in the excess workers’ compensation class decreased to $32.5 million in 2007 from $41.7 million for the same period of 2006. Net premiums written, however, increased to $26.4 million in 2007 from $11.5 million in 2006 and net premiums earned increased to $23.4 million in 2007 from $11.6 million in 2006. Volume increases in the professional liability class were also achieved in 2007 when compared to 2006. Premium rates in these classes during in 2007 were flat to slightly declining when compared to 2006.

42

Aircraft premiums were nominal in 2007 and 2006 as a result of the Company having ceased writing new aircraft policies subsequent to March 31, 2002.

Net losses and loss adjustment expenses incurred as a percentage of net premiums earned (the loss ratio) were 54.1% for the year ended December 31, 2007 as compared to 56.7% for 2006. The Company reported lower loss ratios in the other liability line of business in 2007 when compared to 2006 primarily as a result of the novation of substantially all of the excess workers’ compensation policies written in conjunction with our prior producer of those policies. The novation reduced the overall loss ratio by 3.7 percentage points in 2007. The ocean marine loss ratio was down slightly in 2007 when compared to 2006 as a result of favorable loss reserve development that was off set partially by a large cargo claim. The inland marine/fire loss ratio decreased in 2007, reflecting lower severity losses in the fire and the surety classes.

The Company decreased net loss reserves by approximately $13.8 million in 2007 from the 2006-year end net unpaid loss reserve amount of $293 million as a result of favorable loss reserve development. This compared to $7.7 million of favorable loss reserve development recorded in 2006.

The favorable development of $13.8 million in 2007 included $6.2 million recorded on the novation of excess workers’ compensation policies in the other liability line for accident years 2004-2006. Partially offsetting this benefit in the other liability line was adverse development of $3.0 million in the professional liability class as a result of two large claims in the 2006 accident year. The ocean marine line reported favorable development in the 2003-2005 accident years largely as a result of favorable loss trends. The inland marine/fire segment also reported favorable loss development partially due to lower emergence of severity losses. The favorable development in 2007 was partially offset by approximately $3.3 million in adverse development from the runoff aviation class.

The Company reported favorable development of prior year loss reserves of $7.7 million in 2006 primarily as a result of favorable reported loss trends arising from the ocean marine line of business in the 2005 and 2004 accident years due in part to lower settlements of case reserve estimates, higher than expected receipts of salvage and subrogation recoveries and a lower emergence of actual versus expected losses. Partially offsetting this benefit was adverse development in the 2005 and 2004 accident years in the commercial auto class as a result of higher than initially anticipated loss ratios. 2004 was the first full year of writing commercial auto premium. The Company also reported overall favorable development in its other liability line as a result of shorter than expected loss development tail on its contractors’ class. The inland marine/fire segment also reported adverse loss development partially due to higher than expected loss ratios in one of the Company’s program businesses, which was not renewed in 2006, as well as a higher than initially expected loss ratio in its surety class due to a large shock loss.

Policy acquisition costs as a percentage of net premiums earned (the acquisition cost ratio) for the years ended December 31, 2007 and 2006 were 22.7% and 20.6%, respectively. The other liability acquisition cost ratio was lower in 2006 as a result of override commissions obtained from the quota share reinsurance agreement in the excess workers’ compensation class, which was not renewed in 2007. The ocean marine acquisition cost ratio in 2007 was adversely impacted by reinstatements incurred on a large cargo loss that lowered net premiums earned without any corresponding reduction in acquisition costs.

General and administrative expenses increased by 15% for the year ended December 31, 2007 when compared to 2006. Expenses in 2007 include approximately $1.8 million resulting from the evaluation and negotiation of an investment in an asset management company that was not consummated. Larger expenses were incurred in 2007 to service the growth in the Company’s business operations, including higher personnel expense and rent expense on additional office space.

Net investment income for the year ended December 31, 2007 decreased by 26% to $35.5 million from $47.9 million in 2006. The decrease in 2007 when compared to 2006 reflected lower trading portfolio and limited partnership hedge fund income which was partially offset by increases in the fixed maturities available for sale and the short-term investment portfolios. The higher trading portfolio income in 2006 reflected a greater trading volume of securities (including $7.0 million from investments in U.S. Treasuries, as compared to none for 2007) and income from our Tricadia investment. The investment income from Tricadia amounted to $4.7 million for the year ended December 31, 2006 including trading portfolio income of $2.9 million and, as a result of the deconsolidation of Tricadia effective August 1, limited partnership hedge fund portfolio income of $1.8 million. This compared to $7.9 million of income from Tricadia in 2007, which was included in limited partnership hedge fund portfolio income. Income from Tricadia increased in 2007 when compared to 2006 as a result of greater interest income earned from the warehousing of CDO/CLO debt securities and middle market commercial debt, as well as larger fee income earned for servicing such securities. Limited partnership hedge fund income in 2007, excluding income from Tricadia, decreased from the prior year as a result of lower yields on the limited partnership hedge fund portfolio, which amounted to 3.4% in 2007 as compared to 10.0% in 2006.

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

	Years ended December 31,
	2007			2006
	(in millions)
Fixed maturities, available for sale	$	13.9		$	11.8
Fixed maturities, trading securities		2.3			15.8
Short-term investments		8.7			7.8
Equity in earnings of limited partnerships		13.0			16.5
Total investment income		37.9			51.9
Investment expenses		(2.4	)		(4.0	)
Net investment income	$	35.5		$	47.9

As of December 31, 2007 and 2006 investments in limited partnerships amounted to approximately $188.3 million and $182.3 million, respectively. The equity method of accounting is used to account for the Company’s limited partnership hedge fund investments. Under the equity method, the Company records all changes in the underlying value of the limited partnership hedge funds to results of operations. Net investment income for 2007 and 2006 reflected approximately $13.0 million and $16.5 million, respectively, derived from limited partnership hedge fund investments.

As of December 31, 2007 and 2006 investments in trading portfolios amounted to approximately $144.9 million and $0, respectively. Net investment income for 2007 and 2006 reflected approximately $2.3 million and $15.8 million, respectively, derived from trading portfolio activities. These activities include the trading of collateralized debt obligations (CDOs), collateralized loan obligations (CLOs), commercial middle market debt, municipal bonds, preferred stocks and US Treasury notes. The Company’s trading portfolio is marked to market with the change recognized in net investment income during the current period. Any realized gains or losses resulting from the sales of trading securities are also recognized in net investment income. The ending balance in the trading portfolio can vary substantially from period to period due to the level of trading activity.

As a result of the accounting treatment of its limited partnerships and trading portfolio, the Company’s investment income results may be volatile. If the level or fair value of investments held in limited partnership hedge funds or trading securities change substantially, there may also be a greater volatility associated with the Company’s investment income.

Commission and other income (loss) decreased to $(4.2) million for the year ended December 31, 2007 from $1.1 million for the same period in the prior year. The Company’s write-off of $5.3 million relating to its computer systems in 2007 accounted for most of the decrease. The Company determined that certain computer equipment and software was inefficient and no longer possessed any future service potential, and accounted for it as an abandoned asset under the guidance of Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Commission income in 2007 and 2006 each reflected profit commissions derived from ceded reinsurance in the ocean marine class of business.

Net realized investment losses were $6.9 million for the year ended December 31, 2007 as compared to $403,000 for the year ended December 31, 2006. These amounts result from the sale of fixed income investments as well as write-downs from other-than-temporary declines in the fair value of securities, which amounted to $6.7 million and $371,000 for the years ended December 31, 2007 and 2006, respectively. The write-downs in 2007 primarily relate to the Company’s investments in super senior residential mortgage backed securities that consist of “Alt A” mortgages. The decision to write down such securities was based upon the likelihood that we may not hold such securities until the fair value decline is recovered.

Interest expense was $6.7 million for each of the years ended December 31, 2007 and 2006, respectively, and resulted primarily from the Company’s $100 million 6.5% senior notes.

Total income tax expense as a percentage of income before taxes for year ended December 31, 2007 was 33.7% as compared to 33.5% for 2006. The percentage for the 2006-year includes a $500,000 reduction in taxes resulting from the resolution of tax uncertainties for the Company’s former subsidiary, MMO UK, which was sold in 2005. The 2007-year includes larger benefits resulting from greater investments in municipal bonds and preferred stocks.

Reserve for unearned premiums increased to $87.6 million as of December 31, 2007 from $93.6 million as of December 31, 2006 primarily as a result of the decrease in gross premiums written in the ocean marine line of business and the excess workers’ compensation class.

44

Unpaid losses and loss adjustment expenses decreased to $556.5 million at December 31, 2007 from $579.2 million at December 31, 2006. Reinsurance receivables on unpaid losses, net decreased to $250.1 million at December 31, 2007 from $286.2 million at December 31, 2006. These decreases were primarily due to the closing of novation agreements for certain excess workers’ compensation policies that resulted in a decreases of $41.5 million and $24.9 million in unpaid losses and loss adjustment expenses, and reinsurance receivables on unpaid losses, respectively.

Ceded reinsurance payable decreased to $27.1 million at December 31, 2007 from $44.8 million at December 31, 2006 and prepaid reinsurance premiums decreased to $21.7 million at December 31, 2007 from $29.6 million at December 31, 2006 mainly as a result of the payment of quota share reinsurance premiums, as well as lower ceded premiums written, in the excess workers’ compensation class.

Other assets increased to $10.2 million at December 31, 2007 from $6.9 million at December 31, 2006 primarily as a result of federal income taxes recoverable.

Property, improvements and equipments, net decreased to $4.8 million at December 31, 2007 from $9.9 million at December 31, 2006 primarily due to the write off of $5.3 million in functionally inadequate computer software.

Deferred income taxes at December 31, 2007 increased to $14.4 million from $10.8 million at December 31, 2006 primarily due to deferred tax benefits provided on investment losses incurred during the year.

Reinsurance receivables on paid losses, net decreased to $38.8 million at December 31, 2007 from $47.5 million at December 31, 2006 primarily as a result of collections of hurricane losses in the ocean marine line.

Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005

Net income for the year ended December 31, 2006 was $29.9 million or $3.25 per diluted share, as compared to $9.7 million, or $1.09 per diluted share, for the year ended December 31, 2005. Net income for 2005 was adversely affected by after-tax losses of $13.9 million from hurricanes Katrina and Rita. Partially offsetting this decrease was an increase in net investment income.

Total revenues for the year ended December 31, 2006 were $200.5 million, up 17%, compared with $171.3 million for the year ended December 31, 2005 primarily reflecting increases in both net premiums earned and net investment income.

Net realized investment losses after taxes for the year ended December 31, 2006 were $262,000, or $.03 per diluted share, compared with $523,000, or $.06 per diluted share, for 2005.

Gross premiums written, net premiums written and net premiums earned for the year ended December 31, 2006 increased by 20%, 16% and 13%, respectively, when compared to 2005.

Premiums for each segment are discussed below:

Ocean marine gross premiums written in 2006 decreased by 1%, primarily reflecting a volume decrease in the hull class of business due to a reduction in unprofitable accounts. Volume decreases were also recorded in the rig class, as a result of the Company’s tighter monitoring of the overall concentration of rig exposures in the Gulf of Mexico. These decreases in production were partially offset by an increase in marine liability production. Substantial rate increases were achieved in the energy class in 2006 followed by smaller increases in rates in certain marine liability policies. However, rates in the other classes of marine business were generally flat to slightly declining when compared to 2005.

Ocean marine net premiums written and net premiums earned for year ended December 31, 2006 increased by 7% and 9% respectively, when compared to 2005. Net written and earned premiums in 2005 were reduced by $14.8 million in reinstatement reinsurance premiums as a result of losses sustained from hurricanes Katrina and Rita. This compares to additional reinstatement reinsurance costs recorded in 2006 on hurricanes Katrina and Rita of $1.1 million

The excess of loss reinsurance market for the marine and energy line of business significantly contracted in 2006, resulting in increases in both reinsurance costs and net loss retentions ($5 million per risk and $6 million per occurrence) to the Company effective January 1, 2006. This compared to a net loss retention of $3 million per risk or occurrence in 2005. As a result of the tightening in the reinsurance market, the Company excluded energy business with exposures in the Gulf of Mexico from its ocean marine reinsurance program for 2006 and opted instead to enter into an 80% quota share reinsurance agreement for this portion of its energy business to reduce the potential impact of catastrophe losses to the Company. The quota share agreement and larger costs of excess of loss reinsurance accounted for a substantial portion of ocean marine ceded written premium in 2006.

Inland marine/fire gross premiums written and net premiums written for the year ended December 31, 2006 decreased by 14% and 16%, respectively, when compared to 2005. Net premiums earned for the year ended December 31, 2006 increased by 6% when compared to 2005. Gross and net writings in 2006 reflect mildly lower market rates when compared to 2005, and declines in production in certain property risks, which were partially offset by increased production in the motor truck cargo class. The increase in net premiums earned in 2006 reflected volume increases achieved in the prior year.

45

Other liability gross premiums written, net premiums written and net premiums earned for the year ended December 31, 2006 rose by 65%, 32% and 18%, respectively, when compared to 2005. In prior years, the Company issued excess workers’ compensation insurance policies on behalf of certain self-insured workers’ compensation trusts. Specifically, in 2005 the Company wrote a $500,000 layer in excess of each trust’s self insured retention of $500,000 and the gross premiums written were reinsured under a 50% quota share reinsurance treaty. In 2006, the Company provided gross statutory limits on the renewals of its existing inforce book of excess workers’ compensation policies to these trusts. In addition, the Company expanded the number of trusts it issued policies to under an agreement with another agent. Accordingly, the reinsurance structure was changed in 2006 to accommodate the increase in gross limits. A general excess of loss treaty was secured in order to protect the Company on any one risk. The resulting net retention was then subject to a 70% quota share reinsurance treaty. As a result of the change in underwriting and reinsurance structures, the gross, ceded and net premiums written increased substantially in this class of business in 2006 when compared to 2005. Gross and net premiums written in the excess workers’ compensation class increased to $41.7 million and $11.5 million, respectively, in 2006 from $6.3 million and $3.1 million, respectively, in 2005. Net premiums earned increased to $11.6 million in 2006 compared to $6.6 million in 2005. Volume increases from existing classes (professional liability and contractors’ liability) were also achieved in 2006 when compared to 2005. Premium rates in these classes during 2006 were flat to down slightly when compared to 2005.

The Company terminated its relationship with its former primary source of workers’ compensation premium effective December 31, 2006.

Aircraft premiums were nominal in 2006 and 2005 as a result of the Company having ceased writing new aircraft policies subsequent to March 31, 2002.

Net losses and loss adjustment expenses incurred as a percentage of net premiums earned (the loss ratio) were 56.7% for the year ended December 31, 2006 as compared to 68.6% for 2005. The higher loss ratio in 2005 was largely attributable to losses sustained in the ocean marine line from hurricanes Katrina and Rita, which added 11.2% to the year ended December 31, 2005 overall loss ratio. The ocean marine loss ratio further improved in 2006 as a result of the non-renewal of certain unprofitable hull business. The Company reported lower loss ratios in the other liability lines of business for 2006 when compared to 2005 as a result of lower ratios for the current accident year losses. The inland marine/fire loss ratio increased for 2006, reflecting larger severity losses in the fire and the surety class.

The Company decreased net loss reserves by approximately $7.7 million in 2006 from the 2005-year end net unpaid loss reserve amount of $289 million as a result of favorable loss reserve development. This compared to $13 million of favorable loss reserve development recorded in 2005.

The Company reported favorable development of prior year loss reserves of $7.7 million in 2006 primarily as a result of favorable reported loss trends arising from the ocean marine line of business in the 2005 and 2004 accident years due in part to lower settlements of case reserve estimates, higher than expected receipts of salvage and subrogation recoveries and a lower emergence of actual versus expected losses. Partially offsetting this benefit was adverse development in the 2005 and 2004 accident years in the commercial auto class as a result of higher than initially anticipated loss ratios. 2004 was the first full year of writing commercial auto premium. The Company also reported overall favorable development in its other liability line as a result of shorter than expected loss development tail on its contractors’ class. The inland marine/fire segment also reported adverse loss development partially due to higher than expected loss ratios in one of the Company’s program businesses, which was not renewed in 2006, as well as a higher than initially expected loss ratio in its surety class due to a large shock loss.

The $13.2 million decrease in 2005 primarily reflected the recognition of favorable development in the ocean marine line of business, particularly in the 2001 to 2003 accident years. The Company’s net loss retention per risk, or occurrence, increased substantially in the ocean marine line during the 2001-2003 accident years from previous years. Our net loss retentions in the ocean marine line of business for the 1998, 1999 and 2000 years were $50,000, $50,000 and $100,000, respectively. This compared to net loss retentions in the ocean marine line of business for the 2001, 2002 and 2003 years of $1.5 million, $2 million and $2 million, respectively. The Company estimated higher IBNR amounts in the 2001 to 2003 accident years to correspond to the larger net loss retentions. Our subsequent analysis of our 2004 actual loss development, however, indicated a trend, which continued in 2005, that the actual loss emergence for the larger net retention years of 2001 to 2003 was not developing as we had originally anticipated. These results compared favorably with those obtained through a statistical evaluation of losses using the Bornheutter-Ferguson, paid and incurred methods. The other liability line also reported favorable development in years prior to 2002 resulting from a lower than expected emergence of losses attributable to a shorter loss reporting tail than originally estimated. Further contributing to the increase was the favorable development of aircraft loss reserves largely attributable to the 2001 accident year. The favorable loss development in 2005 was partially offset by net adverse loss development resulting from provisions made for insolvent, financially impaired reinsurers and commuted reinsurance contracts, partly as a result of an increase in ceded incurred losses relating to a few specific asbestos claims.

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Policy acquisition costs as a percentage of net premiums earned (the acquisition cost ratio) for the years ended December 31, 2006 and 2005 were 20.6% and 22.7%, respectively. The acquisition cost ratio reported in 2005 is higher primarily due to the ocean marine line and the impact of reinsurance reinstatement costs arising from hurricane losses. The 2006 ocean marine acquisition cost ratio was favorably impacted by ceded override commissions in the energy quota share reinsurance agreement, which became effective in 2006.

General and administrative expenses increased by 16% for the year ended December 31, 2006 when compared to 2005. Larger expenses were incurred in 2006 to service the growth in the Company’s business operations, including higher personnel and administrative expenses as well as larger consulting expenses resulting from the implementation of new computer systems.

The Company’s combined ratio (the loss ratio plus the ratio of policy acquisition costs and general and administrative expenses divided by premiums earned) was 98.0% for the 2006 year compared with 111.5% for 2005. Losses incurred, including reinsurance reinstatement costs, from hurricanes Katrina and Rita added 15.4% to the combined ratio for the year ended December 31, 2005.

Net investment income for the year ended December 31, 2006 increased by 33% to $47.9 million from $36.1 million in 2005. The increase achieved in 2006 reflected larger trading portfolio income and higher investment yields on both the fixed maturities available for sale and the short-term investment portfolio, which was partially offset by lower returns from the limited partnership hedge fund portfolio. The investment income from Tricadia, formerly known as Tiptree, amounted to $4.7 million for the year ended December 31, 2006 and included trading portfolio income of $2.9 million and as a result of the deconsolidation of Tricadia effective August 1, limited partnership hedge fund portfolio income of $1.8 million. This compared to $3.7 million of trading portfolio income for Tricadia during 2005. Trading portfolio income in 2006 also included $7.0 million from investments in U.S. Treasuries, as compared to none in 2005.

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

	Years ended December 31,
	2006			2005
	(in millions)
Fixed maturities, available for sale	$	11.8		$	7.8
Fixed maturities, trading securities		15.8			8.5
Short-term investments		7.8			6.2
Equity in earnings of limited partnerships		16.5			17.6
Total investment income		51.9			40.1
Investment expenses		(4.0	)		(4.0	)
Net investment income	$	47.9		$	36.1

As of December 31, 2006 and 2005 investments in limited partnerships amounted to approximately $182.3 million and $139.6 million, respectively. The equity method of accounting was used to account for the Company’s limited partnership hedge fund investments. Under the equity method, the Company records all changes in the underlying value of the limited partnership hedge funds to results of operations. Net investment income for 2006 and 2005 reflected approximately $16.5 million and $17.6 million, respectively, derived from limited partnership hedge fund investments.

As of December 31, 2006 and 2005 investments in the trading portfolio amounted to approximately $0 and $128.3 million, respectively. Net investment income for 2006 and 2005 reflected approximately $15.8 million and $8.5 million, respectively, derived from trading portfolio activities. These activities include the trading of collateralized debt obligations (CDOs) and US Treasury notes. The Company’s trading portfolio is marked to market with the change recognized in net investment income during the current period. Any realized gains or losses resulting from the sales of trading securities are also recognized in net investment income. The ending balance in the trading portfolio can vary substantially from period to period due to the level of trading activity.

Commission and other income decreased to $1.1 million for the year ended December 31, 2006 from $1.5 million for the same period in the prior year. In 2005, the Company reported a gain from the sale of MMO UK as well as profit commissions earned on the favorable development of ceded reinsurance in the aircraft class of business. The Company reported larger profit commissions derived from ceded reinsurance in the ocean marine class of business in 2006 when compared to 2005.

Net realized investment losses were $402,000 for the year ended December 31, 2006 as compared to $805,000 for the year ended December 31, 2005. These amounts result from the sale of fixed income investments as well as write-downs from other-than-temporary declines in the fair value of securities, which amounted to $371,000 and $678,000 for the years ended December 31, 2006 and 2005, respectively.

47

Interest expense was $6.7 million for the years ended December 31, 2006 and 2005, respectively and resulted primarily from the Company’s $100 million 6.5% senior notes.

Total income tax expense as a percentage of income before taxes for year ended December 31, 2006 was 33.5% as compared to 34.0% for 2005. The decrease in the percentage was primarily attributable to a $500,000 reduction in taxes resulting from the resolution of tax uncertainties for the Company’s former subsidiary, MMO UK, which was sold in 2005.

Premiums and other receivables, net increased to $29.3 million as of December 31, 2006 from $25.3 million as of December 31, 2005 primarily as a result of an increase in gross premiums written in the excess workers’ compensation class.

Reserve for unearned premiums increased to $93.6 million as of December 31, 2006 from $83.2 million as of December 31, 2005 primarily as a result of the increase in gross premiums written in the other liability line of business.

Unpaid losses and loss adjustment expenses decreased to $579.2 million at December 31, 2006 from $588.9 million at December 31, 2005. Reinsurance receivables on unpaid losses, net decreased to $286.2 million at December 31, 2006 from $299.6 million at December 31, 2005. These decreases were primarily the result of payments of hurricane losses in the ocean marine line and asbestos losses, partially offset by increases in both loss reserves and reinsurance receivables in the professional liability and excess workers compensation classes as a result of the growth in premiums earned.

Ceded reinsurance payable increased to $44.8 million at December 31, 2006 from $35.7 million at December 31, 2005 and prepaid reinsurance premiums increased to $29.6 million at December 31, 2006 from $22.2 million at December 31, 2005 mainly as a result of additional ceded premiums in the energy class in the ocean marine line, due to the 80% quota share treaty effective in 2006, and the excess of loss and higher quota share reinsurance percentage in the excess workers’ compensation class of the other liability line.

Other liabilities declined to $30.2 million at December 31, 2006 from $33.8 million at December 31, 2005 primarily as a result of payments for amounts owed to the MMO pool member companies, which was partially offset by higher federal income taxes payable.

Property, improvements and equipments, net increased to $9.9 million at December 31, 2006 from $8.3 million at December 31, 2005 primarily as a result of capitalized expenses for computer software.

Liquidity and Capital Resources

The Company monitors cash and short-term investments in order to have an adequate level of funds available to satisfy claims and expenses as they become due. As of December 31, 2007, the Company’s assets included approximately $205.1 million in cash and short-term investments. In addition, the fixed maturities available for sale includes approximately $135 million in high investment grade floating rate residential mortgage backed securities. Cash and total investments increased from $664.9 million at December 31, 2006 to $701.1 million at December 31, 2007, principally as a result of collections of reinsurance recoverables on hurricane losses and lower net paid losses. Receivables for securities sold amounted to $22.9 million and $18.8 million as of December 31, 2007 and 2006, respectively. Payable for securities purchased amounted to $28.7 million and $0 at December 31, 2007 and 2006, respectively. The level of cash and short-term investments of $205.1 million at December 31, 2007 reflected the Company’s high liquidity position.

The primary sources of the Company’s liquidity are funds generated from insurance premiums, investment income and maturing or liquidating investments.

In 2004, the Company issued $100,000,000 in 6.5% senior notes due March 15, 2014 and received proceeds of $98,763,000 net of underwriting discount, but before other transaction expenses. The senior notes provide for semi-annual interest payments and are to be repaid in full on March 15, 2014. On July 1, 2004 the Company completed the exchange of registered 6.5% senior notes for the unregistered senior notes issued on March 11, 2004, as required by the registration rights agreement with the purchasers of the senior notes. The indenture relating to the senior notes provides that the Company and its restricted subsidiaries may not incur indebtedness unless the total indebtedness of the Company and its restricted subsidiaries, calculated on a pro forma basis after such issuance, would not exceed 50% of our total consolidated capitalization (defined as the aggregate amount of our shareholders’ equity as shown on our most recent quarterly or annual consolidated balance sheet plus the aggregate amount of indebtedness of the Company and its restricted subsidiaries). The indenture also provides that the Company and its restricted subsidiaries will not pay dividends or make other payments or distributions on the Company’s stock or the stock of any restricted subsidiary (excluding payments by any restricted subsidiary to the Company), purchase or redeem the Company’s stock or make certain payments on subordinated indebtedness unless, after making any such payment, the total indebtedness of the Company and its restricted subsidiaries would not exceed 50% of our total consolidated capitalization (as defined above). In addition, the indenture contains certain other covenants that restrict our ability and our restricted subsidiaries’ ability to, among other things, incur liens on any shares of capital stock or evidences of indebtedness issued by any of our restricted subsidiaries or issue or dispose of voting stock of any of our restricted subsidiaries. The Company used part of the net proceeds from the sale of the senior notes to purchase from certain of its shareholders in 2005 a total of 1,092,735 shares of common stock at $24.80 per share. The Company used the remaining net proceeds for working capital and other general corporate purposes. The Company may also deploy the net proceeds for acquisitions, although the Company has no agreement with respect to any acquisition. We do, however, assess opportunities on an ongoing basis and from time to time have discussions with other companies about potential transactions.

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Cash flows used in operating activities were $106.4 million for the year ended December 31, 2007. This compared to cash flows provided by operating activities of $110.6 million for the year ended December 31, 2006 and cash flows used in operating activities $64.0 million for the year ended December 31, 2005. Cash flows from operating activities are significantly impacted by changes in the Company’s trading portfolio. Any securities purchased by the Company in its trading portfolio would be reflected as a use of cash from operating activities and any securities sold from its trading portfolio would be reflected as a source of cash from operating activities. Trading portfolio activities of $116.2 million and $110.6 million adversely affected cash flows for the years ended December 31, 2007 and 2005, respectively, while trading portfolio activities of $109.8 million favorably affected cash flows for the year ended December 31, 2006. Trading portfolio activities include the purchase and sale of CDO/CLO securities, commercial middle market debt, preferred stocks and U.S. Treasury securities. As the Company’s trading portfolio balance may fluctuate significantly from period to period, cash flows from operating activities may also be significantly impacted by such trading activities.

Cash flows from operating activities were favorably impacted, other than trading activities, for each of the years ended December 31, 2007, 2006 and 2005. Cash flows were favorably impacted in 2007, principally as a result of collections of reinsurance recoverables on hurricane losses and lower net paid losses, which were partially offset by payments of quota share reinsurance premiums; in 2006, by collections of premiums from a large increase in other liability premiums, which were mostly offset by a greater amount of paid losses and reinstatement reinsurance premiums, due in part to hurricane losses and partly due to payments on asbestos related losses; and, in 2005 were favorably affected by increased cash collections on premium and other receivables.

Cash flows provided by investing activities were $295.7 million for the year ended December 31, 2007 and resulted primarily from net sales of fixed maturities and short-term investments. Cash flows used in investing activities were $117.9 million for the year ended December 31, 2006. Net purchases of fixed maturities and short-term investments were recorded during 2006. Approximately $6.9 million in uses of cash flows in 2006 also resulted from the effect of deconsolidation of the Tricadia limited partnership investment. Cash flows provided by investing activities were $104.0 million for the year ended December 31, 2005 and were provided by net sales of short-term investments and limited partnerships.

Cash flows used in financing activities were $2.8 million and $27.3 million for the years ended December 31, 2007 and 2005, respectively. The repurchase of treasury stock accounted for most of the use of cash flows in each of 2007 and 2005. Cash flows provided by financing activities were $1.1 million for the year ended December 31, 2006.

Under the Common Stock Repurchase Plan, the Company may purchase up to $55 million of the Company’s issued and outstanding shares of common stock on the open market. This plan was subsequently amended in March of 2008 to increase the limit to $75 million.

In a transaction separate from its common stock repurchase plan, on January 7, 2005 the Company purchased from certain of its shareholders a total of 1,092,735 shares of common stock at $24.80 per share. The selling shareholders were Mark W. Blackman, a son of the Company’s founder who served on our board of directors from 1979 until May 2004 and who is currently the Company’s Chief Underwriting Officer (54,530 shares), his wife (50,000 shares), and two trusts for the benefit of their children (110,000 shares); Lionshead Investments, LLC, a company controlled by John N. Blackman, Jr., also a son of the Company’s founder who served on our board of directors from 1975 until May 2004 (495,030 shares), two of his children (67,664 shares), a trust for the benefit of a third child (25,158 shares), and a family trust (25,000 shares); and, two trusts and a foundation established by Louise B. Tollefson, the former wife of the Company’s founder (265,353 shares). Robert G. Simses, a director of NYMAGIC INC., is a trustee of the last mentioned entities.

On March 22, 2006, the Company entered into an agreement (the “Letter Agreement”) to amend the Option Certificate granted under a Securities Purchase Agreement, dated January 31, 2003, by and between the Company and Conning Capital Partners VI, L.P. (“CCP”). The Amended and Restated Option Certificate dated as of March 22, 2006 by and between the Company and CCP (“Amended and Restated Option”) decreased the number of shares of Company common stock that may be issued upon the exercise of the Amended and Restated Option from 400,000 to 300,000 and extended the term from January 31, 2008 to December 31, 2010.

In 2002, the Company signed a sublease at 919 Third Avenue, New York, NY 10022 for approximately 28,000 square feet for its principal offices in New York. The sublease commenced on March 1, 2003 and expires on July 30, 2016. In April 2005, the Company signed an amendment to the sublease, for approximately 10,000 square feet of additional space. The sublease expires on July 30, 2016. The minimum monthly rental payments of $141,276 under the amended sublease include the rent paid by the Company for the original sublease. Such payments began in 2005 and end in 2016. They will amount to $20.8 million of total rental payments, collectively, over the term of the amended sublease.

In May 2007, the Company signed a lease for additional office space for its headquarters located on the 11^th floor of 919 Third Avenue in New York City. The lease term provides for lease payments on two sections (Space A and Space B) of the 11^th floor. The lease term for Space A commenced on September 1, 2007 and ends on July 30, 2016. Minimum monthly payments of $85,818 commenced on January 1, 2008 and will increase to $91,355 on the commencement of the sixth lease year. Total minimum lease rental payments over the term for Space A will amount to $9.4 million. The lease term for Space B commences on April 30, 2008, and will end on July 30, 2016. Minimum monthly payments of $111,904 will increase to $119,123 on the commencement of the sixth lease year following the initial payment under the Space B lease. Total minimum lease rental payments over the term for Space B will be at least equal to $11.7 million. In connection with Space A and Space B, the landlord will reimburse the Company up to $332,200 and $433,175, respectively, in qualified renovations.

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Specific related party transactions and their impact on results of operations are disclosed in Note 17 of the Company’s financial statements. The Company adheres to investment guidelines set by management and approved by the Finance Committee of the Board of Directors. See “Investment Policy.”

NYMAGIC’s principal source of cash flow is dividends from its insurance company subsidiaries, which are then used to fund various operating expenses, including interest expense, loan repayments and the payment of any dividends to shareholders. The Company’s domestic insurance company subsidiaries are limited by statute in the amount of dividends that may be declared or paid during a year.

Within this limitation, the maximum amount which could be paid to the Company out of the domestic insurance companies’ surplus was approximately $20.3 million as of December 31, 2007.

New York Marine and Gotham collectively paid ordinary dividends of $14,475,000, $13,225,000 and $8,500,000 in 2007, 2006 and 2005, respectively.

On March 5, 2007, the Company declared a dividend of eight cents per share to shareholders of record on March 30, 2007, payable on April 7, 2007. On May 23, 2007, the Company declared a dividend of eight cents per share to shareholders of record on June 29, 2007, payable on July 5, 2007. On September 14, 2007, the Company declared a dividend of eight cents per share to shareholders of record on September 28, 2007, payable on October 3, 2007. On December 4, 2007, the Company declared a dividend of eight cents per share to shareholders of record on December 31, 2007, payable on January 4, 2008. On February 22, 2006, the Company declared a dividend of six cents per share to shareholders of record on March 31, 2006, payable on April 5, 2006. On May 24, 2006, the Company declared a dividend of eight cents per share to shareholders of record on June 30, 2006, payable on July 6, 2006. On September 18, 2006, the Company declared a dividend of eight cents per share to shareholders of record on September 29, 2006, payable on October 4, 2006. On December 8, 2006, the Company declared a dividend of eight cents per share to shareholders of record on December 29, 2006, payable on January 4, 2007. On February 22, 2005, the Company declared a dividend of six cents per share to shareholders of record on March 31, 2005, payable on April 6, 2005. On May 26, 2005, the Company declared a dividend of six cents per share to shareholders of record on June 30, 2005, payable on July 7, 2005. On September 15, 2005, the Company declared a dividend of six cents per share to shareholders of record on September 30, 2005, payable on October 6, 2005. On December 8, 2005, the Company declared a dividend of six cents per share to shareholders of record on December 30, 2005, payable on January 5, 2006.

The Company has established three share-based incentive compensation plans (the “Plans”), which are described below. Management believes that the Plans provide a means whereby the Company may attract and retain persons of ability to exert their best efforts on behalf of the Company. The Plans generally allow for the issuance of grants and exercises through newly issued shares, treasury stock, or any combination thereof to officers, key employees and directors who are employed by, or provide services to the Company. The compensation cost that has been charged against income for the Plans was $2,210,615, $2,116,929 and $984,806 for the years ended December 31, 2007, 2006 and 2005, respectively. Of the $2.1 million expensed in 2006, approximately $343,000 related to the adoption of accounting for share-based compensation under SFAS 123(R). The approximate total income tax benefit accrued and recognized in the Company’s financial statements for the years ended December 31, 2007, 2006 and 2005 related to share-based compensation expenses was approximately $774,000, $741,000 and $345,000, respectively.

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In 2003, the Company acquired an interest in substantially all of a limited partnership hedge fund, (now known as Tricadia), that invests in collateralized debt obligations (“CDO”) securities, Credit Related Structured Product (CRS) securities and other structured product securities that are structured, managed or advised by a Mariner affiliated company. In 2003, the Company made an investment of $11.0 million in Tricadia. Additional investments of $4.65 million, $2.7 million, $0 and $6.25 million were made in 2004, 2005, 2006 and 2007, respectively. The Company is committed to providing an additional $15.4 million, or a total of approximately $40 million, in capital to Tricadia.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements other than as disclosed herein.

Contractual Obligations

The following table presents the Company’s contractual obligations as of December 31, 2007:

	Payments Due by Period
			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
	(in thousands)
Long-term debt obligations	$	100,000		—		—		—	$	100,000
Interest on debt obligations		42,250		6,500		13,000		13,000		9,750
Losses and loss expenses (1)		556,535		124,255		149,277		97,053		185,950
Operating lease obligations		35,585		3,620		8,312		8,253		15,400
Funding commitment (2)(3)		20,400		20,400		—		—		—
Total	$	754,770	$	154,775	$	170,589	$	118,306	$	311,100

(1)	Represents an estimated payout based upon historical paid loss development patterns.
(2)	The commitment to provide capital to Tricadia at the manager’s discretion is $15.4 million. Currently, Tricadia is not assembling any CDO assets as market conditions preclude any meaningful activity. Tricadia also has an investment in Tiptree Financial Partners LP who maintains trading activities in their CLO operations. It is uncertain whether such funds will be drawn to fund the operations of Tricadia or Tiptree Financial Partners LP.
(3)	In January 2008 the Company made a commitment to purchase an interest in a hedge fund in the amount of $5.0 million.

Critical accounting policies

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

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Unpaid losses and loss adjustment expenses are based on individual case estimates for losses reported. A provision is also included, based on actuarial estimates utilizing historical trends in the frequency and severity of paid and reported claims, for losses incurred but not reported, salvage and subrogation recoveries and for loss adjustment expenses. Unpaid losses with respect to asbestos/environmental risks are difficult for management to estimate and require considerable judgment due to the uncertainty regarding the significant issues surrounding such claims. For a further discussion concerning asbestos/environmental reserves see “Reserves.” Unpaid losses and loss adjustment expenses amounted to $556.5 million and $579.2 million at December 31, 2007 and 2006, respectively. Unpaid losses and loss adjustment expenses, net of reinsurance amounted to $306.4 million and $292.9 million at December 31, 2007 and 2006, respectively. Management believes that both the gross and net unpaid loss reserve estimates as of December 31, 2007 have been reasonably estimated. Management continually reviews and updates the estimates for unpaid losses and any changes resulting therefrom are reflected in operating results currently. The potential for future adverse or favorable loss development is highly uncertain and subject to a variety of factors including, but not limited to, court decisions, legislative actions and inflation.

The allowance for doubtful accounts is based on management’s review of amounts due from insolvent or financially impaired companies. Allowances are estimated for both premium receivables and reinsurance receivables. Management continually reviews and updates such estimates for any changes in the financial status of companies. For a further discussion concerning reinsurance receivables see “Reinsurance Ceded.” The allowance for doubtful accounts on reinsurance receivables amounted to $14.1 million and $13.9 million at December 31, 2007 and 2006, respectively. The allowance for doubtful accounts on premiums and other receivables each amounted to $300,000 as of December 31, 2007 and 2006, respectively.

Impairment of investments, included in realized investment gains or losses, results from declines in the fair value of investments which are considered by management to be other-than-temporary. Management reviews investments for impairment based upon specific criteria that include the duration and extent of declines in fair value of the security below its cost or amortized cost. The Company performs a qualitative and quantitative review of all securities in a loss position in order to determine if any impairment is considered to be other-than-temporary. With respect to fixed income investments, declines in fair value of less than 10% are normally considered to be temporary, unless the fixed income security has been downgraded at least two levels by a major rating agency. Additionally, the Company reviews those securities held for six months or more, with fair value declines of greater than 10% at the end of each reporting period. The Company also reviews all securities with any rating agency declines during the reporting period. As a result of this review, the Company will record an impairment charge to earnings if the fair value decline is greater than 20%, if the fixed income security has been downgraded at least two levels by a major rating agency, or if the fair value decline is greater than 10% and the security has been downgraded one level by a major rating agency. This review includes considering the effect of rising interest rates and the Company’s intent and ability to hold impaired securities in the foreseeable future to recoup any losses. In addition to subjecting its securities to the objective tests of percent declines in fair value and downgrades by major rating agencies, when it determines whether declines in the fair value of its securities are other than temporary, the Company also considers the facts and circumstances that may have caused the declines in the value of such securities. As to any specific security, it may consider general market conditions, changes in interest rates, adverse changes in the regulatory environment of the issuer, the duration for which the Company has the intent and the ability to hold the security for the length of any forecasted recovery. Approximately $6.7 million and $371,000 were charged to results from operations for 2007 and 2006, respectively, resulting from fair value declines considered to be other-than-temporary. The write-downs in 2007 primarily relate to the Company’s investments in residential mortgage backed securities that consist of “Alt A” mortgages. Gross unrealized gains and losses on fixed maturity investments available for sale amounted to approximately $486,000 and $175,000, respectively, at December 31, 2007. As of December 31, 2007, there were unrealized losses consecutively for twelve months or longer on fixed income securities available for sale amounting to $174,000. The Company believes these unrealized losses to be temporary and result from changes in market conditions, including interest rates or sector spreads. There were no unrealized gains or losses on equity securities at December 31, 2007 and 2006, respectively.

The Company utilizes the equity method of accounting to account for its limited partnership hedge fund investments. Under the equity method, the Company records all changes in the underlying value of the limited partnership to net investment income in results of operations. Net investment income before investment fees derived from investments in limited partnerships amounted to $13.0 million and $16.5 million for the years ended December 31, 2007 and 2006, respectively. See Item 7A “Quantitative and Qualitative Disclosures About Market Risk” with respect to market risks associated with investments in limited partnership hedge funds.

The Company maintained a trading portfolio at December 31, 2007, but did not have a trading portfolio at year end December 31, 2006. However, the Company engaged in trading activities during the 2006 year. The trading portfolio at December 31, 2007 consisted primarily of commercial middle market debt and preferred stocks; however, the Company has previously maintained trading portfolios including collateralized debt obligations (CDOs), collateralized loan obligations (CLOs) and US Treasury securities. These investments are marked to market with the change recognized in net investment income during the current period. Any realized gains or losses resulting from the sales of such securities are also recognized in net investment income. The Company recorded $2.3 million and $15.8 million in net trading portfolio income before investment fees for the years ended December 31, 2007 and 2006, respectively. See Item 7A “Quantitative and Qualitative Disclosures About Market Risk” with respect to market risks associated with investments in CDO, CLO and commercial middle market securities.

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Reinsurance reinstatement premiums are recorded, as a result of losses incurred by the Company, in accordance with the provisions of the reinsurance contracts. Upon the occurrence of a large severity or catastrophe loss, the Company may be obligated to pay additional reinstatement premiums under its excess of loss reinsurance treaties up to the amount of the original premium paid under such treaties. Reinsurance reinstatement premiums incurred for the years ended December 31, 2007 and 2006 were $3.9 million and $2.4 million respectively.

From January 1, 2003 to December 31, 2005, the Company accounted for stock based compensation using Statement of Financial Accounting Standards No. 123 “Accounting for Awards of Stock Based Compensation to Employees” prospectively for all awards granted, modified or settled after January 1, 2003.

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R “Share-Based Payment” (“SFAS 123R”) using the modified prospective method. SFAS 123R establishes standards for the accounting for transactions that involve stock based compensation. SFAS 123R requires that compensation costs be recognized for the fair value of all share options over their vesting period, including the cost related to the unvested portion of all outstanding share options as of December 31, 2005. The cumulative effect of the adoption of SFAS 123R was not material. The Company recorded approximately $343,000 of additional compensation cost in results from operations for the twelve months ended December 31, 2006 relating to the adoption of accounting for stock based compensation under SFAS 123R. Total stock compensation expense recorded in 2007, 2006 and 2005 amounted to $2.2 million, $2.1 million, and $1.0 million, respectively.

Effect of recent accounting pronouncements

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), an interpretation of FASB Statement No. 109. FIN 48 became effective in 2007 and provides guidance for recognizing the benefits of tax-return positions in the financial statements if it is more-likely-than-not (more than fifty-percent likely) that they will be realized upon final settlement with the respective taxing authorities. The adoption of FIN 48 did not have a material effect on the Company’s financial statements and the Company believes there are no tax positions that would require disclosure under FIN 48. The federal tax returns for 2004 through 2006 are currently open and subject to examination.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP, and enhances disclosures about fair value measurements. SFAS No. 157 applies when other accounting pronouncements require fair value measurements; it does not require new fair value measurements. The Company has not yet determined the estimated impact on its financial condition or results of operations, if any, of adopting SFAS No.157 which becomes effective for fiscal years beginning after November 15, 2007 and interim periods within those years.

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 provides the Company an irrevocable option to report selected financial assets and liabilities at fair value with changes in fair value recorded in earnings. The option is applied, on a contract-by-contract basis, to an entire contract and not only to specific risks, specific cash flows or other portions of that contract. Upfront costs and fees related to a contract for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS 159 to have a material impact on its financial condition or results of operations.

In June 2007, the FASB issued Emerging Issues Task Force Issues No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards (EITF 06-11). EITF 06-11 provides guidance on the treatment of realized income tax benefits related to dividend payments to employees holding equity shares, nonvested equity share units, and outstanding equity share options. EITF 06-11 shall be applied to share-based payment awards that are declared in fiscal years beginning after December 15, 2007. The Company has not yet determined the estimated impact on its financial condition or results of operations, if any, of adopting EITF 06-11.

In December 2007, the FASB issued SFAS 141(R), Business Combinations, which requires most identifiable assets, liabilities, non-controlling interests, and goodwill acquired in a business combination to be recorded at full fair value. Under SFAS 141(R), all business combinations will be accounted for by applying the acquisition method (referred to as the purchase method in SFAS 141, Business Combinations). SFAS 141(R) is effective for fiscal years beginning on or after December 15, 2008 and is to be applied to business combinations occurring after the effective date. The adoption of SFAS 141(R) is not expected to have an impact on its financial condition or results of operations.

In December 2007, the FASB issued SFAS 160, Non-controlling Interests in Consolidated Financial Statements, which requires non-controlling interests (previously referred to as minority interests) to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The adoption of SFAS 160 is not expected to have an impact on its financial condition or results of operations.

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Impact of Inflation

Periods of inflation have prompted the pools, and consequently the Company, to react quickly to actual or potential imbalances between costs, including claim expenses, and premium rates. These imbalances have been corrected mainly through improved underwriting controls, responsive management information systems and frequent review of premium rates and loss experience.

Inflation also affects the final settlement costs of claims, which may not be paid for several years. The longer a claim takes to settle, the more significant the impact of inflation on final settlement costs. The Company periodically reviews outstanding claims and adjusts reserves for the pools based on a number of factors, including inflation.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk includes the potential for future losses due to changes in the fair value of financial instruments, which relates mainly to the Company’s investment portfolio. Those risks associated with the investment portfolio include the effects of exposure to adverse changes in interest rates, credit quality, hedge fund and illiquid securities including CDO/CLO, commercial middle market and residential mortgage backed securities.

Interest rate risk includes the changes in the fair value of fixed maturities based upon changes in interest rates. The Company considers interest rate risk and the overall duration of the Company’s loss reserves in evaluating the Company’s investment portfolio.

The following tabular presentation outlines the expected cash flows of fixed maturities available for sale for each of the next five years and the aggregate cash flows expected for the remaining years thereafter based upon maturity dates. Fixed maturities include tax exempts and taxable securities with applicable weighted average interest rates. Taxable securities include floating rate mortgage-backed securities that have prepayment features which may cause actual cash flows to differ from those based upon maturity date. There is $134.9 million of principal amounts related to such securities included in the $143 million for “Taxables” presented in the “There-after” column.

	Future cash flows of expected principal amounts
	(Dollars in millions)
																		Total		Total
															There-			Amortized		Fair
	2008			2009			2010		2011			2012			after			Cost		Value
Tax-exempts	$	7		$	—		$	—	$	—		$	—		$	71		$	78	$	78
Average interest rate		3.4	%		—			—		—			—			5.1	%		—		—
Taxables	$	8		$	1		$	—	$	9		$	4		$	143		$	165	$	163
Average interest rate		4.0	%		9.5	%		—		4.3	%		7.6	%		5.8	%		—		—
Total	$	15		$	1		$	—	$	9		$	4		$	214		$	243	$	241

Credit quality risk includes the risk of default by issuers of debt securities. As of December 31, 2007, 97% of the fair value of the Company’s fixed income and short term investment portfolios were considered investment grade. As of December 31, 2007, the Company invested approximately $11.4 million in fixed maturities that are below investment grade, with a concentration in investments rated “ BB+” by S&P. The Company seeks to mitigate market risk associated with such investments by maintaining a diversified portfolio of such securities that limits the concentration of investment in any one issuer. The largest single investment made by the Company in such securities amounted to $4.3 million.

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

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

54

The Company invests in illiquid securities including CDO, CLO and commercial middle market debt which are private placements. The fair value of each security is provided by securities dealers. The markets for these types of securities can be illiquid and, therefore, the price obtained from dealers on these securities is subject to change, depending upon the underlying market conditions of these securities, including the potential for downgrades or defaults on the underlying collateral of the security. The Company seeks to mitigate market risk associated with such investments by maintaining a diversified portfolio of such securities that limits the concentration of investment in any one issuer. The excess of cost over the fair value of the commercial middle market securities was recorded in net investment income and amounted to $1.7 million at December 31, 2007. The largest single investment made by the Company in such securities amounted to $8 million at December 31, 2007. The total amount invested in such securities at fair value as of December 31, 2007 was $8.3 million. There were no CLO or CDO securities in the fixed income portfolio as of December 31, 2007.

The Company has investments in residential mortgage backed securities amounting to $135 million at December 30, 2007. There were no unrealized investment losses on such securities at December 30, 2007. The Company recorded $6.5 million in declines in fair value considered to be other-than-temporary on such securities in 2007. These residential mortgage backed securities, consisting of nine “Alt A” mortgage securities, have floating interest rates and are rated AAA/Aaa by S&P/Moody’s. “Alt A” securities are residential home loans made to individuals that maintain credit scores similar to those individuals receiving prime loans, but provide less than full documentation required for a prime loan. The fair value of each security is provided by pricing services or security dealers. There has been considerable amount of turmoil in the U.S. housing market in 2007 which has led to market declines in such securities. The markets for these types of securities can be illiquid and, therefore, the price obtained on these securities is subject to change, depending upon the underlying market conditions of these securities. The Company seeks to mitigate market risk associated with such investments by maintaining a diversified portfolio of such securities that focuses on high quality investments that limit the concentration of investment in any one issuer.

The Company maintains an investment in a limited partnership hedge fund, (Tricadia), that invests in CDO/CLO, commercial middle market debt, Credit Related Structured Product (CRS) securities and other structured product securities that are structured, managed or advised by a Mariner affiliated company. This investment was consolidated in the Company’s financial statements until August 1, 2006. As of December 31, 2007 and December 31, 2006, the investment in Tricadia was included in the balance sheet under the category of limited partnerships at equity. CDOs and CRSs are purchased by various broker dealers. Such purchases are then repackaged and sold to investors within a relatively short time period, normally within a few months. Tricadia earns a fee for servicing these arrangements and provides a margin account as collateral to secure the credit risk of the purchases made by the dealers under these agreements. As of December 31, 2007 and 2006, Tricadia provided $0 and $8 million in cash as collateral to secure any purchases made by the dealers. Tricadia does not share in the gains or losses on investments held by the dealer. Management expects that only under a remote circumstance would the margin account be drawn by the dealer to secure losses. Many of the securities purchased are investment grade floating rate securities and large unrealized losses are not normally expected to occur. The Company seeks to mitigate market risk associated with such investments by concentrating on investment grade, floating rate securities with the risk of loss being limited to the cash held in the margin accounts.

The Company monitors market risks on a regular basis through meetings with Mariner, examining the existing portfolio and reviewing potential changes in investment guidelines, the overall effect of which is to allow management to make informed decisions concerning the impact that market risks have on the Company’s investments.

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements required by this item and the reports of the independent accountants therein required by Item 15(a) of this report commence on page F-3. See accompanying Index to the Consolidated Financial Statements on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this annual report on Form 10-K was made under the supervision and with the participation of our management, including our President and Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our President and Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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Management’s Report on Internal Control over Financial Reporting

Management’s Report on Internal Control over Financial Reporting, which appears on page F-2, is incorporated herein by reference.

Changes in Internal Controls

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

Item 9B. Other Information

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

The information required by this Item is incorporated herein by reference from the sections captioned “Election of Directors,” “Nominees for Directors,” “Committees of the Board,” “Executive Officers of the Company” and “Section 16(a) Beneficial Ownership Reporting Compliance” in NYMAGIC’s definitive proxy statement for the 2008 Annual Meeting of Shareholders to be filed within 120 days after December 31, 2007.

On May 24, 2007 we filed with the New York Stock Exchange (“NYSE”) the Annual CEO Certification regarding the Company’s compliance with the NYSE’s Corporate Governance listing standards as required by Section 303A-12(a) of the NYSE Listed Company Manual. In addition, the Company has filed as exhibits to this annual report and to the annual report on Form 10-K for the year ended December 31, 2007, the applicable certifications of its President and Chief Executive Officer and its Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002, regarding the quality of the Company’s public disclosures.

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference from the sections captioned “Compensation of Directors” and “Compensation of Executive Officers” in NYMAGIC’s definitive proxy statement for the 2008 Annual Meeting of Shareholders to be filed within 120 days after December 31, 2007.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information related to securities authorized for issuance under our equity compensation plans as of December 31, 2007 appears below:

					Number of
					securities
					remaining
					available for
	Number of				future issuance
	securities to be		Weighted-average		under equity
	issued upon				compensation
	exercise of		exercise price of		plans
	outstanding				(excluding
	options,		outstanding options,		securities
	warrants and				reflected in
	rights		warrants and rights		column (a))
Plan category	(a)		(b)		(c)
Equity compensation plans approved by security holders		432,750	$	15.69		344,252
Equity compensation plans not approved by security holders		4,000		—		—
Total		436,750	$	15.38		344,252

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated herein by reference from the section captioned “Certain Relationships and Related Transactions” in NYMAGIC’s Proxy Statement for the 2008 Annual Meeting of Shareholders to be filed within 120 days after December 31, 2007.

Item 14. Principal Accounting Fees and Services

The information required by Item 9(e) of Schedule 14A is incorporated herein by reference to the Company’s definitive proxy statement to be filed within 120 days after December 31, 2007 with the Securities and Exchange Commission pursuant to Regulation 14A of the Exchange Act.

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PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) 1.	Financial Statements
	The list of financial statements appears in the accompanying index on page F-1.
2.	Financial Statement Schedules
	The list of financial statement schedules appears in the accompanying index on page F-1.
3.	Exhibits
3.1	Charter of NYMAGIC, INC. (Filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on December 16, 2003 (Commission File No. 1-11238) and incorporated herein by reference).
3.2	Amended and Restated By-Laws. (Filed as Exhibit 3.3 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (Commission File No. 1-11238) and incorporated herein by reference).
4.0	Specimen Certificate of common stock (Filed as Exhibit 4.0 of Amendment No. 2 to the Registrant’s Registration Statement No. 33-27665) and incorporated herein by reference).
10.1	Restated Management Agreement dated as of January 1, 1986, by and among Mutual Marine Office, Inc. and Arkwright-Boston Manufacturers Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.2 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File No. 2-88552)and incorporated herein by reference).
10.2	Amendment No. 2 to the Restated Management Agreement, dated as of December 30, 1988, by and among Mutual Marine Office, Inc. and Arkwright Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.2.2. of the Registrant’s Current Report on Form 8-K dated January 6, 1989 (Commission File No. 2-88552) and incorporated herein by reference).
10.3	Amendment No. 3 to the Restated Management Agreement, dated as of December 31, 1990 by and among Mutual Marine Office, Inc. and Arkwright Mutual Insurance Company, Utica Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.2.3. of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 3-27665) and incorporated herein by reference).
10.4	Restated Management Agreement dated as of January 1, 1986, by and among Mutual Inland Marine Office, Inc. and Arkwright-Boston Manufacturers Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.4 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File No. 2-88552)and incorporated herein by reference).
10.5	Amendment No. 2 to the Restated Management Agreement, dated as of December 30, 1988, by and among Mutual Inland Marine Office, Inc. and Arkwright Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.4.2 of the Registrant’s Current Report on Form 8-K, dated January 6, 1989 (Commission File No. 2-88552) and incorporated herein by reference).
10.6	Amendment No. 3 to the Restated Management Agreement, dated as of December 31, 1990, by and among Mutual Inland Marine Office, Inc. and Arkwright Mutual Insurance Company, Utica Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.4.3. of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 3-27665) and incorporated herein by reference).
10.7	Restated Management Agreement dated as of January 1, 1986, by and among Mutual Marine Office of the Midwest, Inc. and Arkwright-Boston Manufacturers Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.6 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File No. 2-88552) and incorporated herein by reference).
10.8	Amendment No. 2 to the Restated Management Agreement dated as of December 30, 1988, by and among Mutual Marine Office of the Midwest, Inc. and Arkwright Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.6.2 of the Registrant’s Current Report on Form 8-K, dated January 6, 1989 (Commission File No. 2-88552) and incorporated herein by reference).
10.9	Amendment No. 3 to the Restated Management Agreement dated as of December 31, 1990, by and among Mutual Marine Office of the Midwest, Inc. and Arkwright Mutual Insurance Company, Utica Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.6.3. of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 3-27665) and incorporated herein by reference).

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10.10	Restated Management Agreement dated as of January 1, 1986, by and among Pacific Mutual Marine Office, Inc. and Arkwright-Boston Manufacturers Mutual Insurance Company, Lumber Mutual Insurance Company, Utica Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.8 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File No. 2-88552)and incorporated herein by reference).
10.11	Amendment No. 2 to the Restated Management Agreement dated as of December 30, 1988, by and among Pacific Mutual Marine Office, Inc. and Arkwright Mutual Insurance Company, Lumber Mutual Insurance Company, Utica Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.8.2 of the Registrant’s Current Report on Form 8-K, dated January 6, 1989 (Commission File No. 2-88552) and incorporated herein by reference).
10.12	Amendment to Restated Management Agreement dated as of December 31, 1990, by and among Pacific Mutual Marine Office, Inc. and Arkwright Mutual Insurance Company, Utica Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.8.3. of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (Commission File No. 1-11238) and incorporated herein by reference).
+10.13	1991 Stock Option Plan (Filed as Exhibit A to the Registrant’s Proxy Statement for its 1991 Annual Meeting of Shareholders (Commission File No. 1-11238) and incorporated herein by reference).
10.14	Form of Indemnification Agreement (Filed as Exhibit 10.10 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (Commission File No. 1-11238) and incorporated herein by reference).
+10.15	1999 NYMAGIC, INC. Phantom Stock Plan (Filed as Exhibit 10.11 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (Commission File No. 1-11238) and incorporated herein by reference).
+10.16	Severance Agreement dated as of December 31, 2001 by and between NYMAGIC, INC. and Thomas J. Iacopelli (Filed as Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (Commission File No. 1-11238) and incorporated herein by reference).
+10.17	Severance Agreement dated as of July 9, 2002 by and between NYMAGIC, INC. and Paul Hart. Filed as Exhibit 10.17 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003 (Commission File No. 1-11238) and incorporated herein by reference.
+10.18	NYMAGIC, INC. 2002 Nonqualified Stock Option Plan (Filed as Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (Commission File No. 1-11238) and incorporated herein by reference).
+10.19	NYMAGIC, INC. Amended and Restated 2004 Long-Term Incentive Plan (Filed as Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004 (Commission File No. 1-11238) and incorporated herein by reference).
+10.20	NYMAGIC, INC. Employee Stock Purchase Plan (Filed as Appendix C to the Registrant’s Proxy Statement for its 2004 Annual Meeting of Stockholders (Commission File No. 1-11238) and incorporated herein by reference).
+10.21	Forms of Election for Deferred Compensation Program (Filed as Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004 (Commission File No. 1-11238) and incorporated herein by reference).
10.22	Voting Agreement among Mariner Partners, Inc. and certain stockholders of the Company dated as of February 20, 2002, as amended March 1, 2002 (Filed as Exhibit 99.1 to the Schedule 13D filed by Mariner Partners, Inc. and the other reporting persons named therein on March 4, 2002 (Commission File No. 5-40907) and incorporated herein by reference).
10.23	Amendment No. 2 dated as of January 27, 2003 to Voting Agreement among Mariner Partners, Inc. and certain stockholders of the Company (Filed as Exhibit 99.2 to the Schedule 13D/A filed by Mariner Partners, Inc. and the other reporting persons named therein on April 10, 2003 (Commission File No. 5-40907) and incorporated herein by reference).
10.24	Amendment No. 3 dated as of March 12, 2003 to Voting Agreement among Mariner Partners, Inc. and certain stockholders of the Company (Filed as Exhibit 99.3 to the Schedule 13D/A filed by Mariner Partners, Inc. and the other reporting person named therein on April 10, 2003 (Commission File No. 5-40907) and incorporated herein by reference).
10.25	Amendment No. 4 dated as of February 24, 2004 to Voting Agreement among Mariner Partners, Inc. and certain stockholders of the Company. (Filed as Exhibit 10.22 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003 (Commission File No. 1-11238) and incorporated herein by reference).
10.26	Resolutions of the Board of Directors of the Company’s subsidiary, New York Marine And General Insurance Company, adopted July 18, 2002, committing not to pay dividends to the Company without the consent of the New York State Department of Insurance prior to July 31, 2004 (Filed as Exhibit 10.1 to the Registrant’s original Form 10-Q for the quarter ended June 30, 2003 (Commission File No. 1-11238) and incorporated herein by reference).
10.27	Resolutions of the Board of Directors of the Company’s subsidiary, Gotham Insurance Company, adopted July 18, 2002, committing not to pay dividends to the Company without the consent of the New York State Department of Insurance prior to July 31, 2004 (Filed as Exhibit 10.2 to the Registrant’s original Form 10-Q for the quarter ended June 30, 2003 (Commission File No. 1-11238) and incorporated herein by reference).

58

10.28	Amended and Restated Investment Management Agreement between Mariner Partners, Inc. and NYMAGIC, Inc. and New York Marine And General Insurance Company and Gotham Insurance Company, dated as of December 6, 2002 (Filed as Exhibit 10.6 of the Registrant’s amended Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (Commission File No. 1-11238) and incorporated herein by reference).
10.29	Limited Partnership Agreement of Mariner Tiptree (CDO) Fund I, L.P. dated as of May 1, 2003 (Filed as Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 20, 2004 (Commission File No. 1-11238) and incorporated herein by reference).
10.30	Securities Purchase Agreement dated as of January 31, 2003 by and between NYMAGIC, Inc. and Conning Capital Partners VI, L.P. (Filed as Exhibit 99.1 of the Registrant’s Current Report on Form 8-K dated January 31, 2003 (Commission File No. 1-11238) and incorporated herein by reference).
10.31	Registration Rights Agreement dated as of January 31, 2003 by and between NYMAGIC, Inc. and Conning Capital Partners VI, L.P. (Filed as Exhibit 99.2 of the Registrant’s Current Report on Form 8-K dated January 31, 2003 (Commission File No. 1-11238) and incorporated herein by reference).
10.32	Option Certificate dated as of January 31, 2003 by and between NYMAGIC, INC. and Conning Capital Partners VI, L.P. (Filed as Exhibit 99.3 of the Registrant’s Current Report on Form 8-K dated January 31, 2003 (Commission File No. 1-11238) and incorporated herein by reference).
10.33	Registration Rights Agreement dated as of March 11, 2004 by and among NYMAGIC, INC. and Keefe, Bruyette and Woods, Inc. and the other initial purchasers referred to therein. (Filed as Exhibit 10.31 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003 (Commission File No. 1-11238) and incorporated herein by reference).
10.34	Indenture dated as of March 11, 2004 by and between NYMAGIC, INC. and Wilmington Trust Company, as trustee related to the Company’s 6.50% Senior Notes due 2014. (Filed as Exhibit 10.32 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003 (Commission File No. 1-11238) and incorporated herein by reference).
10.35	First Supplemental Indenture dated as of March 11, 2004 by and between NYMAGIC, INC. and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.33 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003 (Commission File No. 1-11238) and incorporated herein by reference).
10.36	Sublease dated as of December 12, 2002 by and between BNP Paribas and New York Marine And General Insurance Company (Filed as Exhibit 10.20 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (Commission File No. 1-11238) and incorporated herein by reference).
10.37	Stock Purchase Agreement, dated as of January 7, 2005, by and among the Company and the sellers named therein (Filed as Exhibit 10.1 of the Registrant’s Current Report on Form 8-K dated January 10, 2005 (Commission File No. 1-11238) and incorporated herein by reference).
+10.38	Consulting Agreement, dated as of April 6, 2005, by and between the Company and William D. Shaw, Jr. (Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 1-11238) filed on April 6, 2005 and incorporated herein by reference).
+10.39	Form of Unrestricted Share Award Agreement. (Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-11238) and incorporated herein by reference).
10.40	Amended and Restated Voting Agreement dated as of October 12, 2005, by and among Mark W. Blackman, Lionshead Investments, LLC, Robert G. Simses, and Mariner Partners, Inc. (Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 1-11238) filed on October 14, 2005, and incorporated herein by reference).
10.41	Sale and Purchase Agreement dated August 31, 2005 by and among the Robertson Group Limited and the Edinburgh Woollen Mill (Group) Limited and MMO EU Limited. (Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (Commission File No. 1-11238) and incorporated herein by reference).
10.42	Taxation Deed. (Filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (Commission File No. 1-11238) and incorporated herein by reference).
+10.43	Form of Restricted Share Award Agreement. (Filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (Commission File No. 1-11238) and incorporated herein by reference).
10.44	Letter Agreement dated as of March 22, 2006 by and between NYMAGIC, INC. and Conning Capital Partners VI, L.P. (Filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K (File No. 1-11238) filed on March 28, 2006 and incorporated herein by reference).
10.45	Amended and Restated Option Certificate dated as of March 22, 2006 by and between NYMAGIC, INC. and Conning Capital Partners VI, L.P (Filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K (File No. 1-11238) filed on March 28, 2006 and incorporated herein by reference).

59

+10.46	Consulting Agreement, dated as of March 30, 2006, by and between William D. Shaw, Jr. and NYMAGIC, INC.( (Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 1-11238) filed on March 31, 2006 and incorporated herein by reference).
+10.47	Employment Agreement, dated as of April 17, 2006, by and between A. George Kallop and NYMAGIC, INC. (Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 1-11238) filed on April 20, 2006 and incorporated herein by reference).
+10.48	Performance Share Award Agreement, dated as of April 17, 2006, by and between A. George Kallop and NYMAGIC, INC. (Exhibits omitted. Will be provided to the SEC upon request.) (Filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 1-11238) filed on April 20, 2006 and incorporated herein by reference).
10.49	Employment Agreement, dated as of April 18, 2006, by and between George R. Trumbull, III and NYMAGIC, INC. (Filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 1-11238) filed on April 20, 2006 and incorporated herein by reference).
10.50	Performance Share Award Agreement, dated as of April 18, 2006, by and between George R. Trumbull, III and NYMAGIC, INC. (Filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 1-11238) filed on April 20, 2006 and incorporated herein by reference).
10.51	Amended and Restated Limited Partnership Agreement by and between NYMAGIC, INC., Tricadia CDO Fund, L.P., as general partner, and the limited partners named therein, dated as of August 1, 2006. (Filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K (File No. 1-11238) filed on August 23, 2006 and incorporated herein by reference).
+10.52	Employment Agreement, dated January 9, 2007, by and between George R. Trumbull, III and NYMAGIC, INC. (Filed as Exhibit 10.52 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, (Commission File no. 1-11238) and incorporated herein by reference.
+10.53	2004 Amended and Restated Long-Term Incentive Plan Award Agreement, dated January 9, 2007, by and between
	NYMAGIC, INC. and George R. Trumbull, III. (Filed as Exhibit 10.53 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, (Commission File no. 1-11238) and incorporated herein by reference.
+10.54	Amendment to Employment Agreement, dated January 9, 2007, by and between A. George Kallop and NYMAGIC, INC. (Filed as Exhibit 10.54 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, (Commission File no. 1-11238) and incorporated herein by reference.
+10.55	2004 Amended and Restated Long-Term Incentive Plan Award Agreement, dated January 9, 2007, by and between NYMAGIC, INC. and A. George Kallop. (Filed as Exhibit 10.55 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, (Commission File no. 1-11238) and incorporated herein by reference.
+10.56	Consulting Agreement, dated as of March 22, 2007 by and between William D. Shaw, Jr. and NYMAGIC, INC. (Filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (Commission File no. 1-11238) and incorporated herein by reference.
+*10.57	2004 Amended and Restated Long-term Incentive Plan Award Agreement, dated January 9, 2008, between A. George Kallop and NYMAGIC, INC.
+*10.58	2004 Amended and Restated Long-term Incentive Plan Award Agreement, dated January 10, 2008, between George R. Trumbull, III and NYMAGIC, INC.
+*10.59	Employment Agreement, dated January 10, 2008, between NYMAGIC, INC. and George R. Trumbull, III.
+*10.60	Severance Agreement, dated February 15, 2007, between Mutual Marine Office, Inc and Craig Lowenthal.
*10.61	Lease, dated June 5, 2007 by and between Metropolitan 919 Third Avenue LLC and New York Marine And General Insurance Company.
*21.1	Subsidiaries of the Registrant.
*23.1	Consent of KPMG LLP.
*31.1	Certification of A. George Kallop, President and Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification of Thomas J. Iacopelli, Chief Financial Officer, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	Certification of A. George Kallop, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2	Certification of Thomas J. Iacopelli, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed herewith.
+	Represents a management contract or compensatory plan or arrangement.

60

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

NYMAGIC, INC. (Registrant)
By:	/s/ A. George Kallop
A. George Kallop
President and Chief Executive Officer

Date: March 12, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Name	Title	Date
/s/ John R. Anderson   John R. Anderson	Director	March 12, 2008
/s/ Glenn J. Angiolillo   Glenn J. Angiolillo	Director	March 12, 2008
/s/ John T. Baily   John T. Baily	Director	March 12, 2008
/s/ David E. Hoffman   David E. Hoffman	Director	March 12, 2008
/s/ A. George Kallop   A. George Kallop	Director and President and  Chief Executive Officer	March 12, 2008
/s/ William J. Michaelcheck   William J. Michaelcheck	Director	March 12, 2008
/s/ William D. Shaw, Jr.   William D. Shaw, Jr.	Director	March 12, 2008
/s/ Robert G. Simses   Robert G. Simses	Director	March 12, 2008
/s/ George R. Trumbull, III   George R. Trumbull, III	Director and Chairman	March 12, 2008
/s/ Glenn R. Yanoff   Glenn R. Yanoff	Director	March 12, 2008
/s/ David W. Young   David W. Young	Director	March 12, 2008
/s/ Thomas J. Iacopelli Thomas J. Iacopelli	Principal Accounting Officer and Chief Financial Officer	March 12, 2008

61

NYMAGIC, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Management’s Report on Internal Control Over Financial Reporting	F-2
Report of Independent Registered Public Accounting Firm	F-3
Report of Independent Registered Public Accounting Firm	F-4
Consolidated Balance Sheets	F-5
Consolidated Statements of Income	F-6
Consolidated Statements of Shareholders’ Equity	F-7
Consolidated Statements of Cash Flows	F-8
Notes to Consolidated Financial Statements	F-9
Financial Statement Schedule II	F-32
Financial Statement Schedule III	F-34
Financial Statement Schedule V	F-35
Financial Statement Schedule VI	F-36

F-1

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2007. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and, (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 based upon criteria in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (''COSO’’). Based on our assessment, management determined that the Company’s internal control over financial reporting was effective as of December 31, 2007 based on the criteria in Internal Control-Integrated Framework issued by COSO.

Dated: March 12, 2008

A. George Kallop,
President and	Thomas J. Iacopelli,
Chief Executive Officer	Chief Financial Officer

F-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
NYMAGIC, INC.:

We have audited NYMAGIC, INC. and subsidiaries internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). NYMAGIC, INC.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, NYMAGIC, INC. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of NYMAGIC, INC. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2007, and our report dated March 14, 2008 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

New York, New York
March 14, 2008

F-3

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
NYMAGIC, INC.:

We have audited the accompanying consolidated balance sheets of NYMAGIC, INC. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2007. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NYMAGIC, INC. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), NYMAGIC, INC. and subsidiaries internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 14, 2008, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP
New York, New York

March 14, 2008

F-4

NYMAGIC, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2007			2006
ASSETS
Investments:
Fixed maturities:
Available for sale at fair value (amortized cost $162,579,526 and $327,432,016)	$	162,890,600		$	327,566,525
Trading commercial middle market debt at fair value (cost $9,982,500 and $0)		8,293,725			—
Trading municipal obligations at fair value (cost $70,688,602 and $0)		70,243,560			—
Equity securities trading at fair value (cost $65,001,440 and $0)		66,325,265			—
Limited partnerships at equity (cost $148,915,402 and $147,185,828)		188,295,547			182,324,313
Short-term investments		165,000			136,601,455
Cash and cash equivalents		204,913,343			18,379,401
Total cash and investments		701,127,040			664,871,694
Accrued investment income		2,590,664			2,033,945
Premiums and other receivables, net		26,275,077			29,266,353
Receivable for securities sold		22,885,923			18,805,633
Reinsurance receivables on unpaid losses, net		250,129,540			286,237,546
Reinsurance receivables on paid losses, net		38,804,022			47,548,369
Deferred policy acquisition costs		14,989,585			13,371,632
Prepaid reinsurance premiums		21,749,663			29,579,428
Deferred income taxes		14,443,675			10,778,960
Property, improvements and equipment, net		4,816,836			9,949,970
Other assets		10,164,557			6,852,772
Total assets	$	1,107,976,582		$	1,119,296,302
LIABILITIES
Unpaid losses and loss adjustment expenses	$	556,535,344		$	579,178,634
Reserve for unearned premiums		87,577,497			93,649,827
Ceded reinsurance payable		27,071,178			44,792,821
Notes payable		100,000,000			100,000,000
Payable for securities purchased		28,678,666			—
Dividends payable		815,267			788,980
Other liabilities		27,853,083			30,186,494
Total liabilities		828,531,035			848,596,756
SHAREHOLDERS’ EQUITY
Common stock		15,672,090			15,505,815
Paid-in capital		47,313,015			42,219,900
Accumulated other comprehensive income		202,196			87,432
Retained earnings		296,641,235			286,147,400
		359,828,536			343,960,547
Treasury Stock, at cost, 6,965,077 and 6,647,377 shares		(80,382,989	)		(73,261,001	)
Total shareholders’ equity		279,445,547			270,699,546
Total liabilities and shareholders’ equity	$	1,107,976,582		$	1,119,296,302

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

F-5

NYMAGIC, INC.

CONSOLIDATED STATEMENTS OF INCOME

	Year ended December 31,
	2007			2006			2005
Revenues:
Net premiums earned	$	166,095,871		$	151,834,141		$	134,557,204
Net investment income		35,489,369			47,897,224			36,059,811
Net realized investment losses		(6,902,852	)		(402,554	)		(805,276	)
Commission and other income (loss), net		(4,245,541	)		1,137,873			1,532,756
Total revenues		190,436,847			200,466,684			171,344,495
Expenses:
Net losses and loss adjustment expenses incurred		89,844,108			86,135,655			92,290,259
Policy acquisition expenses		37,694,535			31,336,186			30,491,014
General and administrative expenses		36,018,289			31,401,429			27,183,486
Interest expense		6,725,542			6,712,064			6,678,703
Total expenses		170,282,474			155,585,334			156,643,462
Income before income taxes		20,154,373			44,881,350			14,701,033
Income tax provision:
Current		10,508,537			16,776,694			6,151,878
Deferred		(3,726,514	)		(1,745,824	)		(1,151,724	)
Total income tax expense		6,782,023			15,030,870			5,000,154
Net income	$	13,372,350		$	29,850,480		$	9,700,879
Weighted average number of shares of common stock outstanding-basic		8,895,729			8,806,928			8,733,872
Basic earnings per share	$	1.50		$	3.39		$	1.11
Weighted average number of shares of common stock outstanding-diluted		9,190,228			9,177,284			8,918,190
Diluted earnings per share	$	1.46		$	3.25		$	1.09

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

F-6

NYMAGIC, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Year ended December 31,
	2007			2006			2005
Common stock:
Balance, beginning of year	$	15,505,815		$	15,415,790		$	15,335,740
Shares issued		166,275			90,025			80,050
Balance, end of year		15,672,090			15,505,815			15,415,790
Paid-in capital:
Balance, beginning of year	$	42,219,900		$	38,683,462		$	36,781,911
Shares issued and other		5,093,115			3,536,438			1,901,551
Balance, end of year		47,313,015			42,219,900			38,683,462
Accumulated other comprehensive income (loss):
Balance, beginning of year	$	87,432		$	(569,153	)	$	742,364
Unrealized gain (loss) on securities, net of reclassification adjustment		114,764			656,585			(1,311,517	)
Other comprehensive income (loss)		114,764			656,585			(1,311,517	)
Balance, end of year		202,196			87,432			(569,153	)
Retained earnings:
Balance, beginning of year	$	286,147,400		$	259,015,028		$	251,418,750
Net income		13,372,350			29,850,480			9,700,879
Dividends declared		(2,878,515	)		(2,718,108	)		(2,104,601	)
Balance, end of year		296,641,235			286,147,400			259,015,028
Treasury stock, at cost:
Balance, beginning of year	$	(73,261,001	)	$	(73,261,001	)	$	(46,161,173	)
Net purchase of treasury shares		(7,121,988	)		—			(27,099,828	)
Balance, end of year		(80,382,989	)		(73,261,001	)		(73,261,001	)
Total Shareholders’ Equity		279,445,547			270,699,546			239,284,126
Comprehensive income:
Net income	$	13,372,350		$	29,850,480		$	9,700,879
Other comprehensive income (loss)		114,764			656,585			(1,311,517	)
Comprehensive income		13,487,114			30,507,065			8,389,362
	Number of Shares
Common stock, par value $1 each:
Issued, beginning of year		15,505,815			15,415,790			15,335,740
Shares issued		166,275			90,025			80,050
Issued, end of year		15,672,090			15,505,815			15,415,790
Common stock, authorized shares, par value $1 each		30,000,000			30,000,000			30,000,000
Common stock, shares outstanding, end of year		8,707,013			8,858,438			8,768,413
Dividends declared per share	$	.32		$	.30		$	.24

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

F-7

NYMAGIC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2007			2006			2005
Cash flows from operating activities:
Net income	$	13,372,350		$	29,850,480		$	9,700,879
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for deferred taxes		(3,726,514	)		(1,745,824	)		(1,151,724	)
Net realized investment losses		6,902,852			402,554			805,276
Equity in earnings of limited partnerships		(12,985,185	)		(16,474,693	)		(17,603,357	)
Net bond amortization		141,774			200,614			(268,182	)
Depreciation and other, net		1,295,852			968,818			705,758
Loss on abandonment of computer equipment and software		5,315,965			—			—
Changes in:
Premiums and other receivables		2,991,276			(3,933,720	)		17,265,886
Reinsurance receivables paid and unpaid, net		44,852,353			(6,098,829	)		(65,392,458	)
Ceded reinsurance payable		(17,721,643	)		9,064,476			10,265,504
Accrued investment income		(556,719	)		792,120			(176,521	)
Deferred policy acquisition costs		(1,617,953	)		(1,379,904	)		1,063,569
Prepaid reinsurance premiums		7,829,765			(7,386,000	)		(815,271	)
Other assets		(3,311,785	)		(1,343,180	)		(794,902	)
Unpaid losses and loss adjustment expenses		(22,643,290	)		(9,686,515	)		85,604,011
Reserve for unearned premiums		(6,072,330	)		10,411,836			149,597
Other liabilities		(4,244,598	)		(2,832,280	)		7,189,803
Trading portfolio activities		(116,177,935	)		109,763,613			(110,580,538	)
Total adjustments		(119,728,115	)		80,723,086			(73,733,549	)
Net cash (used in) provided by operating activities		(106,355,765	)		110,573,566			(64,032,670	)
Cash flows from investing activities:
Fixed maturities acquired		(23,946,795	)		(313,966,624	)		(247,136,021	)
Limited partnerships acquired		(43,750,000	)		(55,570,000	)		(17,350,000	)
Fixed maturities sold		179,432,179			220,876,103			97,941,993
Limited partnerships sold		50,763,951			55,905,244			85,839,946
Net sale (purchase) of short-term investments		136,671,984			(56,575,517	)		219,023,303
Fixed maturities matured		2,081,000			15,845,000			8,448,000
Receivable for securities sold and not yet settled		(4,080,290	)		34,206,452			(47,944,697	)
Acquisition of property & equipment, net		(1,478,683	)		(2,660,398	)		(3,846,538	)
Payable for securities purchased and not yet settled		—			(9,000,000	)		9,000,000
Deconsolidation of investment in Tricadia limited partnership		—			(6,940,528	)		—
Net cash provided by (used in) investing activities		295,693,346			(117,880,268	)		103,975,986
Cash flows from financing activities:
Proceeds from stock issuance and other		5,259,390			3,626,463			1,981,601
Cash dividends paid to stockholders		(2,852,228	)		(2,465,648	)		(2,154,947	)
Net purchase of treasury stock		(7,121,988	)		—			(27,099,828	)
Payable for treasury stock purchased and not yet settled		1,911,187			—			—
Net cash (used in) provided by financing activities		(2,803,639	)		1,160,815			(27,273,174	)
Net increase (decrease) in cash and cash equivalents		186,533,942			(6,145,887	)		12,670,142
Cash and cash equivalents at beginning of year		18,379,401			24,525,288			11,855,146
Cash and cash equivalents at end of year	$	204,913,343		$	18,379,401		$	24,525,288

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

F-8

NYMAGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary Of Significant Accounting Policies:

Nature of operations

NYMAGIC, INC. (the “Company” or “NYMAGIC”), through its subsidiaries, specialize in underwriting ocean marine, inland marine/fire, other liability and aircraft insurance through insurance pools managed by Mutual Marine Office, Inc. (“MMO”), Pacific Mutual Marine Office, Inc. (“PMMO”), and Mutual Marine Office of the Midwest, Inc. (“Midwest”). MMO, located in New York, PMMO located in San Francisco, and Midwest, located in Chicago, manage the insurance pools in which the Company’s insurance subsidiaries, New York Marine And General Insurance Company (“New York Marine”) and Gotham Insurance Company (“Gotham”), participate. All premiums, losses and expenses are prorated among pool members in accordance with their pool participation percentages. Effective January 1, 1997 and subsequent, the Company increased to 100% its participation in the business produced by the pools. In 2007, the Company closed PMMO’s San Francisco office and its operations were absorbed by MMO.

In 1997, the Company formed MMO EU as a holding company for MMO UK, which operated as a limited liability corporate vehicle to provide capacity, or the ability to underwrite a certain amount of business, for syndicates within Lloyd’s of London (“Lloyd’s”). In 2005 the Company sold MMO UK to the Robertson Group Limited and the Edinburgh Woollen Mill (Group) Limited in consideration for two pounds sterling, and additional minimum consideration estimated at approximately $436,000 based upon the parties entry into a Taxation Deed executed in connection with the sale. The Company also incurred approximately $200,000 in expenses in connection with the sale of MMO UK. In 2007, MMO EU was liquidated. Neither of these sales or transactions had a material impact on the Company’s results of operations.

In 2005, the Company formed Arizona Marine And General Insurance Company, which was renamed Southwest Marine And General Insurance Company (“Southwest Marine”) in July 2006, as a wholly owned subsidiary in the State of Arizona. Southwest Marine writes, among other lines of insurance, excess and surplus lines in New York.

In 2003, the Company obtained an interest in substantially all of a limited partnership hedge fund, Mariner Tiptree (CDO) Fund I, L.P. (“Tiptree”), that invested in Collateralized Debt Obligations (CDO) securities, Credit Related Structured Product (CRS) securities and other structured products. The investment in Tiptree was previously consolidated in the Company’s financial statements. On August 18, 2006, the Company entered into an Amended and Restated Limited Partnership Agreement of Tricadia CDO Fund, L.P. (“Tricadia”), effective as of August 1, 2006, with Tricadia Capital, LLC, the general partner, and the limited partners named therein (the “Amended Agreement”) to amend and restate the Limited Partnership Agreement of Mariner Tiptree (CDO) Fund I, L.P. entered into in 2003 (the “Original Agreement”). The Amended Agreement changed the name of the partnership, amended and restated in its entirety the Original Agreement and provides for the continuation of the partnership under applicable law upon the terms and conditions of the Amended Agreement. The Amended Agreement, among other items, substantially changed the fee income structure as well as provides for the potential conversion of limited partnership interests to equity interests. The fee income was changed in the Amended Agreement from 50% of the fee received by the investment manager in connection with the management of CDOs in Tricadia to a percentage of fees equal to the pro-rata portion of the CDO equity interest held by Tricadia, in no event; however, will the fee be less than 12.5% of the fee received by the investment manager. The Amended Agreement also provided for an additional CDO fee to be determined based upon the management fees earned by the investment manager. These changes resulted in a reduction in the variability of Tricadia thereby lowering or decreasing its expected losses as well as represented a change in the entity’s governing documents or contractual arrangements that changed the characteristics of Tricadia’s equity investment at risk. As a result of these substantive changes to the Original Agreement, the Company concluded that it is no longer the party most closely associated with Tricadia and deconsolidated Tricadia, formerly known as Tiptree, from its financial statements as of August 1, 2006 and has since included Tricadia as a limited partnership investment at equity in the financial statements. See Note 17 “Related Party Transactions.”

As of the date of the Tricadia deconsolidation, reclassification adjustments to the Trading, Limited partnership, Cash and cash equivalents, Accrued investment income, Other assets and the Other liabilities financial statement captions as disclosed on the Company’s balance sheet amounted to $18,584,600, $26,594,107, $6,940,528, $10,187, $1,806,687 and $747,895, respectively. Trading portfolio activities in 2006 include cash flows of $18,584,600 resulting from the effect of deconsolidation of the Tricadia limited partnership investment. Approximately $6,940,528 in uses of cash flows in 2006 resulted from the effect of deconsolidation of the Tricadia limited partnership investment. The deconsolidation had no impact on the Company’s Statement of Income for the year ended December 31, 2006.

F-9

Basis of reporting

The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“GAAP”), which differ in certain material respects from the accounting principles prescribed or permitted by state insurance regulatory authorities for the Company’s domestic insurance subsidiaries. The principal differences recorded under GAAP are deferred policy acquisition costs, an allowance for doubtful accounts, limitations on deferred income taxes, and fixed maturities held for sale are carried at fair value.

The preparation of financial statements requires management to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual amounts could differ from those amounts previously estimated.

Consolidation

The consolidated financial statements include the accounts of the Company, three insurance subsidiaries, New York Marine, Gotham and Southwest Marine, and three agency subsidiaries. Gotham is owned 25% by the Company and 75% by New York Marine. Southwest Marine and Gotham are consolidated in the financial statements as they are 100% indirect subsidiaries of NYMAGIC, INC. All other subsidiaries are wholly owned by NYMAGIC. Since 2003, the Company has been the only limited partner in Tricadia, that invests in CDO securities, CRS securities and other structured product securities, whose financial statements have been included in the consolidated financial statements until August 1, 2006. All intercompany accounts and transactions have been eliminated in consolidation.

Investments

Fixed maturities categorized as “Available for Sale” are reported at estimated fair value and include those fixed income investments where the Company’s intent to carry such investments to maturity may be affected in future periods by changes in market interest rates, tax position or credit quality. Unrealized gains and losses, net of related deferred income taxes, on Available for Sale securities are reflected in accumulated other comprehensive income in shareholders’ equity. All other fixed maturities are categorized as “Trading” and are also reported at estimated fair value. Trading securities are marked to market with the change recognized in net investment income during the current period. Any realized gains and losses resulting from the sales of such securities are also recognized in net investment income. The cost of fixed maturities is adjusted for the amortization of any purchase premiums and the accretion of purchase discounts from the time of purchase of the security to its sale or maturity. This amortization of premium and accretion of discount is recorded in net investment income.

For asset-backed securities, including mortgage-backed securities, interest income is recognized using an effective yield based upon anticipated prepayments and the estimated economic life of the securities. The effective yield reflects actual payments-to-date plus anticipated future payments. Quarterly, prepayments received are compared to scheduled prepayments to recalculate the effective yield. Any resulting difference from this comparison is included as an adjustment to net investment income and future income is recognized using the effective yield arising from the revised changes in assumptions of cash flows.

Equity securities, categorized as “Trading,” are comprised of non-redeemable preferred stock and are reported at estimated fair value. Trading securities are marked to fair value with the change recognized in net investment income during the current period. Any realized gains and losses resulting from the sales of such securities are also recognized in net investment income.

Investments in limited partnerships are reported under the equity method, which includes the cost of the investment and the subsequent proportional share of any partnership earnings or losses. Under the equity method, the partnership earnings or losses are recorded as investment income. The Company’s investments in limited partnership hedge funds include interests in limited partnerships and limited liability companies.

Investment transactions are recorded on their trade date with balances pending settlement reflected in the consolidated balance sheets as a receivable for securities sold, payable for securities purchased or a component of other assets or other liabilities. Short-term investments, which have maturity of one year or less from the date of purchase, are carried at amortized cost, which approximates fair value. The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

F-10

For fixed maturities and equity securities, quoted prices in active markets are used to determine the fair value. When such information is not available, as in the case of securities that are not publicly traded, other valuation techniques are employed. These valuation techniques may include, but are not limited to, using independent pricing sources (dealer marks), identifying comparable securities with quoted market prices and using internally prepared valuations based on certain modeling and pricing methods. The fair value of our hedge fund investments is based upon our equity interest in the financial statements of the limited partnership, whose general partners use various methods to estimate the fair value of the hedge fund. Most funds utilize the market approach whereby prices are used from market-generated transactions involving identical or comparable assets or liabilities.

Net realized investment gains and losses (determined on the basis of first in first out) also include any declines in value which are considered to be other-than-temporary. Management reviews investments for impairment based upon quantitative and qualitative criteria that include downgrades in rating agency levels for securities, the duration and extent of declines in fair value of the security below its cost or amortized cost, interest rate trends, the Company’s intent to hold the security, market conditions, and the regulatory environment for the security’s issuer.

Derivatives

The Company enters into derivatives in the course of its operations. Changes in the fair value of any derivatives are recorded to results of operations.

Premium and policy acquisition cost recognition

Premiums and policy acquisition costs are reflected in income and expense on a monthly pro rata basis over the terms of the respective policies. Accordingly, unearned premium reserves are established for the portion of premiums written applicable to unexpired policies in force, and acquisition costs, consisting mainly of net brokerage commissions and premium taxes relating to these unearned premiums, are deferred to the extent recoverable. The determination of acquisition costs to be deferred considers historical and current loss and loss adjustment expense experience. In measuring the carrying value of deferred policy acquisition costs, consideration is also given to anticipated investment income using an interest rate of 5% for 2007, 2006 and 2005. The Company has provided an allowance for uncollectible premiums receivables of $300,000 as of December 31, 2007 and 2006.

Revenue recognition

Profit commission revenue derived from the reinsurance transactions of the insurance pools is recognized when such amount becomes earned as provided in the treaties to the respective reinsurers. The profit commission becomes due shortly after the treaty expires.

Reinsurance

The Company’s insurance subsidiaries participate in various reinsurance agreements on both an assumed and ceded basis. The Company uses various types of reinsurance, including quota share, excess of loss and facultative agreements, to spread the risk of loss among several reinsurers and to limit its exposure from losses on any one occurrence. Any recoverable due from reinsurers is recorded in the period in which the related gross liability is established.

Reinsurance reinstatement premiums are incurred by the Company based upon the provisions of the reinsurance contracts.

The Company accounts for all reinsurance receivables and prepaid reinsurance premiums as assets.

Depreciation

Property, equipment and leasehold improvements are depreciated over their estimated useful lives, which are approximately 3 to 12 years. External costs incurred in developing or obtaining software are capitalized and amortized over their useful lives.

Income taxes

The Company and its subsidiaries file a consolidated Federal income tax return. The Company provides deferred income taxes on temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities based upon enacted tax rates. The effect of a change in tax rates is recognized in income in the period of change. The Company provides for a valuation allowance on certain deferred tax assets.

Fair values of financial instruments

The fair value of the Company’s investments is disclosed in Note 2 including the fair values of privately placed securities. The fair values of fixed maturities and short-term investments are based upon quotes obtained from independent sources. The Company’s other financial instruments include short-term receivables and other payables which are recorded at the underlying transaction value and approximate fair value. See Note 9 for the fair value of the Company’s 6.5% senior notes.

F-11

Incurred losses

Unpaid losses are based on individual case estimates for losses reported. A provision is also included, based on past experience, for IBNR, salvage and subrogation recoveries and for loss adjustment expenses. The method of making such estimates and for establishing the resulting reserves is continually reviewed and updated and any changes resulting there from are reflected in operating results currently.

Debt issuance costs

Debt issuance costs associated with the $100 million 6.5% senior notes due March 15, 2014 are being amortized over the term of the senior debt using the interest method.

Share-based compensation

Effective January 1, 2003 the Company adopted the fair value based method of accounting under of Statement of Financial Accounting No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), prospectively, for all employee awards granted, modified or settled after January 1, 2003. Therefore, the cost related to share-based employee compensation included in the determination of net income for the years ended December 31, 2005 and December 31, 2004 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS 123, which includes awards issued after December 15, 1994. Prior to 2003, the Company accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related Interpretations. Under APB 25, the Company recorded the difference, if any, between the exercise price of the Company’s stock options and the market price of the underlying stock on the date of grant as an expense over the vesting period of the option. The adoption of SFAS 123 did not have a significant impact on the Company’s results of operations, financial condition or liquidity.

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard No. 123(R) (As Amended), Share-Based Payment (“SFAS 123(R)”), using the modified prospective method. SFAS 123(R) establishes standards for the accounting for transactions that involve stock based compensation. SFAS 123R requires that compensation costs be recognized for the fair value of all share awards. Compensation expense is recorded pro-rata over the vesting period of the award.

Basic and diluted earnings per share

Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the year and the dilutive effect of vested and non-vested equity awards and stock options that would be assumed to be exercised as of the balance sheet date, as determined using the treasury stock method. See Note 13 for a reconciliation of the shares outstanding in determining basic and diluted earnings per share.

Reclassification

Certain accounts in the prior year’s financial statements have been reclassified to conform to the 2007 presentation.

Effects of recent accounting pronouncements

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), an interpretation of FASB Statement No. 109. FIN 48 became effective in 2007 and provides guidance for recognizing the benefits of tax-return positions in the financial statements if it is more-likely-than-not (more than fifty-percent likely) that they will be realized upon final settlement with the respective taxing authorities. The adoption of FIN 48 did not have a material effect on the Company’s financial statements and the Company believes there are no tax positions that would require disclosure under FIN 48. The federal tax returns for 2004 through 2006 are currently open and subject to examination.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP, and enhances disclosures about fair value measurements. SFAS No. 157 applies when other accounting pronouncements require fair value measurements; it does not require new fair value measurements. The Company has not yet determined the estimated impact on its financial condition or results of operations, if any, of adopting SFAS No.157 which becomes effective for fiscal years beginning after November 15, 2007 and interim periods within those years.

F-12

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 provides the Company an irrevocable option to report selected financial assets and liabilities at fair value with changes in fair value recorded in earnings. The option is applied, on a contract-by-contract basis, to an entire contract and not only to specific risks, specific cash flows or other portions of that contract. Upfront costs and fees related to a contract for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS 159 to have a material impact on its financial condition or results of operations.

In June 2007, the FASB issued Emerging Issues Task Force Issues No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards (EITF 06-11). EITF 06-11 provides guidance on the treatment of realized income tax benefits related to dividend payments to employees holding equity shares, nonvested equity share units, and outstanding equity share options. EITF 06-11 shall be applied to share-based payment awards that are declared in fiscal years beginning after December 15, 2007. The Company has not yet determined the estimated impact on its financial condition or results of operations, if any, of adopting EITF 06-11.

In December 2007, the FASB issued SFAS 141(R), Business Combinations, which requires most identifiable assets, liabilities, non-controlling interests, and goodwill acquired in a business combination to be recorded at full fair value. Under SFAS 141(R), all business combinations will be accounted for by applying the acquisition method (referred to as the purchase method in SFAS 141, Business Combinations). SFAS 141(R) is effective for fiscal years beginning on or after December 15, 2008 and is to be applied to business combinations occurring after the effective date. The adoption of SFAS 141(R) is not expected to have an impact on its financial condition or results of operations.

In December 2007, the FASB issued SFAS 160, Non-controlling Interests in Consolidated Financial Statements, which requires non-controlling interests (previously referred to as minority interests) to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The adoption of SFAS 160 is not expected to have an impact on its financial condition or results of operations.

F-13

(2) Investments:

A summary of the Company’s investment components at December 31, 2007 and December 31, 2006 is as follows:

	December 31, 2007		Percent			December 31, 2006		Percent
Fixed maturities
Available for Sale (Fair Value):
U.S. Treasury securities	$	14,335,541		2.04	%	$	11,042,269		1.66	%
Municipal obligations		7,810,318		1.11	%		7,802,878		1.17	%
Corporate securities		5,853,942		0.83	%		12,138,485		1.83	%
Mortgage-backed securities		134,890,799		19.25	%		296,582,893		44.61	%
Subtotal	$	162,890,600		23.23	%	$	327,566,525		49.27	%
Trading (Fair Value):
Municipal obligations		70,243,560		10.02	%		—		—
Commercial middle market debt		8,293,725		1.18	%		—		—
Total fixed maturities	$	241,427,885		34.43	%	$	327,566,525		49.27	%
Equity securities trading (Fair Value):
Preferred stock		66,325,265		9.46	%		—		—
Cash and short-term investments (at Cost)		205,078,343		29.25	%		154,980,856		23.31	%
Total fixed maturities, equity securities, cash and short-term investments	$	512,831,493		73.14	%	$	482,547,381		72.58	%
Limited partnership hedge funds (at Equity)		188,295,547		26.86	%		182,324,313		27.42	%
Total investment portfolio	$	701,127,040		100.00	%	$	664,871,694		100.00	%

As of December 31, 2007, 97% of the fair value of the Company’s fixed income and short-term investment portfolios were considered investment grade. As of December 31, 2007, the Company invested approximately $11.4 million in fixed maturities that were below investment grade.

F-14

Details of the mortgage-backed securities portfolio as of December 31, 2007 are presented below:

					Average		Average
					Underlying		FICO
					Loan to		Credit		Moody’s	S&P
Security description	Issue date		Fair value		Value % (1)		Score (1)		Rating	Rating
American Home Mortgage Assets		7/1/2006	$	20,220,609		88.80		706	AAA	AAA
Bear Stearns Mortgage Funding		9/29/2006		12,921,619		83.30		710	AAA	AAA
Countrywide Alt Loan Trust A1		11/1/2005		13,001,835		82.60		697	AAA	AAA
Countrywide Alternative Loan Trust		12/1/2005		14,083,927		81.70		699	AAA	AAA
Residential Accredit Loans, Inc.		10/28/2005		12,608,860		78.70		704	AAA	AAA
Residential Accredit Loans, Inc.		12/1/2005		15,836,094		82.50		700	AAA	AAA
Washington Mutual		12/21/2005		11,607,434		79.10		715	AAA	AAA
Washington Mutual		7/1/2006		17,288,400		79.20		731	AAA	AAA
Washington Mutual 2006-AR13 1A		9/1/2006		17,322,021		76.20		729	AAA	AAA
			$	134,890,799

(1) at issue date

The Company has investments in residential mortgage backed securities amounting to $135 million at December 31, 2007. There were no unrealized investment losses on such securities at December 31, 2007. The Company recorded approximately $6.5 million in declines in fair value considered to be other-than-temporary on such securities in 2007. The decision to write down such securities in 2007 was based upon the likelihood that we may not hold such securities until the fair value decline is recovered. These securities are the highest tranche in their credit structure and are commonly referred to as “super senior” residential mortgage backed securities. These super senior securities, consisting of nine “Alt A” mortgage securities, have floating interest rates and are rated AAA/Aaa by S&P/Moody’s. “Alt A” securities are residential home loans made to individuals that maintain credit scores similar to those individuals receiving prime loans, but provide less than full documentation required for a prime loan. The fair value of each security is provided by pricing services or security dealers. There has been considerable amount of turmoil in the U.S. housing market in 2007 and 2008 which has led to market declines in such securities. The markets for these types of securities can be illiquid and, therefore, the price obtained on these securities is subject to change, depending upon the underlying market conditions of these securities. We may be subject to a large degree of variability in pricing on such securities that can have a material effect on the Company.

As of March 12, 2008, the fair value of these super senior securities has declined by an additional $30 million before taxes. The decrease in the fair value of such securities is the result of technical factors including the distressed sale of similar type securities by hedge funds and other large institutions.

The gross unrealized gains and losses on fixed maturities available for sale at December 31, 2007 and December 31, 2006 are as follows:

	2007
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Fixed maturities available for sale:
U.S. Treasury securities	$	13,938,993	$	408,146	$	(11,598	)	$	14,335,541
Municipal obligations		7,792,131		18,187		—			7,810,318
Corporate securities		5,957,603		59,441		(163,102	)		5,853,942
Mortgage-backed securities		134,890,799		—		—			134,890,799
Totals	$	162,579,526	$	485,774	$	(174,700	)	$	162,890,600

F-15

	2006
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Fixed maturities available for sale:
U.S. Treasury securities	$	11,202,361	$	1,332	$	(161,424	)	$	11,042,269
Municipal obligations		7,795,637		7,241		—			7,802,878
Corporate securities		12,259,960		101,718		(223,193	)		12,138,485
Mortgage-backed securities		296,174,058		473,892		(65,057	)		296,582,893
Totals	$	327,432,016	$	584,183	$	(449,674	)	$	327,566,525

The following table summarizes all securities in an unrealized loss position at December 31, 2007 and December 31, 2006, disclosing the aggregate fair value and gross unrealized loss for less than as well as more than 12 months:

	2007
	Less than 12 months					12 months or longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
Fixed maturities available for sale:
U.S. Treasury securities	$	—	$	—		$	3,829,008	$	(11,598	)	$	3,829,008	$	(11,598	)
Corporate securities		103,957		(320	)		4,071,690		(162,782	)		4,175,647		(163,102	)
Total temporarily impaired securities	$	103,957	$	(320	)	$	7,900,698	$	(174,380	)	$	8,004,655	$	(174,700	)

	2006
	Less than 12 months					12 months or longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
Fixed maturities available for sale:
U.S. Treasury securities	$	6,169,093	$	(29,489	)	$	4,725,591	$	(131,935	)	$	10,894,684	$	(161,424	)
Corporate securities		124,917,444		(65,748	)		7,685,786		(222,502	)		132,603,230		(288,250	)
Total temporarily impaired securities	$	131,086,537	$	(95,237	)	$	12,411,377	$	(354,437	)	$	143,497,914	$	(449,674	)

At December 31, 2007, the Company was holding 20 fixed maturity securities that were in an unrealized loss position. The Company believes these unrealized losses are temporary, as they resulted from changes in market conditions, including interest rates or sector spreads, and are not considered to be credit risk related. Further, the Company has the intent and the ability to hold the securities prior to full recovery.

F-16

The amortized cost and fair value of debt securities at December 31, 2007 by contractual maturity are shown below. Expected maturities will differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Fixed maturities available for sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	8,399,808	$	8,419,400
Due after one year through five years		9,636,253		10,065,204
Due after five years through ten years		1,756,258		1,600,923
Due after ten years		7,896,408		7,914,274
		27,688,727		27,999,801
Mortgage-backed securities		134,890,799		134,890,799
Totals	$	162,579,526	$	162,890,600

Proceeds from sales of investments in fixed maturities held for sale for the years ended December 31, 2007, 2006 and 2005 were $179,432,179, $220,876,103 and $97,941,993, respectively. Gross gains of $252,149, $518,457 and $532,429 and gross losses of $708,964, $532,195 and $413,986 were realized on those sales for the years ended December 31, 2007, 2006 and 2005, respectively. The Company recorded declines in values of investments considered to be other-than-temporary of $6,681,566, $371,140 and $678,395 for the years ended December 31, 2007, 2006 and 2005, respectively. Approximately $6.5 million other-than-temporary decline in 2007 was related to the mortgage-backed securities portfolio. The decision to write down such securities in 2007 was based upon the likelihood that we may not hold such securities until the fair value decline is recovered.

There were no non-income producing fixed maturity investments for any of the years presented herein.

The Company is the only limited partner in Tricadia and reports its investment using the equity method of accounting. The amounts reported in Limited partnership hedge funds related to Tricadia at December 31, 2007 and 2006 were $42.6 million and $28.4 million, respectively. The summarized GAAP basis information pertaining to the financial position and operations of its investment in Tricadia is as follows:

	2007		2006
Total assets	$	43,637,939	$	28,978,975
Total liabilities	$	147,307	$	152,686
Total partners’ capital	$	43,490,632	$	28,826,289
Total revenue	$	9,261,842	$	5,478,485
Net income	$	7,977,923	$	4,739,308

In 2003, the Company obtained an interest in substantially all of a limited partnership hedge fund, Mariner Tiptree (CDO) Fund I, L.P. (“Tiptree”), that invested in Collateralized Debt Obligations (CDO) securities, Credit Related Structured Product (CRS) securities and other structured products. The investment in Tiptree was previously consolidated in the Company’s financial statements. On August 18, 2006, the Company entered into an Amended and Restated Limited Partnership Agreement of Tricadia CDO Fund, L.P. (“Tricadia”), effective as of August 1, 2006, with Tricadia Capital, LLC, the general partner, and the limited partners named therein (the “Amended Agreement”) to amend and restate the Limited Partnership Agreement of Mariner Tiptree (CDO) Fund I, L.P. entered into in 2003 (the “Original Agreement”). The Amended Agreement changed the name of the partnership, amended and restated in its entirety the Original Agreement and provides for the continuation of the partnership under applicable law upon the terms and conditions of the Amended Agreement. The Amended Agreement, among other items, substantially changed the fee income structure as well as provides for the potential conversion of limited partnership interests to equity interests. The fee income was changed in the Amended Agreement from 50% of the fee received by the investment manager in connection with the management of CDOs in Tricadia to a percentage of fees equal to the pro-rata portion of the CDO equity interest held by Tricadia, in no event; however, will the fee be less than 12.5% of the fee received by the investment manager. The Amended Agreement also provided for an additional CDO fee to be determined based upon the management fees earned by the investment manager. These changes resulted in a reduction in the variability of Tricadia thereby lowering or decreasing its expected losses as well as represented a change in the entity’s governing documents or contractual arrangements that changed the characteristics of Tricadia’s equity investment at risk. As a result of these substantive changes to the Original Agreement, the Company concluded that it is no longer the party most closely associated with Tricadia and deconsolidated Tricadia, formerly known as Tiptree, from its financial statements as of August 1, 2006 and has since included Tricadia as a limited partnership investment at equity in the financial statements.

F-17

In 2003 the Company made an investment of $11.0 million in Tricadia. Additional investments of $6.25 million, $2.7 million and $4.65 million were made in 2007, 2005 and 2004, respectively. The Company is committed to providing an additional $15.4 million in capital to Tricadia.

In addition to its investment in Tricadia, the Company held $145.7 million and $153.9 million of limited partnership and limited liability company hedge funds at December 31, 2007 and 2006, respectively.

A summary of all of the Company’s investments in limited partnership and limited liability company hedge funds at December 31, 2007, accounted for under the equity method, is set forth below:

	Amount		Ownership %
Alpha Energy Partners Class A	$	1,341,625		1.22
Alpha Energy Partners Class C		3,213,979		2.93
Alydar QP Fund		5,078,218		1.02
Artesian Credit Arbitrage Total Return Fund		5,819,630		13.82
Blue Harbour Strategic Value Partners, L.P.		1,358,548		0.29
Brocade Fund, L.P.		6,479,999		6.94
Caspian Capital Partners, L.P. (1)		4,746,283		1.35
Dolphin Limited Partnership — A		6,024,712		6.92
Five Mile Capital SIF		10,256,694		3.24
Horizon Portfolio, L.P.		4,357,205		3.40
Ivory Flagship Fund L.P.		5,432,461		0.94
Latigo Fund, L.P.		5,502,701		3.26
Loeb Arbitrage Fund		4,336,776		0.69
Lubben Fund, L.P.		6,017,552		4.39
Mariner — CRA Relative Fund (1)		3,751,038		4.48
Mariner Dolphin Special Opportunities Fund (1)		4,971,878		17.59
Mariner Opportunities Fund (1)		4,685,707		1.60
Mariner Voyager LP (1)		8,022,168		15.29
MKP Credit II, L.P.		6,854,907		5.05
MV Partners Fund I, LP — Tranche B		1,154,326		1.96
Newsmith Credit Fund, LP		2,725,191		9.06
P.A.W. Partners, LP		6,116,932		5.40
Renaissance Institutional Equities Fund, L.L.C.		5,186,167		0.05
Riva Ridge Capital Partners, L.P.		7,936,531		6.50
SLS Investors		4,926,704		1.88
Taconic Opportunity Fund, L.P.		1,874,438		0.10
TAMI Macro Fund, L.P.		1,913,358		3.80
Tricadia (CDO) Fund, LP (1)		42,594,084		97.94
Wexford Spectrum Fund I, LP		15,615,735		1.58
Total limited partnership and limited liability company hedge funds	$	188,295,547

(1)	Indicates limited partnership or limited liability company hedge fund directly managed by Mariner (see note 17).
(2)	In January 2008 the Company made a commitment to purchase an interest in a hedge fund in the amount of $5.0 million.

F-18

The fair values used for hedge fund investments and other privately held equity securities generally are established on the basis of the valuations provided monthly by the managers of such investments. These valuations generally are determined based upon the valuation criteria established by the governing documents of such investments or utilized in the normal course of such manager’s business. Such valuations may differ significantly from the values that would have been used had readily available markets for these securities existed and the differences could be material.

The hedge funds in which the Company invests usually impose limitations on the timing of withdrawals from the hedge funds (most are within 90 days), and may affect our liquidity. With respect to the Company’s investment in the Tricadia limited partnership hedge fund managed by a Mariner affiliated Company, the withdrawal of funds requires one year’s prior written notice to the hedge fund manager.

The components for net realized losses and change in unrealized net appreciation (depreciation) on investments for the years ended December 31, 2007, 2006 and 2005 are as follows:

	Year ended December 31,
	2007			2006			2005
Realized gains (losses) on investments:
Fixed maturities	$	(7,138,381	)	$	(384,878	)	$	(559,952	)
Short-term investments		235,529			(17,676	)		(245,324	)
Net realized investment losses	$	(6,902,852	)	$	(402,554	)		(805,276	)

	Year ended December 31,
	2007			2006			2005
Change in unrealized appreciation (depreciation) on investments:
Fixed maturities	$	176,563		$	1,010,131		$	(2,017,718	)
Unrealized net investment gains (losses)		176,563			1,010,131			(2,017,718	)
Deferred income tax (expense) benefit		(61,799	)		(353,546	)		706,201
Change in unrealized net investment gains (losses), net of deferred income taxes	$	114,764		$	656,585			(1,311,517	)

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

	Year ended December 31,
	2007			2006			2005
Fixed maturities available for sale	$	13,944,630		$	11,793,544		$	7,796,371
Trading securities		2,302,469			15,785,074			8,486,160
Short-term investments		8,687,536			7,816,937			6,161,702
Equity in earnings of limited partnerships		12,985,185			16,474,691			17,603,357
Total investment income		37,919,820			51,870,246			40,047,590
Investment expenses (see note 17)		(2,430,451	)		(3,973,022	)		(3,987,779	)
Net investment income	$	35,489,369		$	47,897,224		$	36,059,811

Net investment income for trading securities for the years ended December 31, 2007, 2006 and 2005 includes $809,992, $171,720 and $1,392,929 of net unrealized losses, respectively.

F-19

Margin Account

The Company maintains an investment in a limited partnership hedge fund, (Tricadia), that invests in CDOs, Credit Related Structured Product (CRS) securities and other structured product securities that are structured, managed or advised by a Mariner affiliated company. This investment was consolidated in the Company’s financial statements through August 1, 2006. CDOs and CRSs are purchased by various broker dealers. Such purchases are then repackaged and sold to investors within a relatively short time period, normally within a few months. Tricadia earns a fee for servicing these arrangements and provides a margin account as collateral to secure the credit risk of the purchases made by the dealers under these agreements. Tricadia does not share in the gains or losses on investments held by the dealer. Management expects that only under a remote circumstance would the margin account be drawn by the dealer to secure losses. Many of the securities purchased are investment grade floating rate securities and large unrealized losses are not normally expected to occur. The Company seeks to mitigate market risk associated with such investments by concentrating on investment grade, floating rate securities with the risk of loss being limited to the cash held in the margin accounts. As of December 31, 2007 and 2006, Tricadia provided $0 and $8 million, respectively, in cash as collateral to secure any purchases made by the dealers.

Securities Lending

The Company maintains a securities lending agreement with Bear, Stearns Securities Corp. (the “Borrower”) whereby certain securities from its portfolio are loaned to the Borrower for short periods of time. The agreement sets forth the terms and conditions under which the Company may, from time to time, lend to the Borrower, against a pledge of restricted collateral, securities held in custody for the Company by Custodial Trust Company, an affiliate of the Borrower. The Company receives restricted collateral from the Borrower generally equal to at least the fair value of the loaned securities plus accrued interest. The loaned securities remain a recorded asset of the Company. At December 31, 2007, the Company had loaned securities with a fair value of $354,265 and held collateral related to these loaned securities of $367,888.

General

The Company invests in collateralized debt obligations (CDOs), collaterized loan obligations (CLOs) and commercial middle market debt which are private placements. The fair value of each security is provided by securities dealers. The markets for these types of securities can be illiquid and, therefore, the price obtained from dealers in these securities is subject to change depending upon the underlying market conditions of these securities, including the potential for downgrades or defaults on the underlying collateral of the security.

The investment portfolio has exposure to market risks, which include the effect of adverse changes in interest rates, credit quality, hedge fund value and illiquid securities including CDO, CLO, commercial middle market debt and residential mortgage backed securities values on the portfolio. Interest rate risk includes the changes in the fair value of fixed maturities based upon changes in interest rates. Credit quality risk includes the risk of default by issuers of debt securities. Hedge fund and illiquid securities risks include the potential loss from the diminution in the value of the underlying investment of the hedge fund and the potential loss from changes in the fair value of CDO, CLO commercial middle market debt and residential mortgage backed securities.

Included in investments at December 31, 2007 are securities required to be held by the Company or those that are on deposit with various regulatory authorities as required by law with a fair value of $14,370,541.

F-20

(3) Fiduciary Funds:

The Company’s insurance agency subsidiaries maintain separate underwriting accounts, which record all of the underlying insurance transactions of the insurance pools, which they manage. These transactions primarily include collecting premiums from the insureds, collecting paid receivables from reinsurers, paying claims as losses become payable, paying reinsurance premiums to reinsurers and remitting net account balances to member insurance companies in the pools which MMO manages. Unremitted amounts to members of the insurance pools are held in a fiduciary capacity and interest income earned on such funds inures to the benefit of the members of the insurance pools based on their pro rata participation in the pools.

A summary of the pools’ underwriting accounts as of December 31, 2007 and December 31, 2006 is as follows:

	(Unaudited)
	2007		2006
Cash and short-term investments	$	7,690,777	$	16,468,618
Premiums receivable		23,646,503		25,758,823
Reinsurance and other receivables		95,577,799		98,249,798
Total assets	$	126,915,079	$	140,477,239
Due to insurance pool members		66,215,850		59,305,829
Reinsurance payable		27,299,729		44,424,500
Funds withheld from reinsurers		30,487,673		33,011,209
Other liabilities		2,911,827		3,735,701
Total liabilities	$	126,915,079	$	140,477,239

A portion of the pools’ underwriting accounts above have been included in the Company’s insurance subsidiaries operations based upon their pro rata participation in the MMO insurance pools.

(4) Insurance Operations:

Reinsurance transactions

Approximately 27%, 36% and 33% of the Company’s insurance subsidiaries’ direct and assumed gross premiums written for the years ended December 31, 2007, 2006 and 2005, respectively, have been reinsured by the pools with other companies on both a treaty and a facultative basis.

Two former pool members, Utica Mutual and Arkwright, currently part of the FM Global Group, withdrew from the pools in 1994 and 1996, respectively, and retained liability for their effective pool participation for all loss reserves, including IBNR and unearned premium reserves attributable to policies effective prior to their withdrawal from the pools.

In the event that all or any of the pool companies might be unable to meet their obligations to the pools, the remaining companies would be liable for such defaulted amounts on a pro rata pool participation basis.

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

Reinsurance ceded transactions generally do not relieve the Company of its primary obligation to the policyholder, so that such reinsurance recoverable would become a liability of the Company’s insurance subsidiaries in the event that any reinsurer might be unable to meet the obligations assumed under the reinsurance agreements. As established by the pools, all reinsurers must meet certain minimum standards of financial condition.

F-21

The Company’s largest unsecured reinsurance receivables at December 31, 2007 were from the following reinsurers:

Reinsurer	Amounts		A.M. Best Rating
	(in millions)
Lloyd’s Syndicates	$	61.3	A (Excellent)
Swiss Reinsurance America Corp.		27.4	A+ (Superior)
Lloyd’s (Equitas)		11.5	NR-3 (Rating Procedure Inapplicable)
Platinum Underwriters Reinsurance Co.		8.3	A (Excellent)
Folksamerica Reinsurance Company		6.6	A- (Excellent)
XL Reinsurance America Inc.		5.8	A+ (Superior)
Liberty Mutual Insurance Company		5.3	A (Excellent)
Transatlantic Reins. Co.		5.1	A+ (Superior)
FM Global (Arkwright)		4.8	A+ (Superior)
Berkley Insurance Company		3.8	A+ (Superior)
General Reins. Corp.		3.7	A++ (Superior)
Axis Reins. Co.		3.6	A (Excellent)
Everest Reinsurance		2.6	A+ (Superior)
Munich Reinsurance America		2.3	A+ (Superior)
Total	$	152.1

The reinsurance contracts with the above listed companies are generally entered into annually and provide coverage for claims occurring while the relevant agreement was in effect, even if claims are made in later years. The contract with Arkwright was entered into with respect to their participation in the pools.

Lloyd’s maintains a trust fund, which was established for the benefit of all United States ceding companies. Lloyd’s receivables represent amounts due from approximately 95 different Lloyd’s syndicates.

Equitas, a Lloyd’s company, was established to settle claims for underwriting years 1992 and prior. On March 30, 2007, Equitas completed a reinsurance transaction with National Indemnity Company, a member of the Berkshire Hathaway group of insurance companies. As a result, National Indemnity now reinsures all Equitas’ liabilities by providing an additional $5.7 billion of reinsurance cover to Equitas. The Company is currently engaged in an arbitration proceeding with Equitas to collect recoverables ceded to them covering various asbestos claims. Equitas has contested coverage and has not paid such amounts to the Company. While the Company is confident in its recovery procedures, there can be no assurance as to the ultimate outcome of the arbitration and an unfavorable resolution of these arbitration proceedings will be material to our results of operations.

The Company’s exposure to reinsurers, other than those indicated above, includes reinsurance receivables from approximately 500 reinsurers or syndicates, and as of December 31, 2007, no single one was liable to the Company for an unsecured amount in excess of approximately $2 million.

Funds withheld of approximately $13.9 million and letters of credit of approximately $124.3 million as of December 31, 2007 were obtained as collateral for reinsurance receivables as provided under various reinsurance treaties. Reinsurance receivables as of December 31, 2007 and 2006 included an allowance for uncollectible reinsurance receivables of $14.1 million and $13.9 million, respectively. Uncollectible reinsurance resulted in charges to operations of approximately $3.6 million, $2.7 million and $6.1 million in 2007, 2006 and 2005, respectively.

Reinsurance ceded and assumed relating to premiums written were as follows:

	Gross		Ceded		Assumed				Percentage
	(direct)		to other		from other				of assumed
Year ended	Amount		companies		companies		Net amount		to net
December 31, 2007	$	219,599,494	$	60,534,715	$	8,788,527	$	167,853,306		5	%
December 31, 2006		230,779,540		86,449,224		10,529,662		154,859,978		7	%
December 31, 2005		186,734,330		66,478,291		13,635,490		133,891,529		10	%

F-22

Reinsurance ceded and assumed relating to premiums earned were as follows:

	Gross		Ceded		Assumed				Percentage
	(direct)		to other		from other				of assumed
Year ended	Amount		Companies		companies		Net amount		to net
December 31, 2007	$	225,002,917	$	68,364,479	$	9,457,433	$	166,095,871		6	%
December 31, 2006		216,737,670		79,063,222		14,159,693		151,834,141		9	%
December 31, 2005		178,807,549		65,663,023		21,412,678		134,557,204		16	%

Losses and loss adjustment expenses incurred are net of ceded reinsurance recoveries of $31,062,222, $63,334,283 and $90,454,778 for the years ended December 31, 2007, 2006 and 2005, respectively.

Unpaid losses

Unpaid losses are based on individual case estimates for losses reported and include a provision for losses incurred but not reported and for loss adjustment expenses. The following table provides a reconciliation of the Company’s consolidated liability for losses and loss adjustment expenses for the years ended December 31, 2007, 2006 and 2005:

	Year ended December 31,
	2007			2006			2005
	(In thousands)
Net liability for losses and loss adjustment expenses at beginning of year	$	292,941		$	289,217		$	255,479
Provision for losses and loss adjustment expenses occurring in current year		103,664			93,803			105,537
Decrease in estimated losses and loss adjustment expenses for claims occurring in prior years (1)		(13,820	)		(7,667	)		(13,247	)
Net loss and loss adjustment expenses incurred		89,844			86,136			92,290
Less:
Losses and loss adjustment expense payments for claims occurring during:
Current year		12,136			9,641			15,453
Prior years		64,244			72,771			43,099
		76,380			82,412			58,552
Net liability for losses and loss adjustment expenses at year end		306,405			292,941			289,217
Ceded unpaid losses and loss adjustment expenses at year end		250,130			286,238			299,648
Gross unpaid losses and loss adjustment expenses at year end	$	556,535		$	579,179		$	588,865

(1)	The adjustment to the consolidated liability for losses and loss adjustment expenses for losses occurring in prior years reflects the net effect of the resolution of losses for other than full reserve value and subsequent readjustments of loss values.
	The $13.8 million decrease in 2007 was largely caused by favorable development in the 2003-2005 accident years for the ocean marine line, which generally resulted from favorable loss trends in the risk class. Another factor contributing to the decrease was $6.2 million recorded on the novation of excess workers’ compensation policies in the other liability line for accident years 2004-2006,which was partially offset by adverse development of $3.0 million in the professional liability class as a result of two large claims in the 2006 accident year. The inland marine/fire segment also reported favorable loss development partially due to lower reported severity losses. The favorable development in 2007 was partially offset by approximately $3.3 million in adverse development from the runoff aviation class.
	The $7.7 million decrease in 2006 primarily reflected favorable development in the 2005 and 2004 accident years in ocean marine due in part to lower settlements of case reserve estimates, higher than expected receipts of salvage and subrogation recoveries and a lower emergence of actual versus expected losses. Partially offsetting this benefit was adverse development in the 2005 and 2004 accident years in both of the commercial auto and surety classes as a result of higher than initially anticipated loss ratios. 2004 was the first full year of writing commercial auto and surety premiums.
	The $13.2 million decrease in 2005 primarily reflected the recognition of favorable development in the ocean marine line of business, particularly in the 2001 to 2003 accident years. The Company’s net loss retention per risk, or occurrence, increased substantially in the ocean marine line during the 2001-2003 accident years from previous years.

F-23

Our net loss retentions in the ocean marine line of business for the 1998, 1999 and 2000 years were $50,000, $50,000 and $100,000, respectively. This compared to net loss retentions in the ocean marine line of business for the 2001, 2002 and 2003 years of $1,500,000, $2,000,000 and $2,000,000, respectively. The Company estimated higher IBNR amounts in the 2001 to 2003 accident years to correspond to the larger net loss retentions. Our subsequent analysis of our 2004 actual loss development, however, indicated a trend, which continued in 2005, that the actual loss emergence for the larger net retention years of 2001 to 2003 was not developing as we had originally anticipated. These results compared favorably with those obtained through a statistical evaluation of losses using the Bornheutter-Ferguson, paid and incurred methods. The other liability line also reported favorable development in years prior to 2002 resulting from a lower than expected emergence of losses attributable to a shorter loss reporting tail than originally estimated. Further contributing to the increase was the favorable development of aircraft loss reserves largely attributable to the 2001 accident year. The favorable loss development in 2005 was partially offset by net adverse loss development resulting from provisions made for insolvent, financially impaired reinsurers and commuted reinsurance contracts, partly as a result of an increase in ceded incurred losses relating to a few specific asbestos claims.

The insurance pools participated in both the issuance of umbrella casualty insurance for various Fortune 1000 companies and the issuance of ocean marine liability insurance for various oil companies during the period from 1978 to 1985. Depending on the accident year, the insurance pools’ net retention per occurrence after applicable reinsurance ranged from $250,000 to $2,000,000. The Company’s effective pool participation on such risks varied from 11% in 1978 to 59% in 1985, which exposed the Company to asbestos losses. Subsequent to this period, the pools substantially reduced their umbrella writings and coverage was provided to smaller insureds. In addition, ocean marine and non-marine policies issued during the past three years provide coverage for certain environmental risks.

At December 31, 2007 and December 31, 2006, the Company’s gross, ceded and net loss and loss adjustment expense reserves for all asbestos/environmental policies amounted to $52.4 million, $41.5 million and $10.9 million, and $55.4 million, $43.2 million and $12.2 million, respectively. The Company believes that the uncertainty surrounding asbestos/environmental exposures, including issues as to insureds’ liabilities, ascertainment of loss date, definitions of occurrence, scope of coverage, policy limits and application and interpretation of policy terms, including exclusions, all affect the estimation of ultimate losses. Under such circumstances, it is difficult to determine the ultimate loss for asbestos/environmental related claims. Given the uncertainty in this area, losses from asbestos/environmental related claims may develop adversely and, accordingly, management is unable to estimate the range of possible loss that could arise from asbestos/environmental related claims. However, the Company’s net unpaid loss and loss adjustment expense reserves, in the aggregate, as of December 31, 2007, represent management’s best estimate.

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

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

F-24

In 2006 the Company recorded adverse loss development of approximately $850,000 in the aircraft line of business resulting primarily from changes in estimates for the terrorist attacks occurring on September 11, 2001. Specifically, loss reserves from policies covering losses assumed from the World Trade Center attack were increased as a result of our receipt of notices of losses from a ceding company, which were coupled with an immaterial error that should have been recorded in 2005 of $1.1 million. These increases were partially offset by a reduction in reserves relating to the loss sustained at the Pentagon after re-estimating the reserve based upon lower than expected settlements of claims paid during the year. There were no material changes in loss estimates for the WTC attack in 2007.

Salvage and subrogation

Estimates of salvage and subrogation recoveries on paid and unpaid losses have been recorded as a reduction of unpaid losses amounting to $6,850,648 and $6,978,622 at December 31, 2007 and December 31, 2006, respectively.

Deferred policy acquisition costs

Deferrable policy acquisition costs amortized to expense amounted to $37,694,535, $31,336,186 and $30,491,014 for the years ended December 31, 2007, 2006 and 2005, respectively.

(5) Property, Improvements and Equipment, Net:

Property, improvements and equipment, net at December 31, 2007 and December 31, 2006 include the following:

	2007			2006
Office furniture and equipment	$	1,706,122		$	1,653,875
Computer equipment		1,604,437			986,205
Computer software		1,245,014			6,000,273
Leasehold improvements		3,695,764			3,679,444
		8,251,337			12,319,797
Less: accumulated depreciation and amortization		(3,434,501	)		(2,369,827	)
Property, improvements and equipment, net	$	4,816,836		$	9,949,970

Depreciation and amortization and other expenses for the years ended December 31, 2007, 2006 and 2005 amounted to $1,295,929, $968,817 and $681,070, respectively.

During 2007, the Company’s management determined that certain computer equipment and software was inefficient and no longer possessed any future service potential and accounted for it as an abandoned asset under the guidance of Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The cost basis and accumulated depreciation of the computer equipment and software treated as if abandoned were $5,547,094 and $231,129,respectively, resulting in a charge against income before income taxes of $5,315,965.

F-25

(6) Income Taxes:

The components of deferred tax assets and liabilities as of December 31, 2007 and December 31, 2006 are as follows:

	December 31, 2007		December 31, 2006
Deferred Tax Assets:
Loss reserves	$	13,106,353	$	12,037,171
Unearned premiums		4,607,948		4,484,928
State and local tax loss carryforwards		4,589,456		4,139,451
Bad debt reserve		564,356		956,729
Unrealized depreciation of investments		2,531,762		75,325
Deferred compensation		3,058,090		914,863
Other		251,237		168,524
Deferred tax assets		28,709,202		22,776,991
Less: Valuation allowance		4,998,520		4,193,440
Total deferred tax assets		23,710,682		18,583,551
Deferred Tax Liabilities:
Deferred policy acquisition costs		5,246,355		4,680,071
Hedge fund income		3,339,644		2,397,529
Accrued salvage and subrogation		238,882		242,688
Other		442,126		484,303
Total deferred tax liabilities		9,267,007		7,804,591
Net deferred tax assets	$	14,443,675	$	10,778,960

The range of years in which the loss carryforwards, which are primarily in the State of New York, can be carried forward against future tax liabilities is from 2008 to 2026.

The Company’s valuation allowance account with respect to the deferred tax asset and the change in the account is as follows:

	December 31, 2007		December 31, 2006		December 31, 2005
Balance, beginning of year	$	4,193,440	$	4,176,558	$	3,790,355
Change in valuation allowance		805,080		16,882		386,203
Balance, end of period	$	4,998,520	$	4,193,440	$	4,176,558

The change in the valuation account relates primarily to state and local tax loss carryforwards coupled with a $500,000 reduction in taxes in 2006 resulting from the resolution of tax uncertainties for the Company’s former subsidiary, MMO UK, which was sold in 2005.

The Company believes that the total deferred tax asset, net of the recorded valuation allowance account, as of December 31, 2007 will more likely than not be fully realized.

F-26

Income tax provisions differ from the amounts computed by applying the Federal statutory rate to income before income taxes as follows:

	Year ended December 31,
	2007			2006			2005
Income taxes at the Federal statutory rate		35.0	%		35.0	%		35.0	%
Tax exempt interest and dividend received deduction		(1.1	)		(0.2	)		(0.5	)
Valuation allowance		4.0			0.0			2.6
State taxes		(4.1	)		(1.0	)		(2.0	)
Other, net		(0.1	)		(0.3	)		(1.1	)
Income tax provisions		33.7	%		33.5	%		34.0	%

Federal income tax paid amounted to $14,028,238, $13,670,275 and $6,067,039 for the years ended December 31, 2007, 2006 and 2005, respectively.

At December 31, 2007, the federal income tax recoverable included in other assets amounted to $2,675,546. At December 31, 2006, the federal income tax payable included in other liabilities amounted to $1,777,420.

Reduction of income taxes paid as a result of the deduction triggered by employee exercise of stock options for the years ended December 31, 2007, 2006 and 2005 amounted to $1,128,108, $583,726 and $199,033, respectively. The benefit received was recorded in paid-in capital.

(7) Statutory Income and Surplus:

NYMAGIC’s principal source of income is dividends from its subsidiaries, which are used for payment of operating expenses, including interest expense, loan repayments and payment of dividends to NYMAGIC’s shareholders. The Company’s domestic insurance subsidiaries are limited under state insurance laws, in the amount of ordinary dividends they may pay without regulatory approval. Within this limitation, the maximum amount which could be paid to the Company out of the domestic insurance companies’ surplus was approximately $20.3 million as of December 31, 2007.

Combined statutory net income, surplus and dividends declared by the Company’s domestic insurance subsidiaries were as follows for the periods indicated:

	Combined		Combined		Dividends
	Statutory		Statutory		Declared
Year ended	Net Income		Surplus		To Parent
December 31, 2007 (unaudited)	$	21,583,000	$	203,162,000	$	15,745,000
December 31, 2006	$	28,880,000	$	197,289,000	$	17,600,000
December 31, 2005	$	5,679,000	$	186,848,000	$	8,500,000

The National Association of Insurance Commissioners (the “NAIC”) provided a comprehensive basis of accounting for reporting to state insurance departments. Included in the codified accounting rules was a provision for the state insurance commissioners to modify such accounting rules by practices prescribed or permitted for insurers in their state. However, there were no differences reported in the statutory financial statements for the years ended December 31, 2007, 2006 and 2005 between prescribed state accounting practices and those approved by the NAIC.

The domestic insurance company subsidiaries also file statutory financial statements with each state in the format specified by the NAIC. The NAIC provides accounting guidelines for companies to file statutory financial statements and provides minimum solvency standards for all companies in the form of risk-based capital requirements. The policyholders’ surplus (the statutory equivalent of net worth) of each of the domestic insurance companies is above the minimum amount required by the NAIC.

(8) Employee Retirement Plans:

The Company maintains a retirement plan for the benefit of our employees in the form of a Profit Sharing Plan and Trust. The Profit Sharing Plan and Trust provides for an annual mandatory contribution of 7.5% of compensation for each year of service during which the employee has completed 11 months of service and is employed on the last day of the plan year. An additional discretionary annual contribution of up to 7.5% of compensation may also be made by the Company. The plan provides for 100% vesting upon completion of one year of service. Employee retirement plan expenses for the years ended December 31, 2007, 2006 and 2005 amounted to $1,161,441, $1,293,472 and, $1,096,437, respectively.

F-27

(9) Debt:

On March 11, 2004, the Company issued $100,000,000 in 6.5% senior notes due March 15, 2014. The notes provide for semi-annual interest payments and are to be repaid in full on March 15, 2014. The indenture contains certain covenants that restrict our and our restricted subsidiaries’ ability to, among other things, incur indebtedness, make restricted payments, incur liens on any shares of capital stock or evidences of indebtedness issued by any of our restricted subsidiaries or issue or dispose of voting stock of any of our restricted subsidiaries.

The fair value of the senior debt at December 31, 2007 approximated a price equal to 94% of the par value.

Interest paid amounted to $6,523,830, $6,523,133 and $6,500,444 for the years ended December 31, 2007, 2006 and 2005, respectively.

(10) Commitments:

The Company maintains various operating leases to occupy office space. The lease terms expire on various dates through July 2016.

The aggregate minimum annual rental payments under various operating leases for office facilities as of December 31, 2007 are as follows:

	Amount
2008		3,619,590
2009		4,175,869
2010		4,136,384
2011		4,107,269
2012		4,145,790
Thereafter		15,399,839
Total	$	35,584,741

The operating leases also include provisions for additional payments based on certain annual cost increases. Rent expenses for the years ended December 31, 2007, 2006 and 2005 amounted to $2,216,707, $1,856,238 and $1,677,299, respectively.

In 2003, the Company entered into a sublease for approximately 28,000 square feet for its principal offices in New York. The sublease commenced on March 1, 2003 and expires on July 30, 2016. In April 2005, the Company signed an amendment to the sublease pursuant to which it added approximately 10,000 square feet of additional space. The amended sublease expires on July 30, 2016. The minimum monthly rental payments of $141,276 under the amended sublease include the rent paid by the Company for the original sublease. Rent payments under the amended sublease commenced in 2005 and end in 2016, with payments amounting to $20.8 million, collectively, over the term of the agreement.

In June 2007, the Company leased an additional 30,615 square feet at the New York location. The lease provides for a minimum monthly rental payment of $197,722 beginning in 2008 and $210,478 beginning in 2013. The lease expires on July 30, 2016.

Additionally, the Company made a first amendment to a lease dated May 4, 2004 for its office in Chicago. The minimum monthly rental payments of $4,159 commenced in 2005 and will end in 2010.

F-28

(11) Comprehensive Income:

The Company’s comparative comprehensive income is as follows:

	Year ended December 31,
	2007			2006			2005
Net income	$	13,372,350		$	29,850,480		$	9,700,879
Other comprehensive income (loss), net of deferred taxes:
Unrealized holding (losses) gains on securities, net of deferred tax (benefit) expense of $(2,354,199), $212,652 and $(988,048)		(4,372,090	)		394,925			(1,834,946	)
Less: reclassification adjustment for losses realized in net income, net of tax benefit of $2,415,998, $140,894 and $281,847		(4,486,854	)		(261,660	)		(523,429	)
Other comprehensive income (loss)		114,764			656,585			(1,311,517	)
Comprehensive income	$	13,487,114		$	30,507,065		$	8,389,362

The Company reported unrealized holding gains on securities, net of deferred taxes, of $202,196 and $87,432 as of December 31, 2007 and December 31, 2006, respectively.

(12) Common Stock Repurchase Plan and Shareholders’ Equity:

The Company has a Common Stock Repurchase Plan which authorizes the repurchase of up to $55 million, at prevailing market prices, of the Company’s issued and outstanding shares of common stock on the open market. As of December 31, 2007, the Company had repurchased a total of 2,656,384 shares of common stock under this plan at a total cost of $49,364,032 at market prices ranging from $12.38 to $28.81 per share. The Company repurchased 317,700 shares of common stock under the Plan in 2007 at a total cost of $7,121,988. There were no repurchases made under the Plan during 2006 and 2005. The Company’s Common Stock Repurchase Plan was amended in March 2008 to increase authority to repurchase from $55 million to $75 million.

In a transaction separate from its common stock repurchase plan, on January 7, 2005 the Company purchased from certain of its shareholders a total of 1,092,735 shares of Common Stock at $24.80 per share. The selling shareholders were Mark W. Blackman, a son of the Company’s founder who served on our board of directors from 1979 until May 2004 and who is currently the Company’s Chief Underwriting Officer (54,530 shares), his wife (50,000 shares), and two trusts for the benefit of their children (110,000 shares); Lionshead Investments, LLC, a company controlled by John N. Blackman, Jr., also a son of the Company’s founder who served on our board of directors from 1975 until May 2004 (495,030 shares), two of his children (67,664 shares), a trust for the benefit of a third child (25,158 shares), and a family trust (25,000 shares); and, two trusts and a foundation established by Louise B. Tollefson, the former wife of the Company’s founder (265,353 shares). Robert G. Simses, a director of NYMAGIC INC., is a trustee of the last mentioned entities.

In connection with the acquisition of MMO in 1991, the Company also acquired 3,215,958 shares of its own common stock held by MMO and recorded such shares as treasury stock at MMO’s original cost of $3,919,129.

The Company entered into a Securities Purchase Agreement with Conning Capital Partners VI, L.P. (“CCP VI”) on January 31, 2003. Under the terms of the agreement, the Company sold 400,000 investment units to CCP VI, which consisted of one share of the Company’s common stock and an option to purchase an additional share of common stock from the Company. Conning paid $21.00 per unit resulting in $8.4 million in proceeds to the Company. In accordance with the Option Certificate, the options expire on January 31, 2008 and the exercise price is based on a variable formula (which was attached as an exhibit to the Company’s Form 8-K filed on February 4, 2003).

On March 22, 2006, the Company entered into an agreement (the “Letter Agreement”) to amend and restate the original Option Certificate granted under a Securities Purchase Agreement, dated January 31, 2003. The Amended and Restated Option Certificate, dated March 22, 2006, decreased the number of shares of Company common stock that are to be issued upon the exercise of the option from 400,000 to 300,000 and extended the term from January 31, 2008 to December 31, 2010. There were no options exercised by CCP VI during any of the years presented herein. The option exercise price calculated at December 31, 2007 was $23.41.

F-29

(13) Earnings per share:

A reconciliation of the numerators and denominators of the basic and diluted earnings per share (“EPS”) computations for each of the years ended December 31, 2007, 2006 and 2005 is as follows:

	December 31, 2007							December 31, 2006							December 31, 2005
			Weighted							Weighted							Weighted
			Average							Average							Average
	Net		Shares					Net		Shares					Net		Shares
	Income		Outstanding		Per			Income		Outstanding		Per			Income		Outstanding		Per
	(Numerator)		(Denominator)		Share			(Numerator)		(Denominator)		Share			(Numerator)		(Denominator)		Share
								(In thousands, except for per share data)
Basic EPS	$	13,372		8,896	$	1.50		$	29,850		8,807	$	3.39		$	9,701		8,734	$	1.11
Effect of dilutive securities:
Equity awards and purchased options		—		294	$	(.04	)		—		370	$	(.14	)		—		184	$	(.02	)
Diluted EPS	$	13,372		9,190	$	1.46		$	29,850		9,177	$	3.25		$	9,701		8,918	$	1.09

(14) Incentive Compensation:

Share-based Plans:

Effective January 1, 2006, the Company adopted, on a prospective basis, SFAS 123(R) (As Amended), Share-Based Payment, which is a revision of SFAS 123, Accounting for Stock-Based Compensation, and supersedes APB 25, Accounting for Stock Issued to Employees. Using the modified-prospective-transition method requires the application of the fair value based method to transactions that involve share-based compensation awards granted, modified or settled on or after the date of adoption. The approach to account for share-based payments in SFAS 123(R) is similar to the approach described in SFAS 123, however, SFAS 123(R) requires the recognition of compensation costs related to all share-based payments to employees be made using the grant-date fair value of all requisite shares over their vesting period, including the cost related to the unvested portion of all outstanding requisite shares as of December 31, 2005. The Company had previously accounted for share-based compensation using the expense recognition provision of SFAS 123, on a prospective basis, from January 1, 2003 to December 31, 2005 for all awards granted, modified or settled subsequent to January 1, 2003. The cumulative effect of adopting SFAS 123(R) did not have a material effect on the Company’s results of operations or financial position.

The following illustration shows the effect on net income and earnings per share for the year ended December 31, 2005 if the fair value based method had been applied to all outstanding and unvested awards in 2005. Only the effect of stock options on net income and earnings per share are considered in the pro forma calculations, as all other stock compensation awards have been accounted for under SFAS 123. All other awards issued amounted to $939,929 in 2005. It should be noted that the full impact of calculating compensation expense for stock options under SFAS 123 is not reflected in the pro forma net income amounts presented because awards granted prior to January 1, 1995 are not considered in the determination of the compensation expense.

F-30

Net income, as reported	$	9,700,879
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		26,000
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects		(336,000	)
Pro forma net income	$	9,390,879
Earnings per share:
Basic EPS — as reported	$	1.11
Basic EPS — pro forma	$	1.08
Diluted EPS — as reported	$	1.09
Diluted EPS — pro forma	$	1.05

In determining the pro forma effects on net income, the fair value of options granted prior to January 1, 2006 was estimated at each award grant date using the Black-Scholes option pricing model using the following assumptions: 1) expected dividend yields ranging between 0-3%; 2) expected volatility ranging between 25-31%; 3) expected terms no greater than 5 years; and 4) risk-free interest rates of 2.65%, 2.20%, 2.90%, 4.42%, 4.75%, 6.48% and 4.56% for each of the seven grant years from 1998 through 2004, respectively. The Company has established three share-based incentive compensation plans (the “Plans”), which are described below. Management believes that the Plans provide a means whereby the Company may attract and retain persons of ability to exert their best efforts on behalf of the Company. The Plans generally allow for the issuance of grants and exercises through newly issued shares, treasury stock, or any combination thereof to officers, key employees and directors who are employed by, or provide services to the Company. The compensation cost that has been charged against income for the Plans was $2,210,615, $2,116,929 and $984,806 for the years ended December 31, 2007, 2006 and 2005, respectively. Of the $2.1 million expensed in 2006, approximately $343,000 related to the adoption of accounting for share-based compensation under SFAS 123(R). The approximate total income tax benefit accrued and recognized in the Company’s financial statements for the years ended December 31, 2007, 2006 and 2005 related to share-based compensation expenses was approximately $774,000, $741,000 and $345,000, respectively.

2004 Long-Term Incentive Plan

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

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

F-31

RSUs, as well as restricted shares, become vested and convertible into shares of common stock when the restrictions applicable to them lapse. In accordance with SFAS 123(R), the fair value of nonvested shares is estimated on the date of grant based on the market price of the Company’s stock and is amortized to compensation expense on a straight-line basis over the related vesting periods. As of December 31, 2007, there was $3,518,000 of unrecognized compensation cost related to RSUs, which is expected to be recognized over a remaining weighted-average vesting period of 1.8 years. The total fair value of RSUs vested and converted to shares of common stock during the years ended December 31, 2007 and 2006 was $492,092 and $642,120, respectively. No RSUs vested in 2005. As of December 31, 2007, the aggregate fair value was $4,237,416 for RSUs outstanding (vested and unvested) and $3,080,916 for nonvested RSUs.
The following table sets forth activity for the LTIP as it relates to RSUs for the years ended December 31, 2007, 2006 and 2005:

	December 31, 2007					December 31, 2006					December 31, 2005
				Weighted					Weighted				Weighted
				Average Grant					Average Grant				Average Grant
				Date Fair					Date Fair				Date Fair
	Number of			Value		Number of			Value		Number of		Value
RSUs	Shares			Per Share		Shares			Per Share		Shares		Per Share
Outstanding, beginning of year		156,600		$	25.92		127,000		$	24.70		—		—
Granted		46,000		$	39.13		48,000		$	29.74		127,000	$	24.70
Vested and Converted to Shares of Common Stock		(19,400	)	$	29.74		(18,400	)	$	27.49		—		—
Forfeited		—			—		—			—		—		—
Outstanding, end of year		183,200		$	28.83		156,600		$	25.92		127,000	$	24.70
Nonvested, end of year		133,200		$	29.84		136,600		$	26.10		127,000	$	24.70

Performance share units have been awarded under the LTIP to the Company’s President and Chief Executive Officer. As discussed further under the caption “Executive Compensation Agreements,” the award is contingent upon the satisfaction of certain market conditions relating to the fair market value of the Company’s stock. Depending on the performance of the Company’s common stock for each of the years ended December 31, 2008, 2007 and 2006, an award may be issued up to 12,000 performance share units per year upon the achievement of certain predetermined share closing price requirements. The fair value of the performance share award has been estimated as of the initial grant date using a Monte Carlo Simulation. The inputs for expected dividends, expected volatility, expected term and risk-free interest rate used in the calculation of the grant-date fair value of this award were 0.84%, 25.3%, 2.7 years and 4.85%, respectively. Compensation expense, which is equal to the grant-date fair value, for the years ended December 31, 2007 and 2006 was $156,000 and $157,000, respectively. Pursuant to the completion of the 2007 and 2006 annual performance periods, the Company has awarded 12,000 performance shares for each year which vest on the second anniversary of the last day of the applicable performance period, provided that the executive is employed by the Company on that date, and are to be settled in the Company’s common stock on December 31, 2008 and 2009, respectively. The performance share units had an approximate fair value of $555,000 at December 31, 2007.

The Company has settled annual Board of Directors fees, in part, through the issuance of DSUs. DSUs are converted into shares of the Company’s common stock upon the departure of the grantee director. For the years ended December 31, 2007, 2006 and 2005, fees of $227,500, $227,500 and $184,000, respectively, have been settled by the grant of 5,366, 7,123, and 8,679 DSUs, respectively. A total of 29,725, 24,359 and 17,236 DSUs were outstanding at December 31, 2007, 2006 and 2005, respectively. The deferred share units outstanding at December 31, 2007 carried a total fair value of $687,539.

Unrestricted shares of the Company’s common stock have been granted pursuant to the LTIP. Correspondingly, 9,750 and 21,000 shares were granted to certain directors and officers during 2007 and 2005, respectively. The unrestricted stock awards settled compensation costs of $384,248 and $496,584, for the years ended December 31, 2007 and 2005, respectively. There were no unrestricted stock awards granted during 2006.

F-32

1991 and 2002 Stock Option Plans

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

The fair value of each option award has been estimated as of the respective grant date using the Black-Scholes option-pricing model. The Company has not granted any stock option awards through the Option Plans during any of the years ended December 31, 2007, 2006 and 2005. There was $2,483 of unrecognized compensation cost related to unvested options awarded pursuant to the Option Plans as of December 31, 2007, which will be recognized in the first quarter of 2008. The total intrinsic value of options exercised during the years ended December 31, 2007, 2006 and 2005 was approximately $2,347,000, $1,026,000 and $569,000, respectively. As of December 31, 2007, the aggregate intrinsic value was $1,484,974 for both options outstanding and vested and exercisable.

The following table sets forth stock option activity for the Option Plans for the years ended December 31, 2007, 2006 and 2005:

	December 31, 2007					December 31, 2006					December 31, 2005
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Number of			Price		Number of			Price		Number of			Price
Shares Under Option	Shares			Per Share		Shares			Per Share		Shares			Per Share
Outstanding, beginning of year		333,200		$	15.43		407,850		$	15.26		468,500		$	15.19
Granted		—			—		—			—		—			—
Exercised		(136,725	)	$	15.07		(72,025	)	$	14.46		(59,050	)	$	15.02
Forfeited		(650	)	$	14.47		(2,625	)	$	14.47		(1,600	)	$	14.47
Outstanding, end of year		195,825		$	15.69		333,200		$	15.43		407,850		$	15.26
Exercisable, end of year		193,325		$	15.56		323,200		$	15.22		285,100		$	15.12

The weighted-average remaining contractual term as of December 31, 2007 for both options outstanding and options vested and exercisable was 4.5 years. For the years ended December 31, 2007, 2006 and 2005, the Company received approximately $2,060,000, $1,042,000 and $887,000, respectively, in cash for the exercise of stock options granted under the Option Plans.

Other Plans:

Employee Stock Purchase Plan

The Company established the Employee Stock Purchase Plan (the “ESPP”) in 2004. The ESPP allows eligible employees of the Company and its designated affiliates to purchase, through payroll deductions, shares of common stock of the Company. The ESPP is designed to retain and motivate the employees of the Company and its designated affiliates by encouraging them to acquire ownership in the Company on a tax-favored basis. The price per common share sold under the ESPP is 85% (or more if the Board of Directors or the committee administering the plan so provides) of the closing price of the Company’s shares on the New York Stock Exchange on the day the Common Stock is offered. The Company has reserved 50,000 shares for issuance under the ESPP. There were no shares issued under the ESPP during any of the years ended December 31, 2007, 2006 and 2005.

F-33

Phantom Stock Plan

The Company established the NYMAGIC, INC. Phantom Stock Plan (the “PSP”) in 1999. The purpose of the PSP is to build and retain a capable and experienced long-term management team and to incentivize key personnel to promote the success of the Company. Each share of phantom stock granted under the PSP constitutes a right to receive the appreciation in the fair market value of one share of the Company’s stock in the equivalent cash value, as determined on the date of exercise of such share of phantom stock over the measurement value of such phantom shares. In 1999, 100,000 shares of phantom stock were granted to employees with a five-year vesting schedule. There have been no grants of phantom stock by the Company since 1999. There were 3,500, 7,500 and 0 shares exercised for the years ended December 31, 2007, 2006 and 2005, respectively. The Company recorded an expense (benefit) of $(40,755), $140,400 and $(7,650) for the years ended December 31, 2007, 2006 and 2005, respectively. As of December 31, 2007, there were 4,000 vested and outstanding phantom shares with a total fair value of $92,520.

Executive Compensation Agreements:

On April 17, 2006, the Company entered into an employment agreement with A. George Kallop, the Company’s President and Chief Executive Officer (the “Kallop Employment Agreement”), effective October 1, 2005 through December 31, 2008. This term will be automatically renewed for successive one-year periods unless either party provides notice 90 days prior to the expiration date of its intent to terminate the agreement at the end of applicable term. Under the Kallop Employment Agreement, Mr. Kallop is entitled to a base salary of $400,000 per annum (effective January 9, 2007, base salary was increased to $450,000 per annum pursuant to an amendment to the agreement) and a target annual cash incentive bonus of $300,000. Mr. Kallop is also entitled to receive grants of 8,000 restricted share units as of the execution date of the agreement and on each of January 1, 2007 and January 1, 2008. These shares will vest on December 31, 2006, 2007 and 2008, respectively. The agreement also provides for a long-term incentive award with maximum, target and threshold awards of 12,000, 6,000 and 3,000 performance units, respectively, in each of three one-year performance periods beginning with the calendar year ended December 31, 2006. Mr. Kallop is also entitled to receive a supplemental performance compensation award in the amount of 25,000 performance units pursuant to a “Change in Control” of the Company as defined in the Kallop Employment Agreement. A performance unit is an award which is based on the achievement of specific goals with respect to the Company or any affiliate or individual performance of the participant, or a combination thereof, over a specified period of time. Each of the performance awards is subject to the conditions described in the award agreement entered into contemporaneously with the Kallop Employment Agreement. The Kallop Employment Agreement also provides for reimbursement of reasonable expenses incurred in the performance of Mr. Kallop’s duties, and includes provisions governing termination for death, disability, cause, without cause and change of control, which include a severance benefit of one year’s salary, pro rata annual incentive awards at target, and accelerated vesting of stock and performance unit grants in the event of his termination without cause prior to a change of control.

In connection with the Kallop Employment Agreement, the Company entered into a Performance Share Award Agreement (the “Kallop Award Agreement”) with Mr. Kallop on the same date. Under the terms of the Kallop Award Agreement, the aforementioned 8,000 restricted share units granted as of the execution date of the Kallop Employment Agreement vest on December 31, 2006. The performance units will be earned for each of the three one-year performance periods based on predetermined market price targets of the daily closing price of the Company’s common stock in each of the requisite performance periods.

On April 18, 2006, the Company entered into an employment agreement with George R. Trumbull, III, the Company’s Chairman of the Board of Directors (the “Trumbull Employment Agreement”), effective February 1, 2006 through December 31, 2006. Under the Trumbull Employment Agreement Mr. Trumbull is entitled to a base salary of $250,000 and a target annual cash incentive bonus of $125,000. Mr. Trumbull is also entitled to receive a grant of 5,000 restricted share units as of the execution date of the Trumbull Employment Agreement, which vested on December 31, 2006. The Trumbull Employment Agreement also provides for reimbursement of reasonable expenses incurred in the performance of Mr. Trumbull’s duties, and includes provisions governing terminations for death, disability, cause, without cause and change of control, which include a severance benefit of one year’s salary, a pro rata annual incentive award at target and accelerated vesting of stock options in the event of his termination without cause prior to a change of control. The Trumbull Employment Agreement was renewed through December 31, 2007.

In connection with the renewal of the Trumbull Employment Agreement, the Company entered into a Performance Share Award Agreement (the “Trumbull Award Agreement”) with Mr. Trumbull on the same date, which provided for a grant of 5,000 restricted share units for each of the 2008 and 2007 years. The awards are to be granted on the first day of each year and vest on December 31, 2007 and 2008, respectively.

F-34

(15) Segment Information:

The Company’s subsidiaries include three domestic insurance companies and three domestic agencies. These subsidiaries underwrite commercial insurance in four major lines of business. The Company considers ocean marine, inland marine/fire, other liability, and aircraft as appropriate segments for purposes of evaluating the Company’s overall performance; however, the Company has ceased writing any new policies covering aircraft risks subsequent to March 31, 2002.

In 2005, the Company formed Arizona Marine And General Insurance Company, which was renamed Southwest Marine And General Insurance Company (“Southwest Marine”) in July 2006, as a wholly owned subsidiary in the State of Arizona. Southwest Marine writes, among other lines of insurance, excess and surplus lines in New York.

The Company evaluates revenues and income or loss by the aforementioned segments. Revenues include premiums earned and commission income. Income or loss includes premiums earned and commission income less the sum of losses incurred and policy acquisition costs.

Investment income represents a material component of the Company’s revenues and income. The Company does not maintain its investment portfolio by segment because management does not consider revenues and income by segment as being derived from the investment portfolio. Accordingly, an allocation of identifiable assets, investment income and realized investment gains is not considered practicable. As such, other income, general and administrative expenses, interest expense, and income taxes are also not considered by management for purposes of providing segment information. The financial information by segment is as follows:

	Year ended December 31,
	2007						2006						2005
	(in thousands)
				Income						Income						Income
Segments	Revenues			(Loss)			Revenues			(Loss)			Revenues			(Loss)
Ocean marine	$	71,998		$	29,141		$	78,898		$	31,691		$	72,326		$	8,491
Inland marine/Fire		7,016			1,084			7,792			(53	)		7,295			1,454
Other liability		87,388			11,971			65,402			3,721			55,277			815
Aircraft		108			(3,225	)		284			(455	)		857			2,214
Subtotal		166,510			38,971			152,376			34,904			135,755			12,974
Other income (loss)		(4,659	)		(4,659	)		596			596			334			334
Net investment income		35,489			35,489			47,897			47,897			36,060			36,060
Net realized investment (losses)		(6,903	)		(6,903	)		(403	)		(403	)		(805	)		(805	)
General and administrative expenses		—			(36,018	)		—			(31,401	)		—			(27,183	)
Interest expense		—			(6,726	)		—			(6,712	)		—			(6,679	)
Income tax expense		—			(6,782	)		—			(15,031	)		—			(5,000	)
Total	$	190,437		$	13,372		$	200,466		$	29,850		$	171,344		$	9,701

F-35

The Company’s gross written premiums cover risks in the following geographic locations:

	2007		2006		2005
			(in thousands)
United States	$	216,417	$	226,352	$	185,161
Europe		5,659		9,084		9,853
Asia		1,751		2,647		2,931
Latin America		313		479		879
Other		4,248		2,747		1,546
Total Gross Written Premiums	$	228,388	$	241,309	$	200,370

(16) Quarterly Financial Data (unaudited):

The quarterly financial data for 2007 and 2006 are as follows:

	Three Months Ended
	March 31,		June 30,		Sept. 30,		Dec. 31,
	2007		2007		2007		2007
	(in thousands, except per share data)
Total revenues	$	52,101	$	52,558	$	48,963	$	36,815
Income before income taxes	$	11,556	$	15,904	$	5,751	$	(13,056	)
Net income	$	7,519	$	10,325	$	3,799	$	(8,270	)
Basic earnings per share	$	.85	$	1.16	$	.43	$	(.93	)
Diluted earnings per share	$	.82	$	1.12	$	.41	$	(.93	)

	Three Months Ended
	March 31,		June 30,		Sept. 30,		Dec. 31,
	2006		2006		2006		2006
	(in thousands, except per share data)
Total revenues	$	49,542	$	48,883	$	48,394	$	53,648
Income before income taxes	$	11,859	$	9,442	$	12,406	$	11,174
Net income	$	7,714	$	6,147	$	8,578	$	7,411
Basic earnings per share	$	.88	$	.70	$	.97	$	.84
Diluted earnings per share	$	.85	$	.67	$	.93	$	.80

(17) Related Party Transactions:

The Company had gross premiums of $13.6 million in 2007, $14.2 million in 2006 and $14.7 million in 2005 written through Arthur J. Gallagher & Co., an insurance brokerage at which Glenn R. Yanoff, a director of the Company from June 1999 until May 2004 and currently a director since September 2005, is an employee. In connection with the placement of such business, gross commission expenses of $2,534,000, $2,580,000 and $2,533,000 in 2007, 2006 and 2005, respectively, were incurred by the Company on these transactions.

The Company entered into an investment management agreement with Mariner effective October 1, 2002, which was amended and restated on December 6, 2002. Under the terms of the agreement, Mariner manages the Company’s investment portfolio. Fees to be paid to Mariner are based on a percentage of the investment portfolio as follows: 0.20% of liquid assets, 0.30% of fixed maturity investments and 1.25% of limited partnership (hedge fund) investments. Southwest Marine entered into an investment management agreement, the substantive terms of which are identical to those set forth above, with a subsidiary of Mariner, Mariner Investment Group, Inc. (“Mariner Group”) effective March 1, 2007. In addition to Mr. Michaelcheck, George R. Trumbull, Chairman, and a director of the Company, A. George Kallop, President and Chief Executive Officer and a director of the Company, and William D. Shaw, Jr., Vice Chairman and a director of the Company, are also associated with Mariner. Investment fees incurred under the agreement with Mariner were $2,951,404, $2,887,985 and $3,356,928 for the years ended December 31, 2007, 2006 and 2005, respectively.

F-36

The Company entered into a consulting contract with Mr. Shaw in 2005 pursuant to which he receives $100,000 annually. In April 2007, Mr. Shaw was awarded a bonus of $25,000 and 1,000 shares of Common Stock, with a value of approximately $40,000, for his services in 2006. In February 2006 Mr. Shaw was awarded a bonus of $30,000 for his services in 2005. In 2005 the Company paid Mr. Shaw $83,000 in cash and granted Mr. Shaw 4,500 shares of common stock with the value of $107,415 for his management contributions to the Company in 2004.

The following information is unaudited: “Effective December 31, 2004, Mr. Trumbull, who had previously been a shareholder of Mariner, ceased to be a shareholder of Mariner. Currently, he has a consulting agreement with Mariner pursuant to which Mariner holds on his behalf an option to purchase 337,500 shares of NYMAGIC. Effective January 1, 2005, Mr. Shaw, who previously had a contractual relationship with Mariner relating to investing services, and on whose behalf Mariner agreed to hold as nominee a portion of the option covering 315,000 shares of NYMAGIC, terminated his contractual relationship with Mariner, waived his interest in the option covering 315,000 shares of NYMAGIC and became a shareholder of Mariner. Mr. Kallop has a consulting agreement with Mariner and Mariner holds on his behalf as nominee a portion of the option covering 236,250 shares of NYMAGIC.”

In 2003, the Company obtained a 100% interest in a limited partnership hedge fund, (Tricadia), that invests in CDO securities, Credit Related Structured Product (CRS) securities and other structured product securities that are structured, managed or advised by a Mariner affiliated company. In 2003 the Company made an investment of $11.0 million in Tricadia. Additional investments of $6.25 million, $2.7 million and $4.65 million were made in 2007, 2005 and 2004, respectively. The Company is committed to providing an additional $15.4 million in capital to Tricadia. Under the provisions of the limited partnership agreement, the Mariner affiliated company is entitled to 50% of the net profit realized upon the sale of certain collateralized debt obligations held by the Company. Investment expenses incurred under this agreement at December 31, 2007, December 31, 2006 and December 31, 2005 amounted to $(812,646), $792,144 and $437,842, respectively, and were based upon the fair value of those securities held and sold for the years ended December 31, 2007, 2006 and 2005, respectively. The limited partnership agreement also provides for other fees payable to the manager based upon the operations of the hedge fund. There were no other fees incurred during the years ended December 31, 2007, 2006 and 2005. Any withdrawals made require one year’s prior written notice to the hedge fund manager.

As of December 31, 2007 the Company held $68,771,158 in limited partnership interests in hedge funds that are directly managed by Mariner.

(18) Legal Proceedings:

The Company previously entered into reinsurance contracts with a reinsurer that is now in liquidation. On October 23, 2003, the Company was served with a Notice to Defend and a Complaint by the Insurance Commissioner of the Commonwealth of Pennsylvania, who is the liquidator of this reinsurer, alleging that approximately $3 million in reinsurance claims paid to the Company in 2000 and 2001 by the reinsurer are voidable preferences and are therefore subject to recovery by the liquidator. The claim was subsequently revised by the liquidator to approximately $2 million. The Company filed Preliminary Objections to Plaintiff’s Complaint, denying that the payments are voidable preferences and asserting affirmative defenses. These Preliminary Objections were overruled on May 24, 2005 and the Company filed its Answer in the proceedings on June 15, 2005. On December 7, 2006 the liquidator filed a motion of summary judgment to which the Company responded on December 19, 2006 by moving for a stay, pending the resolution of a similar case currently pending before the Supreme Court of the Commonwealth of Pennsylvania. As of March 1, 2008 there has been no ruling on the Company’s motion, and no trial date has been set for this matter. The Company intends to defend itself vigorously in connection with this lawsuit. The Company believes it has strong defenses against these claims; however, there can be no assurance as to the outcome of this litigation.

F-37

FINANCIAL STATEMENT SCHEDULES

SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT

NYMAGIC, INC.

Balance Sheets

(Parent Company)

	December 31,			December 31,
	2007			2006
Assets:
Cash	$	65,597,032		$	878,947
Investments		54,766,256			105,425,534
Total cash and investments		120,363,288			106,304,481
Investment in subsidiaries		237,489,115			238,810,495
Due from subsidiaries		18,700,906			20,983,782
Other assets		6,423,519			7,057,719
Total assets	$	382,976,828		$	373,156,477
Liabilities:
Notes payable	$	100,000,000		$	100,000,000
Dividend payable		815,267			788,980
Other liabilities		2,716,014			1,667,951
Total liabilities		103,531,281			102,456,931
Shareholders’ equity:
Common stock		15,672,090			15,505,815
Paid-in capital		47,313,015			42,219,900
Accumulated other comprehensive income		202,196			87,432
Retained earnings		296,641,235			286,147,400
Treasury stock		(80,382,989	)		(73,261,001	)
Total shareholders’ equity		279,445,547			270,699,546
Total liabilities and shareholders’ equity	$	382,976,828		$	373,156,477

F-38

FINANCIAL STATEMENT SCHEDULES
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NYMAGIC, INC.
Statements of Income
(Parent Company)

	Year ended December 31,
	2007			2006			2005
Revenues:
Cash dividends from subsidiaries	$	15,745,000		$	18,500,000		$	8,500,000
Net investment and other income		12,241,488			7,763,602			8,382,318
		27,986,488			26,263,602			16,882,318
Expenses:
General and administrative expenses		6,023,143			3,686,841			3,090,189
Interest expenses		6,701,711			6,688,932			6,677,409
Income tax expense (benefit)		453,140			(608,232	)		(494,921	)
		13,177,994			9,767,541			9,272,677
Income before equity income		14,808,494			16,496,061			7,609,641
Equity in undistributed earning of subsidiaries		(1,436,144	)		13,354,419			2,091,238
Net income	$	13,372,350		$	29,850,480		$	9,700,879

Statements of Cash Flows
(Parent Company)

	Year ended December 31,
	2007			2006			2005
Cash flows from operating activities:
Net income	$	13,372,350		$	29,850,480		$	9,700,879
Adjustments to net income to cash provided by operating activities:
Equity in undistributed earnings of subsidiaries		1,436,144			(13,354,419	)		(2,091,238	)
Equity in earnings of limited partnerships		(9,032,711	)		(4,986,865	)		(274,038	)
Decrease (increase) in due from subsidiaries		2,282,876			(5,229,654	)		(660,571	)
Decrease (increase) in other assets		634,200			(988,934	)		(195,005	)
Decrease in other liabilities		(863,124	)		(124,569	)		(1,413,528	)
Net cash provided by operating activities		7,829,735			5,166,039			5,066,499
Cash flows from investing activities:
Net sale (purchase) of other investments		65,941,989			(2,326,169	)		8,764,071
Limited partnerships (acquired) sold		(6,250,000	)		(40,029,555	)		47,403,579
Decrease (increase) in receivable for securities sold		—			34,735,775			(32,107,756	)
Investment in subsidiary		—			1,607,582			—
Net cash provided by (used in) investing activities		59,691,989			(6,012,367	)		24,059,894
Cash flows in financing activities:
Proceeds from stock issuance and other		5,259,390			3,626,463			1,981,601
Cash dividends paid to stockholders		(2,852,228	)		(2,465,648	)		(2,154,947	)
Net purchase of treasury stock		(7,121,988	)		—			(27,099,828	)
Increase in payable for treasury stock purchased		1,911,187			—			—
Investment in subsidiary		—			—			(1,600,000	)
Net cash (used in) provided by financing activities		(2,803,639	)		1,160,815			(28,873,174	)
Net increase in cash		64,718,085			314,487			253,219
Cash at beginning of period		878,947			564,460			311,241
Cash at end of period	$	65,597,032		$	878,947		$	564,460

The condensed financial information of NYMAGIC, INC. for the years ended December 31, 2007, 2006 and 2005 should be read in conjunction with the consolidated financial statements of NYMAGIC, INC. and subsidiaries and notes thereto.

F-39

NYMAGIC, INC.

SCHEDULE III — SUPPLEMENTARY INSURANCE INFORMATION

(In thousands)

	Column A	Column B		Column C		Column D		Column E		Column F
								OTHER
				FUTURE POLICY				POLICY
		DEFERRED		BENEFITS,				CLAIMS
		POLICY		LOSSES				AND
		ACQUISITION		CLAIMS AND		UNEARNED		BENEFITS		PREMIUM
		COST		LOSS EXPENSES		PREMIUMS		PAYABLE		REVENUE
	SEGMENTS	(caption 7)		(caption 13-a-1)		(caption 13-a-2)		(caption 13-a-3)		(caption 1)
2007	Ocean marine	$	5,370	$	197,511	$	34,985			$	71,637
	Inland marine/Fire		521		22,693		8,512				6,978
	Other liability		9,099		211,182		44,080				87,373
	Aircraft		—		125,149		—				108
	Total	$	14,990	$	556,535	$	87,577	$	—	$	166,096
2006	Ocean marine	$	5,907	$	212,581	$	38,760			$	78,350
	Inland marine/Fire		363		26,038		9,514				7,793
	Other liability		7,102		204,600		45,376				65,402
	Aircraft		—		135,960		—				289
	Total	$	13,372	$	579,179	$	93,650	$	—	$	151,834
2005	Ocean marine	$	6,488	$	243,033	$	39,179			$	71,688
	Inland marine/Fire		139		27,624		11,182				7,340
	Other liability		5,365		172,197		32,877				55,277
	Aircraft		—		146,011		—				252
	Total	$	11,992	$	588,865	$	83,238	$	—	$	134,557

	Column A	Column G		Column H			Column I		Column J		Column K
				BENEFITS,
				CLAIMS,			AMORTIZATION OF
				LOSSES			DEFFERED
		NET		AND			POLICY		OTHER
		INVESTMENT		SETTLEMENT			ACQUISITION		OPERATING		PREMIUMS
		INCOME		EXPENSES			COSTS		EXPENSES		WRITTEN
	SEGMENTS	(caption 2)		(caption 4)
2007	Ocean marine			$	27,723		$	15,134			$	68,192
	Inland marine/Fire				4,810			1,122				6,935
	Other liability				53,988			21,429				92,618
	Aircraft				3,323			10				108
	Total	$	35,489	$	89,844		$	37,695	$	36,018	$	167,853
2006	Ocean marine			$	31,065		$	16,142			$	75,243
	Inland marine/Fire				7,036			809				7,097
	Other liability				47,304			14,377				72,231
	Aircraft				731			8				289
	Total	$	47,897	$	86,136		$	31,336	$	31,401	$	154,860
2005	Ocean marine			$	45,339		$	18,496			$	70,596
	Inland marine/Fire				5,262			579				8,452
	Other liability				43,068			11,394				54,592
	Aircraft				(1,379	)		22				252
	Total	$	36,060	$	92,290		$	30,491	$	27,183	$	133,892

F-40

NYMAGIC, INC.

SCHEDULE V-VALUATION AND QUALIFYING ACCOUNTS

COLUMN A	COLUMN B		COLUMN C		COLUMN D			COLUMN E
	Balance at							Balance at
	beginning							close of
DESCRIPTION	of period		Additions		Deductions			Period
December 31, 2007 Allowance for doubtful accounts	$	14,151,028	$	3,679,854	$	(3,463,959	)	$	14,366,923
December 31, 2006 Allowance for doubtful accounts	$	17,016,018	$	2,958,349	$	(5,823,339	)	$	14,151,028
December 31, 2005 Allowance for doubtful accounts	$	12,838,007	$	6,639,265	$	(2,461,254	)	$	17,016,018

The allowance for doubtful accounts on reinsurance receivables amounted to $14,066,923, 13,851,028 and $16,716,018 at December 31, 2007, December 31, 2006 and December 31, 2005, respectively. The allowance for doubtful accounts on premiums and other receivables amounted to $300,000 for each of the years ended December 31, 2007, December 31, 2006 and December 31, 2005.

NYMAGIC, INC.

SCHEDULE VI — SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS

(In thousands)
			RESERVE FOR
	DEFERRED		UNPAID
AFFILIATION	POLICY		CLAIMS				UNEARNED		NET		NET
WITH	ACQUISITION		AND CLAIMS				PREMIUM		EARNED		INVESTMENT
REGISTRANT	COSTS		EXPENSES		DISCOUNT		RESERVE		PREMIUMS		INCOME
DECEMBER 31, 2007 CONSOLIDATED SUBSIDIARIES	$	14,990	$	556,535	$	—	$	87,577	$	166,096	$	22,852
DECEMBER 31, 2006 CONSOLIDATED SUBSIDIARIES	$	13,372	$	579,179	$	—	$	93,650	$	151,834	$	40,204
DECEMBER 31, 2005 CONSOLIDATED SUBSIDIARIES	$	11,992	$	588,865	$	—	$	83,238	$	134,557	$	27,893

	CLAIMS AND CLAIMS
	EXPENSES INCURRED					AMORTIZATION
	RELATED TO					OF DEFERRED
AFFILIATION						POLICY		PAID CLAIMS		NET
WITH	CURRENT		PRIOR			ACQUSITION		AND CLAIMS		PREMIUMS
REGISTRANT	YEAR		YEARS			COSTS		EXPENSES		WRITTEN
DECEMBER 31, 2007 CONSOLIDATED SUBSIDIARIES	$	103,664	$	(13,820	)	$	37,695	$	76,380	$	167,853
DECEMBER 31, 2006 CONSOLIDATED SUBSIDIARIES	$	93,803	$	(7,667	)	$	31,336	$	82,412	$	154,860
DECEMBER 31, 2005 CONSOLIDATED SUBSIDIARIES	$	105,537	$	(13,247	)	$	30,491	$	58,552	$	133,892

F-41

EX-10.57

Exhibit 10.57

NYMAGIC, INC.
2004 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN
PERFORMANCE SHARE AWARD AGREEMENT

     THIS AGREEMENT, made as of this 10th day of January, 2008, by and between NYMAGIC, INC. (the “Company”), having its principal place of business in 919 Third Avenue, 10^th Floor, New York, NY 10022

     and

     George R. Trumbull, III (the “Grantee”), the Chairman of the Company.

WITNESSETH THAT:

     WHEREAS, the Grantee is now employed by the Company (the “Company” when used herein with reference to employment of the Grantee, shall include any Affiliate of the Company as defined in the Plan) as Chairman pursuant to an Employment Agreement (the “Employment Agreement”) between the Grantee and the Company entered into contemporaneously with this Agreement; and

     WHEREAS, the Company has adopted the NYMAGIC, INC. 2004 Amended and Restated Long-Term Incentive (the “Plan”) under which the Company may grant to key employees awards of Restricted Shares as defined in the Plan, providing the Grantee with shares of common stock, par value $1 per share, of the Company (the “Shares”) subject to restrictions set forth in the Plan and in this Award Agreement; and

     WHEREAS, the Company desires to grant to the Grantee an award of Restricted Shares;

     NOW THEREFORE, in consideration of the covenants and agreements herein contained and intending to be legally bound, the parties hereto hereby agree with each other as follows:

     1. Grant. Subject to the terms and conditions set forth herein and to the terms of the Plan, and in order to provide an incentive for the Grantee, as a key employee, to work for the long-range success of the Company, the Company hereby awards to the Grantee 5,000 Restricted Shares, subject to adjustment as provided in the Plan.

     2. Vesting. The Shares underlying the Restricted Shares awarded to the Grantee under this Award Agreement shall vest on December 31, 2008 if the Grantee is, and has been, since the date of this Agreement employed by the Company on that date. If the Grantee’s employment with the Company terminates prior to December 31, 2008, the Shares underlying the Restricted Shares awarded to the Grantee under this Award Agreement shall be forfeited unless otherwise provided in accordance with the terms of the Employment Agreement.

     3. Issuance. The Shares underlying the Restricted Shares subject to this Award Agreement will be issued in accordance with the terms of the Plan.

     4. Binding Effect. Except as otherwise provided in this Award Agreement or in the Plan, every covenant, term, and provision of this Award Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, transferees, and assigns.

     5. No Additional Rights. In no event shall the award of the Restricted Shares hereunder or the acceptance of this Award Agreement by the Grantee give or be deemed to give the Grantee any right to continued retention as an independent contractor, service provider, or employee by the Company or any affiliate of the Company.

     6. Severability. If any part or parts of this Award Agreement or the Plan shall be held illegal or unenforceable by any court or administrative body of competent jurisdiction, such determination shall not affect the remaining provisions of this Award Agreement or the Plan which shall remain in full force and effect.

     7. Governing Law. This Award Agreement shall be governed by and construed in accordance with the laws of the state of New York, without regard to the conflicts of law principles thereof.

     8. Counterparts. This Award Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement.

     9. Taxes. By signing this Award Agreement, the Grantee acknowledges that he shall be solely responsible for the satisfaction of any taxes that may arise with respect to the Restricted Shares, and that the Company shall have no obligation whatsoever to pay such taxes.

[SIGNATURE PAGE FOLLOWS]

2

     IN WITNESS WHEREOF, the undersigned have executed this Award Agreement as of the date first written above.

COMPANY: NYMAGIC, INC.
By:	/s/ Paul J. Hart
	Name:	Paul J. Hart
	Title:	Senior Vice President

The undersigned hereby accepts the terms of this Award Agreement and the Plan.

GRANTEE:
By:	/s/ George R. Trumbull, III
	Name:	George R. Trumbull, III
	Title:	Chairman

EX-10.58

Exhibit 10.58 

NYMAGIC, INC.
2004 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN
AWARD AGREEMENT

     THIS AGREEMENT, made as of this 9th day of January, 2008 by and between NYMAGIC, INC. (the “Company”), having its principal place of business in 919 Third Avenue, 10^th Floor, New York, NY 10022

     and

     A. George Kallop (the “Grantee”), the President and Chief Executive Officer of the Company.

WITNESSETH THAT:

     WHEREAS, the Grantee is now employed by the Company (the “Company” when used herein with reference to employment of the Grantee, shall include any Affiliate of the Company as defined in the Plan) as President and Chief Executive Officer pursuant to an Employment Agreement (the “Employment Agreement”) between the Grantee and the Company entered into on April 17, 2006, and amended effective January 1, 2007;

     WHEREAS, the Company has adopted the NYMAGIC, INC. 2004 Amended and Restated Long-Term Incentive (the “Plan”) under which the Company may grant to key employees awards of Restricted Shares as defined in the Plan, providing the Grantee with shares of common stock, par value $1 per share, of the Company (the “Shares”) subject to restrictions set forth in the Plan and in this Award Agreement; and

     WHEREAS, the Company desires to grant to the Grantee an award of Restricted Shares pursuant to the resolution of the Board of Directors of the Company adopted on December 5, 2007;

     NOW THEREFORE, in consideration of the covenants and agreements herein contained and intending to be legally bound, the parties hereto hereby agree with each other as follows:

     1. Grant. Subject to the terms and conditions set forth herein and to the terms of the Plan, and in order to provide an incentive for the Grantee, as a key employee, to work for the long-range success of the Company, the Company hereby awards to the Grantee 8,000 Restricted Shares, subject to adjustment as provided in the Plan.

     2. Vesting. The Shares underlying the Restricted Shares awarded to the Grantee under this Award Agreement shall vest on December 31, 2008 if the Grantee is, and has been, since the date of this Agreement employed by the Company on that date. If the Grantee’s employment with the Company terminates prior to December 31, 2008, the Shares underlying the Restricted Shares awarded to the Grantee under this Award Agreement shall be forfeited unless otherwise provided in accordance with the terms of the Employment Agreement.

     3. Issuance. The Shares underlying the Restricted Shares subject to this Award Agreement will be issued in accordance with the terms of the Plan.

     4. Binding Effect. Except as otherwise provided in this Award Agreement or in the Plan, every covenant, term, and provision of this Award Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, transferees, and assigns.

     5. No Additional Rights. In no event shall the award of the Restricted Shares hereunder or the acceptance of this Award Agreement by the Grantee give or be deemed to give the Grantee any right to continued retention as an independent contractor, service provider, or employee by the Company or any affiliate of the Company.

     6. Severability. If any part or parts of this Award Agreement or the Plan shall be held illegal or unenforceable by any court or administrative body of competent jurisdiction, such determination shall not affect the remaining provisions of this Award Agreement or the Plan which shall remain in full force and effect.

     7. Governing Law. This Award Agreement shall be governed by and construed in accordance with the laws of the state of New York, without regard to the conflicts of law principles thereof.

     8. Counterparts. This Award Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement.

     9. Taxes. By signing this Award Agreement, the Grantee acknowledges that he shall be solely responsible for the satisfaction of any taxes that may arise with respect to the Restricted Shares, and that the Company shall have no obligation whatsoever to pay such taxes.

[SIGNATURE PAGE FOLLOWS]

2

     IN WITNESS WHEREOF, the undersigned have executed this Award Agreement as of the date first written above.

COMPANY: NYMAGIC, INC.
By:	/s/ Paul J. Hart
	Name:	Paul J. Hart
	Title:	Senior Vice President

The undersigned hereby accepts the terms of this Award Agreement and the Plan.

GRANTEE:
By:	/s/ A. George Kallop
	Name:	A. George Kallop
	Title:	President and Chief Executive Officer

EX-10.59

Exhibit 10.59

EMPLOYMENT AGREEMENT

     AGREEMENT, is made effective January 1, 2008 (the “Effective Date’) and entered into as of the 10^th day of January, 2008 by and between NYMAGIC, INC., a New York corporation (together with its successors and assigns, the “Company”), and George R. Trumbull, III (the “Executive”).

WITNESSETH:

     WHEREAS, the Company desires to continue to employ the Executive pursuant to an agreement embodying the terms of such employment (this “Agreement”) and the Executive desires to enter into this Agreement and to accept such employment, subject to the terms and provisions of this Agreement.

     NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive (individually a “Party” and together the “Parties”) agree as follows:

     1. Term of Employment.

          The term of the Executive’s employment under this Agreement shall commence on the Effective Date and end on December 31, 2008 (the “Term of Employment”), unless terminated earlier in accordance herewith.

     2. Position, Duties and Responsibilities.

          (a) Generally. The Executive shall serve as Chairman of the Board of Directors (the “Board”) of the Company. For so long as he is serving on the Board, the Executive agrees to serve as a member of any committee of the Board to which he is elected. In any and all such capacities, the Executive shall report only to the Board. The Executive shall have and perform such duties, responsibilities, and authorities as are customary for the Chairman of corporations of similar size and businesses as the Company as they may exist from time to time and as are consistent with such position and status. The Executive shall devote approximately twenty (20) hours per week and his best efforts, abilities, experience, and talent to the position of Chairman of the Company. In the event of termination of the Executive’s employment under this Agreement, the Executive’s membership on the Board and any committees thereof shall also be terminated effective on the date of termination of Executive’s employment.

          (b) Other Activities. Anything herein to the contrary notwithstanding, nothing in this Agreement shall preclude the Executive from (i) serving on the boards of directors of a reasonable number of other corporations or the boards of a reasonable number of trade

associations and/or charitable organizations, (ii) engaging in charitable activities and community affairs, (iii) managing his personal investments and affairs, provided that such activities do not materially interfere with the proper performance of his duties and responsibilities under this Agreement and (iv) performing consulting services for Mariner Partners, Inc. , or any of its successors, affiliates, stockholders or members (collectively, “Mariner”).

          (c) Place of Employment. The Executive’s principal place of employment shall be the Company’s principal corporate office.

     3. Base Salary.

          The Executive shall be paid an annualized salary, payable in accordance with the regular payroll practices of the Company, of $250,000 (“Base Salary”).

     4. Annual Incentive Awards.

          The Executive shall participate in the Company’s annual incentive compensation plan with a target Annual Incentive Award opportunity of 50% of Base Salary and a maximum Annual Incentive Award opportunity of 100% of Base Salary (the “Annual Incentive Award”). Payment of the Executive’s Annual Incentive Award shall be made within 2 months of the Company’s fiscal year-end.

     5. Long-Term Incentive Program.

          (a) Grant of Restricted Shares. On the date of the execution of this Agreement the Executive shall be granted 5,000 Restricted Shares under the LTIP, which shall vest on December 31, 2007, contingent upon the Executive’s continued employment with the Company on that date (the “Restricted Share Grant”).

     6. Employee Benefit Programs.

          (a) General Benefits. During the Term of Employment as Chairman, the Executive shall be entitled to participate in such employee benefit plans and programs of the Company as are made available to the Company’s senior level executives or to its employees generally, as such plans or programs may be in effect from time to time, including, without limitation, health, medical, dental, long-term disability, travel accident and life insurance plans.

          (b) Deferral of Compensation. The Executive shall be permitted to elect to defer receipt, pursuant to written deferral election terms and forms (the “Deferral Election Forms”) consistent with Section 409A of the Code, as hereinafter defined, of all or a specified portion of his annual incentive compensation under Section 4 and his long term incentive compensation under Section 5; provided, however, that such deferrals shall not reduce the Executive’s total cash compensation in any calendar year below the sum of (i) the FICA maximum taxable wage base plus (ii) the amount needed, on an after-tax basis, to enable the

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Executive to pay the 1.45% Medicare tax imposed on his wages in excess of such FICA maximum taxable wage base.

          The Company and the Executive agree that compensation deferred pursuant to this Section 6(b) shall be fully vested and nonforfeitable; however, the Executive acknowledges that his rights to the deferred compensation provided for in this Section 6(b) shall be no greater than those of a general unsecured creditor of the Company, and that such rights may not be pledged, collateralized, encumbered, hypothecated, or liable for or subject to any lien, obligation, or liability of the Executive, or be assignable or transferable by the Executive, otherwise than by will or the laws of descent and distribution, provided that the Executive may designate one or more beneficiaries to receive any payment of such amounts in the event of his death.

     7. Disability.

          (a) During the Term of Employment, the Executive shall be entitled to disability coverage as described in this Section 7(a). In the event the Executive becomes disabled, as that term is defined under the Company’s Long-Term Disability Plan, the Executive shall be entitled to receive pursuant to the Company’s Long-Term Disability Plan or otherwise, and in place of his Base Salary, an amount equal to 60% (or at the rate then applicable) of his Base Salary, at the annual rate in effect on the commencement date of his eligibility for the Company’s long-term disability benefits (“Commencement Date”) for a period beginning on the Commencement Date and ending with the Executive’s attainment of age 65. If (i) the Executive ceases to be disabled during the Term of Employment (as determined in accordance with the terms of the Long-Term Disability Plan), (ii) the position set forth in Section 2(a) are then vacant and (iii) the Company requests in writing that he resume such position, he may elect to resume such position by written notice to the Company within 15 days after the Company delivers its request. If he resumes such position, he shall thereafter be entitled to his Base Salary at the annual rate in effect on the Commencement Date and, for the year he resumes his position, a pro rata Annual Incentive Award at 75% of Base Salary for such year. If he ceases to be disabled during the Term of Employment and does not resume his position in accordance with the preceding sentence, he shall be treated as if he voluntarily terminated his employment pursuant to Section 9(e) as of the date the Executive ceases to be disabled. If the Executive is not offered such position after he ceases to be disabled during the Term of Employment, he shall be treated as if his employment was terminated Without Cause pursuant to Section 9(c) as of the date the Executive ceases to be disabled.

          (b) The Executive shall be entitled to a pro rata Annual Incentive Award at 75% of Base Salary for the year in which the Commencement Date occurs, payable in accordance with the terms of the annual incentive compensation plan and at the time set forth in Section 4 hereof. The Executive shall not be entitled to any Annual Incentive Award with respect to the period following the Commencement Date. If the Executive recommences his position in accordance with Section 7(a), he shall be entitled to a pro rata Annual Incentive Award at 75% of Base Salary for the year he resumes such position and shall thereafter be entitled to Annual Incentive Awards in accordance with Section 4 hereof.

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          (c) During the period the Executive is receiving disability benefits pursuant to Section 7(a) above, he shall continue to be treated as an employee for purposes of all employee benefits and entitlements in which he was participating on the Commencement Date, including without limitation, the benefits and entitlements referred to in Section 5 and 6 above, except that the Executive shall not be entitled to receive any annual salary increases or any new long-term incentive plan grants or elect to defer compensation following the Commencement Date.

     8. Reimbursement of Business and Other Expenses: Perquisites.

          (a) The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement, and the Company shall promptly reimburse him on a monthly basis for all such business expenses incurred in connection therewith in the prior month, subject to documentation in accordance with the Company’s policy.

     9. Termination of Employment.

          (a) Termination Due to Death or Disability. The Term of Employment shall be terminated immediately upon the death or disability (as such term is defined under the Company’s Long-Term Disability Plan) of the Executive. In the event the Executive’s employment with the Company is terminated due to his death or disability, the Executive, his estate or his beneficiaries, as the case may be, shall be entitled to and their sole remedies under this Agreement shall be:

(i)	Base Salary through the date of death or the Commencement Date, as the case may be, which shall be paid in a single lump sum 15 days following the Executive’s death or the Commencement Date, as the case may be;
(ii)	pro rata Annual Incentive Award at 75% of Base Salary for the year in which the Executive’s death, or the Commencement Date, as the case may be, occurs, which shall be payable in a lump sum 30 days after his death or on the first day following the six-month anniversary of the Executive’s termination of employment by reason of disability;
(iii)	elimination of all restrictions on any Restricted Share Grants or deferred stock awards outstanding at the time of his death, or the Commencement Date, as the case may be;
(iv)	immediate vesting of all outstanding stock options and the right to exercise such stock options as is provided in any stock option award agreement to which the Executive is a party;

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(v)	the balance of any Annual Incentive Awards earned as of December 31 of the prior year (but not yet paid), which shall be paid in a single lump sum and in accordance with the terms of such awards;
(vi)	settlement of all deferred compensation arrangements in accordance with the Executive’s duly executed Deferral Election Forms; and
(vii)	other or additional benefits then due or earned, payable in accordance with applicable plans and programs of the Company.

          (b) Termination by the Company for Cause.

(i) The Term of Employment may be terminated by the Company for Cause. “Cause” shall mean:

(A)	The Executive’s willful and material breach of Sections 10, 11 or 12 of this Agreement;
(B)	The Executive is convicted of a felony or pleads guilty or nolo contendre to an offense that is a felony in the jurisdiction where committed;
(C)	The Executive engages in conduct that constitutes willful gross neglect or willful gross misconduct in carrying out his duties under this Agreement, resulting, in either case, in material harm to the financial condition or reputation of the Company;
(D)	The Executive’s failure to cooperate, if requested by the Board, with any investigation or inquiry into his or the Company’s business practices, whether internal or external, including, but not limited to the Executive’s refusal to be deposed or to provide testimony at any trial or inquiry;
(E)	The Executive’s substantial and continued refusal to perform his duties;
(F)	The Executive’s violation of a material Company Policy; and,
(G)	The Executive engages in any act or series of acts that constitute misconduct requiring a restatement of the

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Company’s financial statements pursuant to the Sarbanes-Oxley Act of 2002.

For purposes of this Agreement, an act or failure to act on the Executive’s part shall be considered “willful” if it was done or omitted to be done by him not in good faith, and shall not include any act or failure to act resulting from any incapacity of the Executive.

(ii)

A termination for Cause shall not take effect unless the provisions of this paragraph (ii) are complied with. The Executive shall be given written notice by the Company of its intention to terminate him for Cause, such notice (A) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (B) to be given within 90 days of the Company’s learning of such act or acts or failure or failures to act. The Executive shall have 20 days after the date that such written notice has been given to him in which to cure such conduct, to the extent such cure is possible. If he fails to cure such conduct, the Executive shall then be entitled to a hearing before the Board at which the Executive is entitled to appear. Such hearing shall be held within 25 days of such notice to the Executive, provided he requests such hearing within 10 days of the written notice from the Company of the intention to terminate him for Cause. If, within five days following such hearing, the Executive is furnished written notice by the Board confirming that, in its judgment, grounds for Cause on the basis of the original notice exist, he shall thereupon be terminated for Cause.

(iii)

In the event the Company terminates the Executive’s employment for Cause, he shall be entitled to and his sole remedies under this Agreement shall be:

(A)	Base Salary through the date of the termination of his employment for Cause, which shall be paid in a single lump sum 15 days following the Executive’s termination of employment;
(B)	any Annual Incentive Awards earned as of December 31 of the prior year (but not yet paid), which shall be paid in a single lump and in accordance with the terms of such awards;
(C)	settlement of all deferred compensation arrangements in accordance with the Executive’s duly executed Deferral Election Forms; and

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(D) other or additional benefits then due or earned, payable in accordance with applicable plans or programs of the Company.

          (c) Termination Without Cause or Constructive Termination Without Cause. Prior to a Change in Control. In the event the Executive’s employment with the Company is terminated without Cause (which termination shall be effective as of the date specified by the Company in a written notice to the Executive), other than due to death, or disability, or in the event there is a Constructive Termination Without Cause (as defined below), in either case prior to a Change in Control (as defined below) the Executive shall be entitled to and his sole remedies under this Agreement shall be:

(i)	Base Salary through the date of termination of the Executive’s employment, which shall be paid in a single lump sum 15 days following the Executive’s termination of employment;
(ii)	Base Salary, at the annualized rate in effect on the date of termination of the Executive’s employment (or in the event a reduction in Base Salary is a basis for a Constructive Termination Without Cause, then the Base Salary in effect immediately prior to such reduction), continued for a period of 12 months following such termination payable in 12 equal monthly installments beginning on the first day following the six month anniversary after the date of the Executive’s termination of employment (the 12 month period following termination of employment is referred to as the “Severance Period”);
(iii)	pro rata Annual Incentive Award at 75% of Base Salary for the year in which termination occurs, payable in a lump sum payable on the first day following the six-month anniversary after the date of the Executive’s termination of employment;
(iv)	elimination of all restrictions on any Restricted Share Grants or deferred stock awards outstanding at the time of termination of employment;
(v)	any outstanding stock options, which are unvested, shall vest and the Executive shall have the right to exercise any vested stock options as provided in any stock option award agreement to which the Executive is a party;
(vi)	the balance of any Annual Incentive Awards earned as of December 31 of the prior year (but not yet paid), which shall be paid in a single lump sum and in accordance with the terms of such awards;

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(vii)	settlement of all deferred compensation arrangements in accordance with the Executive’s duly executed Deferral Election Forms;
(viii)	continued participation in all medical, health and life insurance plans at the same benefit level at which he was participating on the date of the termination of his employment until the earlier of:

(A)	the expiration of the Severance Period; or
(B)	the date, or dates, he receives equivalent coverage and benefits under the plans and programs of a subsequent employer;

provided, however, to the extent that any such benefits cannot be provided on a non-taxable basis to the Executive and the provision thereof would cause any part of the benefits to be subject to additional taxes and interest under Section 409A of the Code, then the provision of such benefits shall be deferred to the earliest date upon which such benefits can be provided without being subject to such additional taxes and interest; and,

(x)

other or additional benefits then due or earned, payable in accordance with applicable plans and programs of the Company.

          A termination without “Cause” shall mean the Executive’s employment is terminated by the Company for any reason other than Cause (as defined in Section 9(b)) or due to death or disability.

          “Constructive Termination Without Cause” shall mean a termination of the Executive’s employment at his initiative as provided in this Section 9(c) following the occurrence, without the Executive’s written consent, of one or more of the following events (except as a result of a prior termination):

(A)	a removal of the Executive from or any failure to elect or re-elect or, as the case may be, nominate the Executive as a member of the Board;
(B)	an assignment of any duties to the Executive which are inconsistent with his status as Chairman of the Company;
(C)	a decrease in annual Base Salary or target Annual Incentive Award opportunity;

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(D)	any other failure by the Company to perform any material obligation under, or breach by the Company of any material provision of, this Agreement that is not cured within 30 days after receipt by the Company of written notice thereof from the Executive; or
(E)	a relocation of the corporate offices of the Company outside a 35-mile radius of New York, New York, or Hartford Connecticut.

     Notwithstanding anything to contrary contained in this Agreement, a Constructive Termination Without Cause shall not have occurred if the occurrence of an event which would otherwise constitute Constructive Termination Without Cause under this Agreement arises out of or in connection with any transaction between the Company and Mariner.

          (d) Termination Upon a Change of Control. The Term of Employment shall be terminated immediately upon a Change of Control (as defined below). In the event the Executive’s employment with the Company is terminated due to a Change of Control, the Executive shall be entitled to and his sole remedies under this Agreement shall be:

(i)	Base Salary through the date of the Change of Control, which shall be paid in a single lump sum 15 days following the date of the Executive’s termination of employment;
(ii)	pro rata Annual Incentive Award at 75% of Base Salary for the year in which the Change of Control occurs, which shall be payable in a lump sum on the first day following the six month anniversary of the Executive’s termination of employment;
(iii)	elimination of all restrictions on any Restricted Share Grants or deferred stock awards outstanding on the date of the Change of Control;
(iv)	immediate vesting of all outstanding stock options and the right to exercise such stock options as provided in any stock option award agreement to which the Executive is a party;
(v)	the balance of any Annual Incentive Awards earned as of December 31 of the prior year (but not yet paid), which shall be paid in a single lump sum and in accordance with the terms of such awards;
(vi)	settlement of all deferred compensation arrangements in accordance with the Executive’s duly executed Deferral Election Forms; and

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(vii) other or additional benefits then due or earned, payable in accordance with applicable plans and programs of the Company.

A “Change in Control” shall be deemed to have occurred if:

(i)	any Person (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company immediately prior to the occurrence with respect to which the evaluation is being made in substantially the same proportions as their ownership of the common stock of the Company) becomes the Beneficial Owner (except that a Person shall be deemed to be the Beneficial Owner of all shares that any such Person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants or options or otherwise, without regard to the sixty day period referred to in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company or any Significant Subsidiary (as defined below), representing 50% or more of the combined voting power of the Company’s or such subsidiary’s then outstanding securities;
(ii)	during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii), or (iv) of this paragraph) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved but excluding for this purpose any such new director whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or Person other than the Board, cease for any reason to constitute at least a majority of the Board;
(iii)	the consummation of a merger or consolidation of the Company or any subsidiary owning directly or indirectly all or substantially all of the consolidated assets of the Company (a “Significant Subsidiary”) with any other entity, other than a merger or consolidation which would result in the voting securities of the

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	Company or a Significant Subsidiary outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or resulting entity) more than 50% of the combined voting power of the surviving or resulting entity outstanding immediately after such merger or consolidation;
(iv)	the consummation of a plan or agreement for the sale or disposition of all or substantially all of the consolidated assets of the Company (other than such a sale or disposition immediately after which such assets will be owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company immediately prior to such sale or disposition) in which case the Board shall determine the effective date of the Change in Control resulting therefrom; or
(v)	any other event occurs which the Board determines, in its discretion, would materially alter the structure of the Company or its ownership.

     For purposes of this definition:

(A)	The term “Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 under the Exchange Act (including any successor to such Rule).
(B)	The term “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
(C)	The term “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including “group” as defined in Section 14(d) thereof.

     Notwithstanding anything to contrary contained in this Agreement, a Change in Control shall not have occurred if the occurrence of an event which would otherwise constitute a Change in Control under this Agreement arises out of or in connection with any transaction between the Company and Mariner.

          (e) Voluntary Termination. In the event of a termination of employment by the Executive on his own initiative after delivery of 10 business days advance written notice, other than a termination due to death, disability or a Constructive Termination Without Cause, the Executive shall have the same entitlements as provided in Section 9(b)(iii) above for a termination for Cause. Notwithstanding any implication to the contrary, the Executive shall not

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have the right to terminate his employment with the Company during the Term of Employment except in the event of a Constructive Termination Without Cause, and any voluntary termination of employment during the Term of Employment in violation of this Agreement shall be considered a material breach.

          (f) No Mitigation; No Offset. In the event of any termination of employment, the Executive shall be under no obligation to seek other employment and, except as provided in Section 9(c)(viii), amounts due the Executive under this Agreement shall not be offset by any remuneration attributable to any subsequent employment that he may obtain.

          (g) Nature of Payments. Any amounts due under this Section 9 are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty.

          (h) No Further Liability; Release. In the event of the Executive’s termination of employment, payment made and performance by the Company in accordance with this Section 9 shall operate to fully discharge and release the Company and its directors, officers, employees, subsidiaries, affiliates, stockholders, successors, assigns, agents and representatives from any further obligation or liability with respect to the Executive’s rights under this Agreement. Other than payment and performance under this Section 9, the Company and its directors, officers, employees, subsidiaries, affiliates, stockholders, successors, assigns, agents and representatives shall have no further obligation or liability to the Executive or any other person under this Agreement in the event of the Executive’s termination of employment. The Company shall have the right to condition the payment of any severance or other amounts pursuant to this Section 9 upon the delivery by the Executive to the Company of a release in the form satisfactory to the Company releasing any and all claims the Executive may have against the Company and its directors, officers, employees, subsidiaries, affiliates, stockholders, successors, assigns, agents and representatives arising out of this Agreement.

     10. Confidentiality: Cooperation with Regard to Litigation; Non-Disparagement; Return of Company Materials.

          (a) During the Term of Employment and thereafter, the Executive shall not, without the prior written consent of the Company, disclose to anyone (except in good faith in the ordinary course of business to a person who will be advised by the Executive to keep such information confidential) or make use of any Confidential Information, except in the performance of his duties hereunder or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires him to divulge, disclose or make accessible such information. In the event that the Executive is so ordered, he shall give prompt written notice to the Company in order to allow the Company the opportunity to object to or otherwise resist such order.

          (b) During the Term of Employment and thereafter, the Executive shall not disclose the existence or contents of this Agreement beyond what is disclosed in the proxy statement or documents filed with the government unless and to the extent such disclosure is

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required by law, by a governmental agency, or in a document required by law to be filed with a governmental agency or in connection with enforcement of his rights under this Agreement. In the event that disclosure is so required, the Executive shall give prompt written notice to the Company in order to allow the Company the opportunity to object to or otherwise resist such requirement. This restriction shall not apply to such disclosure by him to members of his immediate family, his tax, legal or financial advisors, any lender, or tax authorities, or to potential future employers to the extent necessary, each of whom shall be advised not to disclose such information.

          (c) “Confidential Information” shall mean (i) all information concerning the business of the Company or any Subsidiary including information relating to any of their products, product development, trade secrets, customers, suppliers, finances, and business plans and strategies, and (ii) information regarding the organization structure and the names, titles, status, compensation, benefits and other proprietary employment-related aspects of the employees of the Company and the Company’s employment practices. Excluded from the definition of Confidential Information is information (A) that is or becomes part of the public domain, other than through the breach of this Agreement by the Executive or (B) regarding the Company’s business or industry properly acquired by the Executive in the course of his career as an executive in the Company’s industry and independent of the Executive’s employment by the Company. For this purpose, information known or available generally within the trade or industry of the Company or any Subsidiary shall be deemed to be known or available to the public.

          (d) “Subsidiary” shall mean any corporation controlled directly or indirectly by the Company.

          (e) The Executive agrees to cooperate with the Company, during the Term of Employment and thereafter (including following the Executive’s termination of employment for any reason), by making himself reasonably available to testify on behalf of the Company or any Subsidiary in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any Subsidiary, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company, or any Subsidiary as requested; provided, however that the same does not materially interfere with his then current professional activities. The Company agrees to reimburse the Executive on a monthly basis for all expenses actually incurred in the prior month in connection with his provision of testimony or assistance.

          (f) The Executive agrees that, during the Term of Employment and thereafter (including following the Executive’s termination of employment for any reason) he will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage the Company or any Subsidiary or their respective officers, directors, employees, advisors, businesses or reputations. The Company agrees that, during the Term of Employment and thereafter (including following the Executive’s termination of employment for any reason) the Company will not make statements or representations, or otherwise communicate, directly or

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indirectly, in writing, orally, or otherwise, or take any action which may directly or indirectly, disparage the Executive or his business or reputation. Notwithstanding the foregoing, nothing in this Agreement shall preclude either the Executive or the Company from making truthful statements or disclosures that are required by applicable law, regulation, or legal process.

          (g) Upon any termination of employment, the Executive agrees to deliver any Company property and any documents, notes, drawings, specifications, computer software, data and other materials of any nature pertaining to any Confidential Information that are held by the Executive and will not take any of the foregoing, or any reproduction of any of the foregoing, that is embodied in any tangible medium of expression, provided that the foregoing shall not prohibit the Executive from retaining his personal phone directories and rolodexes.

     11. Non-competition.

          (a) During the Restriction Period (as defined in Section 11(b) below), the Executive shall not engage in Competition with the Company or any Subsidiary. “Competition” shall mean engaging in any activity, except as provided below, for a Competitor of the Company or any Subsidiary, whether as an employee, consultant, principal, agent, officer, director, partner, shareholder (except as a less than one percent shareholder of a publicly traded company) or otherwise. A “Competitor” shall mean any business (in the U.S. or any country in which the Company or any Subsidiary operates) which is in material competition with the Company or any Subsidiary and in which the Executive’s functions would be substantially similar to the Executive’s functions with the Company. If the Executive commences employment or becomes a consultant, principal, agent, officer, director, partner, or shareholder of any entity that is not a Competitor at the time the Executive initially becomes employed or becomes a consultant, principal, agent, officer, director, partner, or shareholder of the entity, future activities of such entity shall not result in a violation of this provision unless (x) such activities were contemplated by the Executive at the time the Executive initially became employed or becomes a consultant, principal, agent, officer, director, partner, or shareholder of the entity or (y) the Executive commences directly or indirectly to advise, plan, oversee or manage the activities of an entity which becomes a Competitor during the Restriction Period, that activities are competitive with the activities of the Company or any Subsidiary.

          (b) For the purposes of this Section 11, “Restriction Period” shall mean the period beginning with the Effective Date and ending with:

(i)	in the case of a termination of the Executive’s employment without Cause, voluntary termination, upon a Change of Control or a Constructive Termination Without Cause, the Restriction Period shall terminate immediately upon the Executive’s termination of employment; and,
(ii)	in the case of a termination of the Executive’s employment for Cause, 12 months from the date of such termination.

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     12. Non-solicitation of Employees.

          During the period beginning with the Effective Date and ending 12 months following the termination of the Executive’s employment, the Executive shall not induce employees of the Company or any Subsidiary to terminate their employment; provided, however, that the foregoing shall not be construed to prevent the Executive from engaging in generic nontargeted advertising for employees generally. During such period, the Executive shall not hire, either directly or through any employee, agent or representative, any employee of the Company or any Subsidiary or any person who was employed by the Company or any Subsidiary within 180 days of such hiring.

     13. Remedies.

          In addition to whatever other rights and remedies the Company may have at equity or in law, if the Executive breaches any of the provisions contained in Sections 10, 11 or 12 above, the Company (a) shall have its rights under Section 10 of this Agreement, (b) shall have the right to immediately terminate all payments and benefits due under this Agreement and (c) shall have the right to seek injunctive relief. The Executive acknowledges that such a breach of Sections 10, 11 or 12 would cause irreparable injury and that money damages would not provide an adequate remedy for the Company; provided, however, the foregoing shall not prevent the Executive from contesting the issuance of any such injunction on the ground that no violation or threatened violation of Sections 10, 11 or 12 has occurred.

     14. Resolution of Disputes.

          Any controversy or claim arising out of or relating to this Agreement or any breach or asserted breach hereof or questioning the validity and binding effect hereof arising under or in connection with this Agreement, other than seeking injunctive relief under Section 13, shall be resolved by binding arbitration, to be held at an office closest to the Company’s principal offices in accordance with the rules and procedures of the American Arbitration Association, except that disputes arising under or in connection with Sections 10, 11 and 12 above shall be submitted to the federal or state courts in the State of New York. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Pending the resolution of any arbitration or court proceeding, the Company shall continue payment of all amounts and benefits due the Executive under this Agreement. All reasonable costs and expenses (including fees and disbursements of counsel) incurred by the Executive pursuant to this Section 14 shall be paid on behalf of or reimbursed to the Executive on a monthly basis by the Company for reasonable costs and expenses incurred in the prior month; provided, however, that in the event the arbitrator(s) determine(s) that any of the Executive’s litigation assertions or defenses are determined to be in bad faith or frivolous, no such reimbursements shall be due the Executive, and any such expenses already paid to the Executive shall be immediately returned by the Executive to the Company.

     15. Indemnification.

15

          (a) Company Indemnity. The Company agrees that if the Executive is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that he is or was a director, officer or employee of the Company or any Subsidiary or is or was serving at the request of the Company or any Subsidiary as a director, officer, member, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Proceeding is the Executive’s alleged action in an official capacity while serving as a director, officer, member, employee or agent, the Executive shall be indemnified and held harmless by the Company to the fullest extent legally permitted or authorized by the Company’s certificate of incorporation or bylaws or resolutions of the Company’s Board or, if greater, by the laws of the State of New York against all cost, expense, liability and loss (including, without limitation, attorney’s fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith, and such indemnification shall continue as to the Executive even if he has ceased to be a director, member, officer, employee or agent of the Company or other entity and shall inure to the benefit of the Executive’s heirs, executors and administrators. The Company shall advance to the Executive all reasonable costs and expenses to be incurred by him in connection with a Proceeding within 20 days after receipt by the Company of a written request for such advance, together with such documentation as may be reasonably requested by the Company. Such request shall include an undertaking by the Executive to repay the amount of such advance if it shall ultimately be determined that he is not entitled to be indemnified against such costs and expenses. The provisions of this Section 15(a) shall not be deemed exclusive of any other rights of indemnification to which the Executive may be entitled or which may be granted to him, and it shall be in addition to any rights of indemnification to which he may be entitled under any policy of insurance.

          (b) No Presumption Regarding Standard of Conduct. Neither the failure of the Company (including its Board, independent legal counsel or stockholders) to have made a determination prior to the commencement of any proceeding concerning payment of amounts claimed by the Executive under Section 15(a) above that indemnification of the Executive is proper because he has met the applicable standard of conduct, nor a determination by the Company (including its Board, independent legal counsel or stockholders) that the Executive has not met such applicable standard of conduct, shall create a presumption that the Executive has not met the applicable standard of conduct.

          (c) Liability Insurance. The Company agrees to continue and maintain a directors and officers’ liability insurance policy covering the Executive to the extent the Company provides such coverage for its other executive officers.

     16. Excise Tax Gross-Up.

     If the Executive becomes entitled to one or more payments (with a “payment” including, without limitation, the vesting of an option or other non-cash benefit or property), whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement with the Company or any affiliated company (the “Total Payments”), which are or become

16

subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) (or any similar tax that may hereafter be imposed) (the “Excise Tax”), the Company shall pay to the Executive at the time specified below an additional amount (the “Gross-up Payment”) (which shall include, without limitation, reimbursement for any penalties and interest that may accrue in respect of such Excise Tax) such that the net amount retained by the Executive, after reduction for any Excise Tax (including any penalties or interest thereon) on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-up Payment provided for by this Section 16, but before reduction for any federal, state, or local income or employment tax on the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount equal to the product of any deductions disallowed for federal, state, or local income tax purposes because of the inclusion of the Gross-up Payment in the Executive’s adjusted gross income multiplied by the highest applicable marginal rate of federal, state, or local income taxation, respectively, for the calendar year in which the Gross-up Payment is to be made. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax:

(i)	The Total Payments shall be treated as “parachute payments” within the meaning of Section 280G(b)(2) of the Code, and all “excess parachute payments” within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the written opinion of independent compensation consultants, counsel or auditors of nationally recognized standing (“Independent Advisors”) selected by the Company and reasonably acceptable to the Executive, the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax;
(ii)	The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the total amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i) above); and
(iii)	The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

          For purposes of determining the amount of the Gross-up Payment, the Executive shall be deemed (A) to pay federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-up Payment is to be made; (B) to pay any applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes if paid in

17

such year (determined without regard to limitations on deductions based upon the amount of the Executive’s adjusted gross income); and (C) to have otherwise allowable deductions for federal, state, and local income tax purposes at least equal to those disallowed because of the inclusion of the Gross-up Payment in the Executive’s adjusted gross income. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, the Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to the Executive or otherwise realized as a benefit by the Executive) the portion of the Gross-up Payment that would not have been paid if such Excise Tax had been applied in initially calculating the Gross-up Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Company shall make an additional Gross-up Payment in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined.

          The Gross-up Payment provided for above shall be paid on the 30th day after it has been determined that the Total Payments (or any portion thereof) are subject to the Excise Tax and that the Executive has the right to such Gross-up Payment pursuant to this Section 16 ; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined by such date, the Company shall pay to the Executive on such date an estimate, as determined by the Independent Advisors, of the minimum amount of such payments and shall pay the remainder of such payments, if any, (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), immediately upon the determination of the amount thereof. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, the Executive shall immediately repay such excess to the Company on the date such amount is finally determined (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made, the amount of each Gross-up Payment shall be computed so as not to duplicate any prior Gross-up Payment. The Company shall have the right to control all proceedings with the Internal Revenue Service that may arise in connection with the determination and assessment of any Excise Tax and, at its sole option, the Company may pursue or forego any and all administrative appeals, proceedings, hearings, and conferences with any taxing authority in respect of such Excise Tax (including any interest or penalties thereon); provided, however, that the Company’s control over any such proceedings shall be limited to issues with respect to which a Gross-up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest any other issue raised by the Internal Revenue Service or any other taxing authority. The Executive shall cooperate with the Company in any proceedings relating to the determination and assessment of any Excise Tax and shall not take any position or action that would materially increase the amount of any Gross-Up Payment hereunder.

     17. Effect of Agreement on Other Benefits.

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          Except as specifically provided in this Agreement, the existence of this Agreement shall not be interpreted to preclude, prohibit or restrict the Executive’s participation in any other employee benefit or other plans or programs in which he currently participates.

     18. Assignability: Binding Nature.

          No rights or obligations of either the Executive (except as provided in Section 24, below) or the Company under this Agreement may be assigned or transferred including without limitation, those rights or obligations customarily assigned or transferred in connection with the merger, consolidation, sale, or transfer of all, or substantially all of the assets, of the Company; provided, however, that this Agreement shall be binding upon and inure to the benefit of the heirs of the Executive and that the Executive’s rights to compensation and benefits may be transferred by will or the laws of descent and distribution.

     19. Representation.

          The Company represents and warrants that it is fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization.

     20. Entire Agreement.

          This Agreement contains the entire understanding and agreement between the Parties concerning the subject matter hereof and, as of the Effective Date, supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the Parties with respect thereto, except with respect to the specific award agreements referred to herein and, for the avoidance of doubt, is not intended to, nor does it in any way, address the rights and obligations of the Executive arising out of any agreement between the Executive and Mariner, pursuant to which Mariner holds as nominee for the Executive options to purchase shares of the Company.

     21. Amendment or Waiver.

          No provision in this Agreement may be amended unless such amendment is agreed to in writing and signed by the Executive and an authorized officer of the Company. Except as set forth herein, no delay or omission to exercise any right, power or remedy accruing to any Party shall impair any such right, power or remedy or shall be construed to be a waiver of or an acquiescence to any breach hereof. No waiver by either Party of any breach by the other Party of any condition or provision contained in this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by the Executive or an authorized officer of the Company, as the case may be.

     22. Severability.

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          In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.

     23. Survivorship.

          The respective rights and obligations of the Parties hereunder shall survive any termination of the Executive’s employment to the extent necessary to the intended preservation of such rights and obligations.

     24. Beneficiaries/References.

          The Executive shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive’s death by giving the Company written notice thereof. In the event of the Executive’s death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative.

     25. Governing Law/Jurisdiction.

          This Agreement shall be governed by and construed and interpreted in accordance with the laws of New York without reference to principles of conflict of laws. Subject to Section 14, the Company and the Executive hereby consent to the jurisdiction of any or all of the following courts for purposes of resolving any dispute under this Agreement: (i) the United States District Court for the Southern District of New York or (ii) any of the courts of the State of New York. The Company and the Executive further agree that any service of process or notice requirements in any such proceeding shall be satisfied if the rules of such court relating thereto have been substantially satisfied. The Company and the Executive hereby waive, to the fullest extent permitted by applicable law, any objection which it or he may now or hereafter have to such jurisdiction and any defense of inconvenient forum.

     26. Notices.

          Any notice given to a Party shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give such notice of:

If to the Company:
Paul J. Hart, General Counsel
NYMAGIC, INC.
919 Third Avenue, 10^th Floor
New York, New York 10022

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If to the Executive:
George R. Trumbull, III
15 Shadowbrook
West Simsbury, CT 06092

     27. Headings and Construction.

          The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. For purposes of this Agreement, the term “termination” when used in the context of a condition to, or timing of, payment hereunder shall be interpreted to mean a “separation from service” as that term is used in Section 409A of the Code.

     28. Counterparts.

          This Agreement may be executed in two or more counterparts.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

21

     IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above.

NYMAGIC, INC.
By:	/s/ Paul J. Hart
	Name:	Paul J. Hart
	Title:	Senior Vice President
THE EXECUTIVE
/s/ George R. Trumbull, III
George R. Trumbull, III

22

EX-10.60

Exhibit 10.60

Mutual Marine Office, Inc.

919 Third Avenue — 10^th Floor

New York, NY 10022

212-551-0600

February 15, 2007

Mr. Craig Lowenthal
306 Wave Place
East Northport, New York 11731

Re: Revised Offer of Employment

Dear Mr. Lowenthal:

We are pleased to offer you the position of Senior Vice President, Chief Information Officer of the Information Technology Department of Mutual Marine Office, Inc. You will report directly to A. George Kallop, President and Chief Executive Officer.

Your employment package entails the following:

Salary: A base salary of Two Hundred Seventy-Five Thousand dollars ($275,000) paid on our regular semi-monthly payroll cycle.

Bonus: You are eligible for a bonus of up to 50% of base salary. You are guaranteed a bonus of 50% of your base salary, or $137,500, for 2007, payable in the first quarter of 2008.

Special Bonus: You will be paid a one-time Company contribution to your 401(k) Plan in lieu of a Profit Sharing Contribution for 2007 in the amount of $10,000. Payment shall be made in lieu of the Profit Sharing Contribution for 2007 you would have received for 2007 had you been eligible for it, and will coincide with the usual contribution funding to employee accounts.

Stock Grant: You will receive a total grant of 12,500 Restricted Share Units of NYMAGIC stock. 2,500 shares will vest on the first anniversary of your actual start date. 10,000 shares will vest 20% each year on the anniversary of your actual start date.

Severance: You are entitled to a severance payment equal to a minimum of three months salary in the event of your discharge from employment without cause.

Vacation: Four (4) weeks vacation, five (5) sick days, and three (3) personal days.

Benefits: A complete benefits package that includes: group health, dental, Rx, and vision insurance (immediate); life insurance, voluntary accident insurance, long term disability (after two months), 401K (immediate), and participation in the Profit Sharing Plan & Trust of Mutual Marine Office, Inc. upon meeting eligibility requirements.

We look forward to you joining us on April 2, 2007 and feel confident that the energy and ideas that you will bring to MMO will make us an even stronger organization.

If you have any questions or would like to discuss MMO’s benefits further, please feel free to call me at 212-551-0733.

Sincerely,

/s/ Diane Votinelli  

Diane Votinelli 

Vice President
Human Resources 

EX-10.61

Exhibit 10.61

EXECUTION COUNTERPART

AGREEMENT OF LEASE

between

METROPOLITAN 919 THIRD AVENUE LLC

Landlord

and

NEW YORK MARINE AND GENERAL INSURANCE COMPANY

Tenant

Dated as of June 5, 2007

Entire Eleventh (11^th) Floor
919 Third Avenue
New York, New York

TABLE OF CONTENTS

TABLE OF CONTENTS		I
ARTICLE 1	DEMISE; PREMISES AND PURPOSE	1
ARTICLE 2	TERM	2
ARTICLE 3	RENT AND ADDITIONAL RENT	2
ARTICLE 4	ASSIGNMENT/SUBLETTING	3
ARTICLE 5	DEFAULT	8
ARTICLE 6	RELETTING, ETC.	9
ARTICLE 7	LANDLORD MAY CURE DEFAULTS	10
ARTICLE 8	ALTERATIONS	10
ARTICLE 9	LIENS	13
ARTICLE 10	REPAIRS	13
ARTICLE 11	FIRE OR OTHER CASUALTY	14
ARTICLE 12	END OF TERM	14
ARTICLE 13	SUBORDINATION AND ESTOPPEL, ETC.	15
ARTICLE 14	CONDEMNATION	17
ARTICLE 15	REQUIREMENTS OF LAW	18
ARTICLE 16	CERTIFICATE OF OCCUPANCY	18
ARTICLE 17	POSSESSION	18
ARTICLE 18	QUIET ENJOYMENT	19
ARTICLE 19	RIGHT OF ENTRY	19
ARTICLE 20	INDEMNITY	20
ARTICLE 21	LANDLORD’S LIABILITY, ETC.	20
ARTICLE 22	CONDITION OF PREMISES	20
ARTICLE 23	CLEANING	21
ARTICLE 24	JURY WAIVER	21
ARTICLE 25	NO WAIVER, ETC.	22
ARTICLE 26	OCCUPANCY AND USE BY TENANT	22

i 

ARTICLE 27	NOTICES	23
ARTICLE 28	WATER	23
ARTICLE 29	SPRINKLER SYSTEM	24
ARTICLE 30	HEAT, ELEVATOR, ETC.	24
ARTICLE 31	SECURITY DEPOSIT	24
ARTICLE 32	TAX ESCALATION	26
ARTICLE 33	RENT CONTROL	29
ARTICLE 34	SUPPLIES	29
ARTICLE 35	AIR CONDITIONING	30
ARTICLE 36	SHORING	31
ARTICLE 37	EFFECT OF CONVEYANCE, ETC.	31
ARTICLE 38	RIGHTS OF SUCCESSORS AND ASSIGNS	31
ARTICLE 39	CAPTIONS	32
ARTICLE 40	BROKERS	32
ARTICLE 41	ELECTRICITY	32
ARTICLE 42	LEASE SUBMISSION	36
ARTICLE 43	INSURANCE	36
ARTICLE 44	SIGNAGE	38
ARTICLE 45	RIGHT TO RELOCATE	39
ARTICLE 46	FUTURE CONDOMINIUM CONVERSION	39
ARTICLE 47	MISCELLANEOUS	40
ARTICLE 48	COMPLIANCE WITH LAW	40
ARTICLE 49	LANDLORD’S CONTRIBUTION	41
ARTICLE 50	OPERATING EXPENSE ESCALATION	42
ARTICLE 51	RULES AND REGULATIONS	49

ii 

INDEX OF DEFINED TERMS

TERM	PAGE
Additional Rent		3
Alterations		10
Base Year		43
Base Tax Year		27
Best’s rating		25
Brokers		33
Building		1
Building Cleaning Contractor		23
Building HVAC System		31
Building Insurance Expense		44
Building Project		21, 44
Comparative Year		21, 44
Comparative Insurance Year		33
Consultant Cost		4
Cooling Season		31
Credit		26
Declaration		41
Delivery Personnel		1
Excessive Water		24
Existing HVAC Equipment		31
Expenses		45
Expense Payment		47
Expiration Date		2
Fixed Annual Rent		2
Guaranty		26
Landlord		1
Landlord’s Contribution		42
Landlord’s Cost		33
Landlord’s Electrical Consultant		34
Landlord’s Relocation Work		40
Landlord’s Restoration Work		14
Lease		1
Leaseback Area		4
Named Tenant		8
Ordinary Business Hours		34
Percentage		44
Premises		1
Qualified Renovations		42
Real Estate Taxes		27
Recapture Date		4
Relocation Effective Date		40
Relocation Notice		40

iii 

TERM	PAGE
Relocation Space		40
Rent		3
Retainage		43
Security		25
Soft Costs		43
Space A		1
Space A Commencement Date		2
Space A Rent Commencement Date		2
Space B		1
Space B Commencement Date		2
Space B Rent Commencement Date		2
Submetering System		34
Supplemental A/C Systems		31
Tenant		1
Tenant Cleaning Services		22
Tenant’s Initial Alteration Work		42
Tenant’s Plans		42
Tenant’s Recapture Offer		4
Tenant’s Share		27
Term		2
Work Cost		43

2

          LEASE (this “Lease”) made as of the 5th day of June 2007 between METROPOLITAN 919 THIRD AVENUE LLC having an office c/o SL Green Realty Corp., at 420 Lexington Avenue, New York, New York, 10170, hereinafter referred to as “Landlord”, and NEW YORK MARINE AND GENERAL INSURANCE COMPANY, a New York insurance corporation, having an office at 919 Third Avenue, 10^th Floor, New York, New York 10022, hereinafter referred to as “Tenant”.

WITNESSETH

          Landlord and Tenant, in consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, hereby covenant and agree as follows:

ARTICLE 1

DEMISE; PREMISES AND PURPOSE

          1.01 Landlord hereby leases and demises to Tenant, and Tenant hereby hires and takes from Landlord, those certain premises located on and comprising the entire rentable portion of the eleventh (11th) floor made up of two (2) separate spaces, the first of which (“Space A”) shall consist of that certain portion of the eleventh (11th) floor, approximately as indicated by hatch marks on the plan annexed hereto and made a part hereof as “Exhibit A-1”, and the second of which (“Space B”) shall consist of any portion of the eleventh (11th) floor which is not part of Space A, approximately as indicated by hatch marks on the plan annexed hereto and made a part hereof as “Exhibit A-2” (Space A and Space B, are hereinafter referred to collectively as the “Premises”) in the building known as and located at 919 Third Avenue, New York, New York (the “Building”) subject to the provisions of this Lease.

          1.02 The Premises shall be used and occupied for executive and general office use consistent with that found in Class “A” high-rise office buildings located in midtown Manhattan only and for no other purpose.

          1.03 Neither the Premises, nor the halls, corridors, stairways, elevators or any other portion of the Building shall be used by the Tenant or the Tenant’s servants, employees, licensees, invitees or visitors in connection with the aforesaid permitted use or otherwise so as to cause any congestion of the public portions of the Building or the entranceways, sidewalks or roadways adjoining the Building whether by trucking or by the congregating or loitering thereon of the Tenant and/or the servants, employees, licensees, invitees or visitors of the Tenant.

          1.04 Tenant shall not permit messengers, delivery personnel or other individuals providing such services to Tenant (“Delivery Personnel”) to: (i) assemble, congregate or to form a line outside of the Premises or the Building or otherwise impede the flow of pedestrian traffic outside of the Premises or Building or (ii) park or otherwise leave bicycles, wagons or other delivery

1

carts outside of the Premises or the Building except in locations outside of the Building designated by Landlord from time-to-time. Tenant shall require all Delivery Personnel to comply with rules promulgated by Landlord from time-to-time regarding the use of outside messenger services.

ARTICLE 2

TERM

          2.01 The Premises are leased for a term (the “Term”) which shall commence (i) with respect to Space A, September 1, 2007 (the “Space A Commencement Date”), and (ii) with respect to Space B, on the date which is ninety (90) days after Landlord delivers notice to Tenant of its intent to deliver possession of Space B to Tenant (the “Space B Commencement Date”)(which is currently anticipated to occur on or before January 30, 2008, subject to delay by causes beyond Landlord’s control) and shall end on the 30^th day of July, 2016 (the “Expiration Date”) or on such earlier date upon which the Term shall expire, be canceled or terminated pursuant to any of the conditions or covenants of this Lease or pursuant to law. Tenant agrees that upon request from Landlord, it shall execute and return to Landlord within ten (10) days of Landlord’s request, a certificate prepared by Landlord confirming the Space A Commencement Date and Space B Commencement Date. Tenant further agrees that its failure to timely execute and return same to Landlord shall not in any way operate to invalidate the commencement of the term of this Lease and the designation of the Space A Commencement Date and Space B Commencement Date as set forth in such certificate.

ARTICLE 3

RENT AND ADDITIONAL RENT

          3.01 Tenant shall pay fixed annual rent without electricity (the “Fixed Annual Rent”) to Landlord throughout the Term of this Lease in accordance with the provisions of this Article, provided, however, that all Fixed Annual Rent and Additional Rent accruing under this Lease from the Space A Commencement Date and Space B Commencement Date through and including the day preceding the Space A Rent Commencement Date and Space B Rent Commencement Date, respectively, shall be abated. Tenant shall pay Fixed Annual Rent without electricity with respect to Space A and Space B, in each case commencing on the rent commencement date applicable to such space of the Premises, at the rates provided for in the schedule annexed hereto and made a part hereof as Exhibit B-1 and Exhibit B-2, respectively, in equal monthly installments in advance on the first (1st) day of each calendar month during the Term, except that the first (1st) monthly installment of Fixed Annual Rent shall be paid by Tenant upon its execution of this Lease. Fixed Annual Rent for any partial calendar month shall be appropriately prorated. “Space A Rent Commencement Date” shall mean the date that is one hundred twenty (120) days after the Space A Commencement Date and “Space B Rent Commencement Date” shall mean the date that is one hundred twenty (120) days after the Space B Commencement Date. Anything contained hereinabove to the contrary notwithstanding, if Tenant at any time during the term of the Lease, breaches any material covenant, condition or provision of the Lease and fails to cure such

2

breach within any applicable grace period, and provided that the Lease is terminated by Landlord because of such material default, then, in addition to all other damages and remedies herein provided and to which Landlord may be otherwise entitled, Landlord shall also be entitled to the repayment in full of all Rent which has theretofore been abated under the provisions of this Lease, which repayment Tenant shall make upon demand therefor. All sums other than Fixed Annual Rent payable hereunder shall be deemed to be “Additional Rent” and shall be payable on demand, unless other payment dates are hereinafter provided. Tenant shall pay all Fixed Annual Rent and Additional Rent due hereunder, without any set off or deduction whatsoever (other than as expressly provided in this Lease), in United States legal tender, either (a) by good and sufficient check drawn on a New York City bank which clears through the New York Clearing House or a successor thereto delivered to the office of Landlord or such other place as Landlord may designate by notice to Tenant, or (b) by electronic transfer of immediately available federal funds payable to such account as Landlord may from time to time designate by notice to Tenant. The term “Rent” as used in this Lease shall mean Fixed Annual Rent and Additional Rent.

ARTICLE 4

ASSIGNMENT/SUBLETTING

          4.01 Neither Tenant nor Tenant’s legal representatives or successors in interest by operation of law or otherwise, shall assign, mortgage or otherwise encumber this Lease, or sublet or permit all or part of the Premises to be used by others, without the prior written consent of Landlord in each instance. The transfer of a majority of the issued and outstanding capital stock of any corporate tenant or sublessee of this Lease or a majority of the total interest in any partnership tenant or sublessee or company, however accomplished, and whether in a single transaction or in a series of related or unrelated transactions, the conversion of a tenant or sublessee entity to either a limited liability company or a limited liability partnership or the merger or consolidation of a corporate tenant or sublessee, shall be deemed an assignment of this Lease or of such sublease. If this Lease is assigned, or if the Premises or any part thereof is underlet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, undertenant or occupant, and apply the net amount collected to the rent herein reserved, but no assignment, underletting, occupancy or collection shall be deemed a waiver of the provisions hereof, the acceptance of the assignee, undertenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Landlord to an assignment or underletting shall not in any way be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or underletting. In no event shall any permitted sublessee assign or encumber its sublease or further sublet all or any portion of its sublet space, or otherwise suffer or permit the sublet space or any part thereof to be used or occupied by others, without Landlord’s prior written consent in each instance. A modification, amendment or extension of a sublease shall be deemed a sublease. The listing of the name of a party or entity other than that of Tenant on the Building or floor directory or on or adjacent to the entrance door to the Premises shall neither grant such party or entity any right or interest in this Lease or in the Premises nor constitute Landlord’s consent to any assignment or sublease to, or occupancy of the Premises by, such party or entity. If any lien is filed against the Premises or the Building of which the same form a part for brokerage services claimed to have been

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performed for Tenant in connection with any such assignment or sublease, whether or not actually performed, the same shall be discharged within ten (10) days thereafter, at Tenant’s expense, by filing the bond required by law, or otherwise, and paying any other necessary sums, and Tenant agrees to indemnify Landlord and its agents and hold them harmless from and against any and all claims, losses or liability resulting from such lien for brokerage services rendered.

          4.02 If Tenant desires to assign this Lease or to sublet all or any portion of the Premises, it shall first submit in writing to Landlord the documents described in Section 4.06 hereof, and shall offer in writing (“Tenant’s Recapture Offer”), (i) with respect to a prospective assignment, to assign this Lease to Landlord without any payment of moneys or other consideration therefor, or, (ii) with respect to a prospective subletting, to sublet to Landlord the portion of the Premises involved (“Leaseback Area”) for the term specified by Tenant in its proposed sublease or, at Landlord’s option for the balance of the term of the Lease less one (1) day, and at the lower of (a) Tenant’s proposed subrental or (b) the rate of Fixed Annual Rent and Additional Rent, and otherwise on the same terms, covenants and conditions (including provisions relating to escalation rents), as are contained herein and as are allocable and applicable to the portion of the Premises to be covered by such subletting. Tenant’s Recapture Offer shall specify the date when the Leaseback Area will be made available to Landlord, which date shall be in no event earlier than ninety (90) days nor later than one hundred eighty (180) days following the acceptance of Tenant’s Recapture Offer (the “Recapture Date”). If an offer of sublease is made, and if the proposed sublease will result in all or substantially all of the Premises being sublet, then Landlord shall have the option to extend the term of its proposed sublease for the balance of the term of this Lease less one (1) day. Landlord shall have a period of ninety (90) days from the receipt of such Tenant’s Recapture Offer to either accept or reject Tenant’s Recapture Offer or to terminate this Lease.

          4.03. If Landlord exercises its option to terminate this Lease, then (i) the term of this Lease shall end at the election of Landlord either (x) on the date that such assignment or sublet was to become effective or commence, as the case may be, or (y) on the Recapture Date and (ii) Tenant shall surrender to Landlord and vacate the Premises on or before such date in the same condition as is otherwise required upon the expiration of this Lease by its terms, (iii) the Rent and Additional Rent due hereunder shall be paid and apportioned to such date, and (iv) Landlord shall be free to lease the Premises (or any portion thereof) to any individual or entity including, without limitation, Tenant’s proposed assignee or subtenant.

          4.04. If Landlord shall accept Tenant’s Recapture Offer, Tenant shall then execute and deliver to Landlord, or to anyone designated or named by Landlord, an assignment or sublease, as the case may be, in either case in a form reasonably satisfactory to Landlord’s counsel;

               If a sublease is so made it shall expressly:

          (i) permit Landlord to make further subleases of all or any part of the Leaseback Area and (at no cost or expense to Tenant) to make and authorize any and all changes, alterations, installations and improvements in such space as necessary;

          (ii) provide that Tenant will at all times permit reasonably appropriate means of ingress to and egress from the Leaseback Area;

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          (iii) negate any intention that the estate created under such sublease be merged with any other estate held by either of the parties;

          (iv) provide that Landlord shall accept the Leaseback Area “as is” except that Landlord, at Tenant’s expense, shall perform all such work and make all such alterations as may be required physically to separate the Leaseback Area from the remainder of the Premises and to permit lawful occupancy, it being intended that Tenant shall have no other cost or expense in connection with the subletting of the Leaseback Area;

          (v) provide that at the expiration of the term of such sublease Tenant will accept the Leaseback Area in its then existing condition, subject to the obligations of Landlord to make such repairs thereto as may be necessary to preserve the Leaseback Area in good order and condition, ordinary wear and tear excepted.

          4.05 Landlord shall indemnify and save Tenant harmless from all obligations under this Lease as to the Leaseback Area during the period of time it is so sublet, except for Fixed Annual Rent and Additional Rent, if any, due under the within Lease, which are in excess of the rents and additional sums due under such sublease. Subject to the foregoing, performance by Landlord, or its designee, under a sublease of the Leaseback Area shall be deemed performance by Tenant of any similar obligation under this Lease and any default under any such sublease shall not give rise to a default under a similar obligation contained in this Lease, nor shall Tenant be liable for any default under this Lease or deemed to be in default hereunder if such default is occasioned by or arises from any act or omission of the tenant under such sublease or is occasioned by or arises from any act or omission of any occupant holding under or pursuant to any such sublease.

          4.06 If Tenant requests Landlord’s consent to a specific assignment or subletting, it shall submit in writing to Landlord (i) the name and address of the proposed assignee or sublessee, (ii) a duly executed counterpart of the proposed agreement of assignment or sublease, (iii) reasonably satisfactory information as to the nature and character of the business of the proposed assignee or sublessee and as to the nature of its proposed use of the space, and (iv) banking, financial or other credit information relating to the proposed assignee or sublessee reasonably sufficient to enable Landlord to determine the financial responsibility and character of the proposed assignee or sublessee.

          4.07. If Landlord shall not have accepted Tenant’s Recapture Offer and Landlord shall not have terminated this Lease, as provided for in Section 4.02 hereof, then Landlord will not unreasonably withhold or delay its consent to Tenant’s request for consent to such specific assignment or subletting for the use permitted under this Lease, provided that:

          (i) The Premises shall not, without Landlord’s prior consent, have been listed or otherwise publicly advertised for assignment or subletting at a rental rate lower than the higher of (a) the Fixed Annual Rent and all Additional Rent then payable, or (b) the then prevailing rental rate for other space in the Building;

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          (ii) The proposed assignee or subtenant shall have a financial standing, be of a character, be engaged in a business, and propose to use the Premises, in a manner consistent with the permitted use and in keeping with the standards of the Building;

          (iii) The proposed assignee or subtenant shall not then be a tenant, subtenant, assignee or occupant of any space in the Building, nor shall the proposed assignee or subtenant be a person or entity who has dealt with Landlord or Landlord’s agent (directly or through a broker) with respect to space in the Building during the six (6) months immediately preceding Tenant’s request for Landlord’s consent;

          (iv) The character of the business to be conducted in the Premises by the proposed assignee or subtenant shall not be likely to increase operating expenses or the burden on existing cleaning services, elevators or other services and/or systems of the Building;

          (v) In case of a subletting, the subtenant shall be expressly subject to all of the obligations of Tenant under this Lease and the further condition and restriction that such sublease shall not be assigned, encumbered or otherwise transferred or the Premises further sublet by the subtenant in whole or in part, or any part thereof suffered or permitted by the subtenant to be used or occupied by others, without the prior written consent of Landlord in each instance;

          (vi) No subletting shall end later than one (1) day before the Expiration Date nor shall any subletting be for a term of less than two (2) years unless it commences less than two (2) years before the Expiration Date;

          (vii) At no time shall there be more than two (2) occupants, including Tenant, in the Premises;

          (viii) Tenant shall reimburse Landlord on demand for any reasonable costs, including attorneys’ fees and disbursements that may be incurred by Landlord in connection with said assignment or sublease;

          (ix) The character of the business to be conducted in the Premises by the proposed assignee or subtenant shall not require any alterations, installations, improvements, additions or other physical changes to be performed, or made to, any portion of the Building or the Real Property other than the Premises; and

          (x) The proposed assignee or subtenant shall not be any entity which is entitled to diplomatic or sovereign immunity or which is not subject to service of process in the State of New York or to the jurisdiction of the courts of the State of New York and the United States located in New York County.

          4.08 Any consent of Landlord under this Article shall be subject to the terms of this Article and conditioned upon there being no default by Tenant, beyond any grace period, under any of the terms, covenants and conditions of this Lease at the time that Landlord’s consent to any such subletting or assignment is requested and on the date of the commencement of the term of any proposed sublease or the effective date of any proposed assignment. Tenant acknowledges and

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agrees that no assignment or subletting shall be effective unless and until Tenant, upon receiving any necessary Landlord’s written consent (and unless it was theretofore delivered to Landlord) causes a duly executed copy of the sublease or assignment to be delivered to Landlord within ten (10) days after execution thereof. Any such sublease shall provide that the sublessee shall comply with all applicable terms and conditions of this Lease to be performed by the Tenant hereunder. Any such assignment of this Lease shall contain an assumption by the assignee of all of the terms, covenants and conditions of this Lease to be performed by the Tenant.

          4.09. Anything hereinabove contained to the contrary notwithstanding, Landlord’s consent shall not be required for an assignment of this Lease, or sublease of all or part of the Premises for the uses permitted hereunder, to a Related Entity provided that (i) Landlord is given prior notice thereof and reasonably satisfactory proof that the requirements of this Lease have been met and Tenant agrees to remain primarily liable, jointly and severally, with any transferee or assignee, for the obligations of Tenant under this Lease and (ii) in Landlord’s reasonable judgment the proposed assignee or subtenant is engaged in a business and the Premises, or the relevant part thereof, will be used in a manner which (x) is in keeping with the standards of the Building and (y) would not adversely affect or increase Landlord’s cost in the operation of the Building.

          4.10 For purposes of this Article:

          (i) a “Related Entity” shall mean (x) a wholly-owned subsidiary of Tenant or any corporation or entity which controls or is controlled by Tenant or is under common control with Tenant or (y) any entity (i) to which substantially all the assets of Tenant are transferred or (ii) into which Tenant may be merged or consolidated, provided that in either such case both the net worth and ratio of current assets to current liabilities (exclusive of good will) of such transferee or of the resulting or surviving corporation or other business entity, as the case may be, as certified by the certified public accountants of such transferee or the resulting or surviving business entity in accordance with generally accepted accounting principles, consistently applied, is not less than Tenant’s net worth and ratio of current assets to current liabilities (exclusive of good will), as so certified, as of (a) the Commencement Date or (b) the day immediately prior to such transaction, whichever is greater, and provided also that any such transaction complies with the other provisions of this Article; and

          (ii) the term “control” shall mean, in the case of a corporation or other entity, ownership or voting control, directly or indirectly, of at least fifty (50%) percent of all of the general or other partnership (or similar) interests therein.

          4.11 Anything hereinabove contained to the contrary notwithstanding, the “recapture” provisions of this Article shall not apply in connection with, and Landlord’s consent shall not be required for a sublease of part of the Premises, which portion of the of the Premises shall not exceed the entire rentable square footage of Space A, by Tenant named on the front page of this Lease (the “Named Tenant”) for the uses permitted hereunder, to either (a) Mariner Partners, Inc., or (b) Tricadia Capital Management LLC, provided that (i) Landlord is given at least thirty (30) days prior notice thereof along with a copy of the proposed sublease, and reasonably satisfactory proof that the requirements of this Article 4 have been met and Tenant agrees to remain primarily liable for the

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obligations of Tenant under this Lease, (ii) in Landlord’s reasonable judgment the proposed subtenant is engaged in a business and the Premises, or the relevant part thereof, will be used in a manner which (x) is in keeping with the standards of the Building and (y) would not adversely affect or increase Landlord’s cost in the operation of the Building, (iii) to the extent to which such subletting shall be for a term ending after December 31, 2010, or three (3) years from the Space A Commencement Date, such subletting shall be subject to the “recapture” provisions of this Article, and (iv) after such subletting, the Named Tenant shall occupy no less than fifty (50%) percent of the entire Premises for the conduct of its business (as opposed to mere lawful possession).

          4.12 If Landlord shall not have accepted Tenant’s Recapture Offer hereunder and Landlord has not elected to terminate this Lease, and Tenant effects any assignment or subletting (other than pursuant to Section 4.09 above), then Tenant thereafter shall pay to Landlord a sum equal to fifty (50%) percent of (a) any rent or other consideration payable to Tenant by any subtenant (after deducting the cost of Tenant, if any, in effecting the subletting or assignment, for reasonable alteration costs, advertising expenses, brokerage commissions, reasonable rent concessions and legal fees) which is in excess of the rent allocable to the subleased space which is then being paid by Tenant to Landlord pursuant to the terms hereof, and (b) any other profit or gain realized by Tenant (after deducting the cost of Tenant, if any, in effecting the subletting or assignment, for reasonable alteration costs, advertising expenses, brokerage commissions, reasonable rent concessions and legal fees not previously deducted in subsection a above) from any such subletting or assignment. In computing such excess amount and/or profit or gain, any advertising, legal expenses and brokerage commissions reasonably incurred by Tenant in connection with such assignment or subleasing shall be deducted on an amortized basis (i.e., in equal monthly installments) over the balance of the term of the sublease, in the event of a subletting, or this Lease, in the event of an assignment. The foregoing amounts shall be payable to Landlord only if, as and when, the same are received by Tenant from said assignee or sublessee.

          4.13 In no event shall Tenant be entitled to make, nor shall Tenant make, any claim, and Tenant hereby waives any claim, for money damages (nor shall Tenant claim any money damages by way of set-off, counterclaim or defense) based upon any claim or assertion by Tenant that Landlord has unreasonably withheld or unreasonably delayed its consent or approval to a proposed assignment or subletting as provided for in this Article. Tenant’s sole remedy shall be an action or proceeding to enforce any such provision, or for specific performance, injunction or declaratory judgment.

ARTICLE 5

DEFAULT

          5.01 Landlord may terminate this Lease on five (5) days’ notice: (a) if Fixed Annual Rent or Additional Rent is not paid within five (5) days after written notice from Landlord; or (b) if Tenant shall have failed to cure a default in the performance of any covenant of this Lease (except the payment of Rent), or any rule or regulation hereinafter set forth, within ten (10) days after written notice thereof from Landlord, or if default cannot be completely cured in such time, if Tenant shall not promptly proceed to cure such default within said ten (10) days, or shall not

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complete the curing of such default with due diligence; or (c) when and to the extent permitted by law, if a petition in bankruptcy shall be filed by or against Tenant or if Tenant shall make a general assignment for the benefit of creditors, or receive the benefit of any insolvency or reorganization act; or (d) if a receiver or trustee is appointed for any portion of Tenant’s property and such appointment is not vacated within twenty (20) days; or (e) if an execution or attachment shall be issued under which the Premises shall be taken or occupied or attempted to be taken or occupied by anyone other than Tenant; or (f) if the Premises become and remain deserted for a period of ten (10) days; or (g) if Tenant shall default beyond any grace period under any other lease between Tenant and Landlord. At the expiration of the five (5) day notice period, this Lease and any rights of renewal or extension thereof shall terminate as completely as if that were the date originally fixed for the expiration of the Term of this Lease, but Tenant shall remain liable as hereinafter provided.

          5.02 In the event that Tenant is in arrears for Fixed Annual Rent or any item of Additional Rent, Tenant waives its right, if any, to designate the items against which payments made by Tenant are to be credited and Landlord may apply any payments made by Tenant to any items which Landlord in its sole discretion may elect irrespective of any designation by Tenant as to the items against which any such payment should be credited.

          5.03 Tenant shall not seek to remove and/or consolidate any summary proceeding brought by Landlord with any action commenced by Tenant in connection with this Lease or Tenant’s use and/or occupancy of the Premises.

          5.04 In the event of a default by Landlord hereunder, no property or assets of Landlord, or any principals, shareholders, officers, directors, partners or members of Landlord, whether disclosed or undisclosed, other than the Building in which the Premises are located and the land upon which the Building is situated, shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant’s remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder or Tenant’s use and occupancy of the Premises.

ARTICLE 6

RELETTING, ETC.

          6.01 If Landlord shall re-enter the Premises on the default of Tenant, by summary proceedings or otherwise: (a) Landlord may re-let the Premises or any part thereof, as Tenant’s agent, in the name of Landlord, or otherwise, for a term shorter or longer than the balance of the term of this Lease, and may grant concessions or free rent; (b) Tenant shall pay Landlord any deficiency between the rent hereby reserved and the net amount of any rents collected by Landlord for the remaining term of this Lease, through such re-letting. Such deficiency shall become due and payable monthly, as it is determined. Landlord shall have no obligation to re-let the Premises, and its failure or refusal to do so, or failure to collect rent on re-letting, shall not affect Tenant’s liability hereunder. In computing the net amount of rents collected through such re-letting, Landlord may deduct all expenses incurred in obtaining possession or re-letting the Premises, including legal expenses and fees, brokerage fees, the cost of restoring the Premises to good order, and the cost of all alterations and decorations deemed necessary by Landlord to effect re-letting. In no event shall

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Tenant be entitled to a credit or repayment for rerental income which exceeds the sums payable by Tenant hereunder or which covers a period after the original term of this Lease; (c) Tenant hereby expressly waives any right of redemption granted by any present or future law. “Re-enter” and “re-entry” as used in this Lease are not restricted to their technical legal meaning. In the event of a breach or threatened breach of any of the covenants or provisions hereof, Landlord shall have the right of injunctive relief. Mention herein of any particular remedy shall not preclude Landlord from any other available remedy; (d) Landlord shall recover as liquidated damages, in addition to accrued rent and other charges, if Landlord’s re-entry is the result of Tenant’s bankruptcy, insolvency, or reorganization, the full rental for the maximum period allowed by any act relating to bankruptcy, insolvency or reorganization.

          6.02 If Landlord re-enters the Premises for any cause, or if Tenant abandons the Premises, or after the expiration of the term of this Lease, any property left in the Premises by Tenant shall be deemed to have been abandoned by Tenant, and Landlord shall have the right to retain or dispose of such property in any manner without any obligation to account therefor to Tenant. If Tenant shall at any time default hereunder, and if Landlord shall institute an action or summary proceeding against Tenant based upon such default, then Tenant will reimburse Landlord for the legal expenses and fees thereby incurred by Landlord.

ARTICLE 7

LANDLORD MAY CURE DEFAULTS

          7.01 If Tenant shall default in performing any covenant or condition of this Lease, Landlord may perform the same for the account of Tenant, and if Landlord, in connection therewith, or in connection with any default by Tenant, makes any expenditures or incurs any obligations for the payment of money, including but not limited to reasonable attorney’s fees, such sums so paid or obligations incurred shall be deemed to be Additional Rent hereunder, and shall be paid by Tenant to Landlord within five (5) days of rendition of any bill or statement therefor, and if Tenant’s lease term shall have expired at the time of the making of such expenditures or incurring of such obligations, such sums shall be recoverable by Landlord as damages.

ARTICLE 8

ALTERATIONS

          8.01 Tenant shall make no decoration, alteration, addition or improvement in the Premises, without the prior written consent of Landlord, and then only by contractors or mechanics and in such manner and time, and with such materials, as approved by Landlord. All alterations, additions or improvements to the Premises, including air-conditioning equipment and duct work, except movable office furniture and trade equipment installed at the expense of Tenant, shall, unless Landlord elects otherwise in writing, become the property of Landlord, and shall be surrendered with the Premises, at the expiration or sooner termination of the term of this Lease. Any such

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alterations, additions and improvements which Landlord shall designate shall be removed by Tenant and any damage repaired, at Tenant’s expense, prior to the expiration of this Lease.

          8.02 Anything hereinabove to the contrary notwithstanding, Landlord will not unreasonably withhold or delay approval of written requests of Tenant to make nonstructural interior alterations, decorations, additions and improvements (herein referred to as “Alterations”) in the Premises, provided that such Alterations do not affect utility services or plumbing and electrical lines or other systems of the Building and do not affect and are not visible from any portion of the Building outside of the Premises. All Alterations shall be performed in accordance with the following conditions:

          (i) Prior to the commencement of any Alterations costing more than $50,000.00 or requiring a building permit, Tenant shall first submit to Landlord for its approval detailed dimensioned coordinated plans and specifications, including layout, architectural, mechanical, electrical, plumbing and structural drawings for each proposed Alteration. Landlord shall be given, in writing, a good description of all other Alterations.

          (ii) All Alterations in and to the Premises shall be performed in a good and workmanlike manner and in accordance with the Building’s rules and regulations governing Tenant Alterations. Prior to the commencement of any such Alterations, Tenant shall, at its sole cost and expense, obtain and exhibit to Landlord any governmental permit required in connection with such Alterations. In order to compensate Landlord for its general conditions and the costs incurred by Landlord in connection with Tenant’s performance of Alterations in and/or to the Premises (including, without limitation, the costs incurred by Landlord in connection with the coordination of Alterations which may affect systems or services of the Building or portions of the Building outside of the Premises), Tenant shall pay to Landlord a fee equal to five (5%) percent of the cost of such Alterations (excluding, however any Alterations performed by Tenant within the first twelve (12) months of the Term and any Alterations which do not affect utility services or plumbing and electrical lines or other systems of the Building, cost less than $50,000.00, and do not require a building permit). Such fee shall be paid by Tenant as Additional Rent hereunder within ten (10) days following receipt of an invoice therefor.

          (iii) All Alterations shall be done in compliance with all other applicable provisions of this Lease and with all applicable laws, ordinances, directions, rules and regulations of governmental authorities having jurisdiction, including, without limitation, the Americans with Disabilities Act of 1990 and New York City Local Law No. 57/87 and similar present or future laws, and regulations issued pursuant thereto, and also New York City Local Law No. 76 and similar present or future laws, and regulations issued pursuant thereto, on abatement, storage, transportation and disposal of asbestos and other hazardous materials, which work, if required, shall be effected at Tenant’s sole cost and expense, by contractors and consultants approved by Landlord and in strict compliance with the aforesaid rules and regulations and with Landlord’s rules and regulations thereon.

          (iv) All work shall be performed with union labor having the proper jurisdictional qualifications.

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          (v) Tenant shall keep the Building and the Premises free and clear of all liens for any work or material claimed to have been furnished to Tenant or to the Premises.

          (vi) Prior to the commencement of any work by or for Tenant, Tenant shall furnish to Landlord certificates evidencing the existence of the following insurance:

               (a) Workmen’s compensation insurance covering all persons employed for such work and with respect to whom death or bodily injury claims could be asserted against Landlord, Tenant or the Premises.

               (b) Broad form general liability insurance written on an occurrence basis naming Tenant as an insured and naming Landlord and its designees as additional insureds, with limits of not less than $3,000,000 combined single limit for personal injury in any one occurrence, and with limits of not less than $500,000 for property damage (the foregoing limits may be revised from time to time by Landlord to such higher limits as Landlord from time to time reasonably requires). Tenant, at its sole cost and expense, shall cause all such insurance to be maintained at all time when the work to be performed for or by Tenant is in progress. All such insurance shall be obtained from a company authorized to do business in New York and shall provide that it cannot be canceled without thirty (30) days prior written notice to Landlord. All polices, or certificates therefor, issued by the insurer and bearing notations evidencing the payment of premiums, shall be delivered to Landlord. Blanket coverage shall be acceptable, provided that coverage meeting the requirements of this paragraph is assigned to Tenant’s location at the Premises.

          (vii) Intentionally Deleted.

          (viii) All work to be performed by Tenant shall be done in a manner which will not interfere with or disturb other tenants and occupants of the Building.

          (ix) The review and/or approval by Landlord, its agents, consultants and/or contractors, of any Alteration or of plans and specifications therefor and the coordination of such Alteration work with the Building, as described in part above, are solely for the benefit of Landlord, and neither Landlord nor any of its agents, consultants or contractors shall have any duty toward Tenant; nor shall Landlord or any of its agents, consultants and/or contractors be deemed to have made any representation or warranty to Tenant, or have any liability, with respect to the safety, adequacy, correctness, efficiency or compliance with laws of any plans and specifications, Alterations or any other matter relating thereto.

          (x) Promptly following the substantial completion of any Alterations, Tenant shall submit to Landlord: (a) one (1) sepia and one (1) copy on disk (using a current version of Autocad or such other similar software as is then commonly in use) of final, “as-built” plans for the Premises showing all such Alterations and demonstrating that such Alterations were performed substantially in accordance with plans and specifications first approved by Landlord and (b) an itemization of Tenant’s total construction costs, detailed by contractor, subcontractors, vendors and materialmen; bills, receipts, lien waivers and releases from all contractors, subcontractors, vendors and materialmen; architects’ and Tenant’s certification of completion, payment and acceptance, and all governmental approvals and confirmations of completion for such Alterations.

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ARTICLE 9

LIENS

          9.01 Prior to commencement of its work in the Premises, Tenant shall obtain and deliver to Landlord a written letter of authorization, in form satisfactory to Landlord’s counsel, signed by all architects, engineers and designers to become involved in such work, which shall confirm that any of their drawings or plans are to be removed from any filing with governmental authorities on request of Landlord, in the event that said architect, engineer or designer thereafter no longer is providing services with respect to the Premises. With respect to contractors, subcontractors, materialmen and laborers, and architects, engineers and designers, for all work or materials to be furnished to Tenant at the Premises, Tenant agrees to obtain and deliver to Landlord written and unconditional waiver of mechanics liens upon the Premises or the Building after payments to the contractors, etc., subject to any then applicable provisions of the Lien Law. Notwithstanding the foregoing, Tenant at its expense shall cause any lien filed against the Premises or the Building, for work or materials claimed to have been furnished to Tenant, to be discharged of record within ten (10) days after notice thereof.

ARTICLE 10

REPAIRS

          10.01 Tenant shall take good care of the Premises and the fixtures and appurtenances therein, and shall make all repairs necessary to keep them in good working order and condition, including structural repairs when those are necessitated by the act, omission or negligence of Tenant or its agents, employees, invitees or contractors, subject to the provisions of Article 11 hereof. During the term of this Lease, Tenant may have the use of any air-conditioning equipment servicing the Premises, subject to the provisions of Article 35 of this Lease, and shall reimburse Landlord, in accordance with Article 41 of this Lease, for electricity consumed by the equipment. The exterior walls and roofs of the Building, the mechanical rooms, service closets, shafts, areas above any hung ceiling and the windows and the portions of all window sills outside same are not part of the Premises demised by this Lease, and Landlord hereby reserves all rights to such parts of the Building. Notwithstanding the foregoing, Tenant shall be permitted access above the hung ceilings within the Premises for the sole purpose of installing and maintaining wiring, cabling and conduits for computer and communications systems. Tenant shall not paint, alter, drill into or otherwise change the appearance of the windows including, without limitation, the sills, jambs, frames, sashes, and meeting rails.

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ARTICLE 11

FIRE OR OTHER CASUALTY

          11.01 Damage by fire or other casualty to the Building and to the core and shell of the Premises (excluding the tenant improvements and betterments and Tenant’s personal property) shall be repaired at the expense of Landlord (“Landlord’s Restoration Work”), but without prejudice to the rights of subrogation, if any, of Landlord’s insurer to the extent not waived herein. Landlord shall not be required to repair or restore any of Tenant’s property or any alteration, installation or leasehold improvement made in and/or to the Premises. If, as a result of such damage to the Building or to the core and shell of the Premises, the Premises are rendered untenantable, the Rent shall abate in proportion to the portion of the Premises not usable by Tenant from the date of such fire or other casualty until Landlord’s Restoration Work is substantially completed. Landlord shall not be liable to Tenant for any delay in performing Landlord’s Restoration Work, Tenant’s sole remedy being the right to an abatement of Rent, as provided above. Tenant shall cooperate with Landlord in connection with the performance by Landlord of Landlord’s Restoration Work. If the Premises are rendered wholly untenantable by fire or other casualty and if Landlord shall decide not to restore the Premises, or if the Building shall be so damaged that Landlord shall decide to demolish it or not to rebuild it (whether or not the Premises have been damaged), Landlord may within ninety (90) days after such fire or other cause give written notice to Tenant of its election that the term of this Lease shall automatically expire no less than ten (10) days after such notice is given. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Landlord and Tenant each hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogation or otherwise. The foregoing release and waiver shall be in force only if both releasors’ insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance and also, provided that such a policy can be obtained without additional premiums. Tenant hereby expressly waives the provisions of Section 227 of the Real Property Law and agrees that the foregoing provisions of this Article shall govern and control in lieu thereof.

          11.02 In the event that the Premises has been damaged or destroyed and this Lease has not been terminated in accordance with the provisions of this Article, Tenant shall (i) cooperate with Landlord in the restoration of the Premises and shall remove from the Premises as promptly as reasonably possible all of Tenant’s salvageable inventory, movable equipment, furniture and other property and (ii) repair the damage to the tenant improvements and betterments and Tenant’s personal property and restore the Premises within one hundred eighty (180) days following the date upon which the core and shell of the Premises shall have been substantially repaired by Landlord.

ARTICLE 12

END OF TERM

          12.01 Tenant shall surrender the Premises to Landlord at the expiration or sooner

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termination of this Lease in good order and condition, except for reasonable wear and tear and damage by fire or other casualty, and Tenant shall remove all of its property. Tenant agrees it shall indemnify and save Landlord harmless against all costs, claims, loss or liability resulting from delay by Tenant in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenant founded on such delay. The parties recognize and agree that the damage to Landlord resulting from any failure by Tenant timely to surrender the Premises will be substantial, will exceed the amount of monthly Rent theretofore payable hereunder, and will be impossible of accurate measurement. Tenant therefore agrees that if possession of the Premises is not surrendered to Landlord within one (1) day after the date of the expiration or sooner termination of the Term of this Lease, then Tenant will pay Landlord as liquidated damages for each month and for each portion of the first month during which Tenant holds over in the Premises after expiration or termination of the Term of this Lease, a sum equal to one and one-half (1 ¹/2) times the average Rent which was payable per month under this Lease during the last six months of the Term thereof and for the second and subsequent months during which Tenant holds over in the Premises after expiration or termination of the Term of this Lease, a sum equal to two (2) times the Rent which was payable per month under this Lease during the last month of the Term thereof. Tenant shall also pay all Additional Rent as incurred in the normal course of operations under the Lease. The aforesaid obligations shall survive the expiration or sooner termination of the Term of this Lease. At any time during the Term of this Lease, Landlord may exhibit the Premises to prospective purchasers or mortgagees of Landlord’s interest therein. During the last year of the term of this Lease, Landlord may exhibit the Premises to prospective tenants.

ARTICLE 13

SUBORDINATION AND ESTOPPEL, ETC.

          13.01 This Lease, and all rights of Tenant hereunder, are, and shall continue to be, subject and subordinate in all respects to:

     (1) all ground leases, overriding leases and underlying leases of the land and/or the building now or hereafter existing;

     (2) all mortgages that may now or hereafter affect the land, the Building and/or any of such leases, whether or not such mortgages shall also cover other lands and/or buildings;

     (3) each and every advance made or hereafter to be made under such mortgages;

     (4) all renewals, modifications, replacements and extensions of such leases and such mortgages; and

     (5) all spreaders and consolidations of such mortgages.

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          13.02 The provisions of Section 13.01 of this Article shall be self-operative, and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall execute and deliver any instrument that Landlord, the lessor of any such lease, the holder of any mortgage or any of its successors in interest shall reasonably request to evidence such subordination and, in the event that Tenant shall fail to execute and deliver any such instrument within ten (10) days after request therefor, Tenant shall irrevocably constitute and appoint Landlord as Tenant’s attorney-in-fact, coupled with an interest, to execute and deliver any such instrument for and on behalf of Tenant. The leases to which this Lease is, at the time referred to, subject and subordinate pursuant to this Article 13 are herein sometimes called “superior leases”, the mortgages to which this Lease is, at the time referred to, subject and subordinate are herein sometimes called “superior mortgages”, the lessor of a superior lease or its successor in interest at the time referred to is sometimes herein called a “lessor” and the mortgagee under a superior mortgage or its successor in interest at the time referred to is sometimes herein called a “mortgagee”.

          13.03 In the event of any act or omission of Landlord that would give Tenant the right, immediately or after lapse of a period of time, to cancel or terminate this Lease, or to claim a partial or total eviction, Tenant shall not exercise such right until:

     (i) it has given written notice of such act or omission to the mortgagee of each superior mortgage and the lessor of such superior lease whose name and address shall previously have been furnished to Tenant; and

     (ii) a reasonable period for remedying such act or omission shall have elapsed following the giving of such notice and following the time when such mortgagee or lessor shall have obtained possession of the Premises and become entitled under such superior mortgage or superior lease, as the case may be, to remedy the same (which reasonable period shall in no event be less than the period to which Landlord would be entitled under this Lease or otherwise, after similar notice, to effect such remedy). Nothing contained herein shall obligate such lessor or mortgagee to remedy such act or omission.

          13.04 If the lessor of a superior lease or the mortgagee of a superior mortgage shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, then, at the request of such party so succeeding to Landlord’s rights (hereinafter sometimes called a “successor landlord”), and upon such successor landlord’s written agreement to accept Tenant’s attornment, Tenant shall attorn to and recognize such successor landlord as Tenant’s landlord under this Lease, and shall promptly execute and deliver any instrument that such successor landlord may reasonably request to evidence such attornment. Upon such attornment this Lease shall continue in full force and effect as, or as if it were, a direct lease between such successor landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease and shall be applicable after such attornment, except that such successor landlord shall not be subject to any offset or liable for any previous act or omission of Landlord under this Lease.

          13.05 If, in connection with obtaining financing or refinancing for the Building, a banking, insurance, or other lender shall request reasonable modifications to this Lease as a

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condition to such financing or refinancing, Tenant shall not unreasonably withhold, delay, or defer its consent thereto, provided that such modifications do not materially increase the obligation, or materially decrease the rights, of Tenant hereunder. In no event shall a requested modification of this Lease requiring Tenant to do the following be deemed to materially adversely affect the leasehold interest hereby created:

     (i) give notice of any default by Landlord under this Lease to such lender and/or permit the curing of such defaults by such lender; and

     (ii) obtain such lender’s consent for any modification of this Lease.

          13.06 This Lease may not be modified or amended so as to reduce the Rent, shorten the term, or otherwise materially affect the rights of Landlord hereunder, or be canceled or surrendered, without the prior written consent in each instance of the ground lessors and of any mortgagees whose mortgages shall require such consent. Any such modification, agreement, cancellation or surrender made without such prior written consent shall be null and void.

          13.07 Tenant agrees that if this Lease terminates, expires or is canceled for any reason or by any means whatsoever by reason of a default under a ground lease or mortgage, and the ground lessor or mortgagee so elects by written notice to Tenant, this Lease shall automatically be reinstated for the balance of the term which would have remained but for such termination, expiration or cancellation, at the same rental, and upon the same agreements, covenants, conditions, restrictions and provisions herein contained, with the same rental, and upon the same agreements, covenants, conditions, restrictions and provisions herein contained, with the same force and effect as if no such termination, expiration or cancellation had taken place. Tenant covenants to execute and deliver any instrument required to confirm the validity of the foregoing.

          13.08 From time to time, Tenant, on at least ten (10) days’ prior written request by Landlord, shall deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there shall have been modifications, that the same is in full force and effect as modified and stating the modifications) and the dates to which the Rent and other charges have been paid and stating whether or not Landlord is in default in performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default. Tenant hereby irrevocably constitutes and appoints Landlord the attorney-in-fact of Tenant to execute, acknowledge and deliver any such statements or certificates for and on behalf of Tenant in the event that Tenant fails to so execute any such statement or certificate.

ARTICLE 14

CONDEMNATION

          14.01 If the whole or any substantial part of the Premises shall be condemned by eminent domain or acquired by private purchase in lieu thereof, for any public or quasi-public purpose, this Lease shall terminate on the date of the vesting of title through such proceeding or purchase, and Tenant shall have no claim against Landlord for the value of any unexpired portion of

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the Term of this Lease, nor shall Tenant be entitled to any part of the condemnation award or private purchase price. If less than a substantial part of the Premises is condemned, this Lease shall not terminate, but Rent shall abate in proportion to the portion of the Premises condemned.

ARTICLE 15

REQUIREMENTS OF LAW

          15.01 Tenant at its expense shall comply with all laws, orders and regulations of any governmental authority having or asserting jurisdiction over the Premises, which shall impose any violation, order or duty upon Landlord or Tenant with respect to the Premises or the use or occupancy thereof, including, without limitation, compliance in the Premises with all City, State and Federal laws, rules and regulations on the disabled or handicapped, on fire safety and on hazardous materials. The foregoing shall not require Tenant to do structural work to the Building.

          15.02 Tenant shall require every person engaged by him to clean any window in the Premises from the outside, to use the equipment and safety devices required by Section 202 of the Labor Law and the rules of any governmental authority having or asserting jurisdiction.

          15.03 Tenant at its expense shall comply with all requirements of the New York Board of Fire Underwriters, or any other similar body affecting the Premises, and shall not use the Premises in a manner which shall increase the rate of fire insurance of Landlord or of any other tenant, over that in effect prior to this Lease. If Tenant’s use of the Premises increases the fire insurance rate, Tenant shall reimburse Landlord for all such increased costs. That the Premises are being used for the purpose set forth in Article 1 hereof shall not relieve Tenant from the foregoing duties, obligations and expenses.

ARTICLE 16

CERTIFICATE OF OCCUPANCY

          16.01 Tenant will at no time use or occupy the Premises in violation of the certificate of occupancy issued for the Building. The statement in this Lease of the nature of the business to be conducted by Tenant shall not be deemed to constitute a representation or guaranty by Landlord that such use is lawful or permissible in the Premises under the certificate of occupancy for the Building.

ARTICLE 17

POSSESSION

          17.01 If Landlord shall be unable to give possession of Space A on the Space A Commencement Date or Space B on the Space B Commencement Date because of the retention of

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possession of any occupant thereof, alteration or construction work, or for any other reason, Landlord shall not be subject to any liability for such failure. In such event, this Lease shall stay in full force and effect, without extension of its Term. However, the Space A Rent Commencement Date or the Space B Rent Commencement Date, as the case may be, hereunder shall be delayed until one hundred twenty (120) days from the date the Space A or Space B, as the case may be, are available for occupancy by Tenant. If delay in possession is due to work, changes or decorations being made by or for Tenant, or is otherwise caused by Tenant, there shall be no rent abatement and the Rent shall commence on the date specified in this Lease. If permission is given to Tenant to occupy the Premises or other Premises prior to the date specified as the commencement of the Term, such occupancy shall be deemed to be pursuant to the terms of this Lease, except that the parties shall separately agree as to the obligation of Tenant to pay Rent for such occupancy. The provisions of this Article are intended to constitute an “express provision to the contrary” within the meaning of Section 223(a), New York Real Property Law.

ARTICLE 18

QUIET ENJOYMENT

          18.01 Landlord covenants that if Tenant pays the Rent and performs all of Tenant’s other obligations under this Lease, Tenant may peaceably and quietly enjoy the Premises, subject to the terms, covenants and conditions of this Lease and to the ground leases, underlying leases and mortgages hereinbefore mentioned.

ARTICLE 19

RIGHT OF ENTRY

          19.01 Tenant shall permit Landlord to erect, construct and maintain pipes, conduits and shafts in and through the Premises. Landlord or its agents shall have the right to enter or pass through the Premises at all times, by master key and, in the event of an emergency, by reasonable force or otherwise, to examine the same, and to make such repairs, alterations or additions as it may deem necessary or desirable to the Premises or the Building, and to take all material into and upon the Premises that may be required therefor. Such entry and work shall not constitute an eviction of Tenant in whole or in part, shall not be grounds for any abatement of Rent, and shall impose no liability on Landlord by reason of inconvenience or injury to Tenant’s business. Landlord shall have the right at any time, without the same constituting an actual or constructive eviction, and without incurring any liability to Tenant, to change the arrangement and/or location of entrances or passageways, windows, corridors, elevators, stairs, toilets, or other public parts of the Building, and to change the designation of rooms and suites and the name or number by which the Building is known.

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ARTICLE 20

INDEMNITY

          20.01 Tenant shall indemnify, defend and save Landlord harmless from and against any liability or expense arising from the use or occupation of the Premises by Tenant, or anyone on the Premises with Tenant’s permission, or from any breach of this Lease.

ARTICLE 21

LANDLORD’S LIABILITY, ETC.

          21.01 This Lease and the obligations of Tenant hereunder shall not in any way be affected because Landlord is unable to fulfill any of its obligations or to supply any service, by reason of strike or other cause not within Landlord’s control. Landlord shall have the right, without incurring any liability to Tenant, to stop any service because of accident or emergency, or for repairs, alterations or improvements, necessary or desirable in the judgment of Landlord, until such repairs, alterations or improvements shall have been completed. Landlord shall not be liable to Tenant or anyone else, for any loss or damage to person, property or business; nor shall Landlord be liable for any latent defect in the Premises or the Building. Neither the partners, entities or individuals comprising the Landlord, nor the agents, directors, or officers or employees of any of the foregoing shall be liable for the performance of the Landlord’s obligations hereunder. Tenant agrees to look solely to Landlord’s estate and interest in the land and Building, or the lease of the Building or of the land and Building, and the Premises, for the satisfaction of any right or remedy of Tenant for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord, and in the event of any liability by Landlord, no other property or assets of Landlord or of any of the aforementioned parties shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant’s remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder, or Tenant’s use and occupancy of the Premises or any other liability of Landlord to Tenant.

ARTICLE 22

CONDITION OF PREMISES

          22.01 The parties acknowledge that Tenant has inspected the Premises and the Building and is fully familiar with the physical condition thereof and Tenant agrees to accept the Premises at the commencement of the Term in its then “as is” condition. Tenant acknowledges and agrees that Landlord shall have no obligation to do any work in or to the Premises in order to make it suitable and ready for occupancy and use by Tenant.

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ARTICLE 23

CLEANING

          23.01 Landlord shall cause the Premises to be kept clean in accordance with Landlord’s customary standards for the Building, provided they are kept in order by Tenant. Landlord, its cleaning contractor and their employees shall have after-hours access to the Premises and the use of Tenant’s light, power and water in the Premises as may be reasonably required for the purpose of cleaning the Premises. Landlord may remove Tenant’s extraordinary refuse from the Building and Tenant shall pay the cost thereof.

          23.02 Tenant acknowledges that Landlord has designated a cleaning contractor for the Building. Tenant agrees to employ said cleaning contractor or such other contractor as Landlord shall from time to time designate (the “Building Cleaning Contractor”) to perform all cleaning services Tenant elects to have performed within the Premises in addition to those provided pursuant to Section 23.01 above, and for any other waxing, polishing, and other cleaning and maintenance work of the Premises and Tenant’s furniture, fixtures and equipment (collectively, “Tenant Cleaning Services”) provided that the prices charged by said contractor are comparable to the prices customarily charged by other reputable cleaning contractors employing union labor in midtown Manhattan for the same level and quality of service. Tenant acknowledges that it has been advised that the cleaning contractor for the Building may be a division or affiliate of Landlord. Tenant agrees that it shall not employ any other cleaning and maintenance contractor, nor any individual, firm or organization for such purpose, without Landlord’s prior written consent. In the event that Landlord and Tenant cannot agree on whether the prices then being charged by the Building Cleaning Contractor for such cleaning services are comparable to those charged by other reputable contractors as herein provided, then Landlord and Tenant shall each obtain two (2) bona fide bids for such services from reputable cleaning contractors performing such services in comparable buildings in midtown Manhattan employing union labor, and the average of the four bids thus obtained shall be the standard of comparison. In the event that the Building Cleaning Contractor does not agree to perform such cleaning services for Tenant at such average price, Landlord shall not unreasonably withhold its consent to the performance of Tenant Cleaning Services by a reputable cleaning contractor designated by Tenant employing union labor with the proper jurisdictional qualifications; provided, however, that, without limitation, Landlord’s experience with such contractor or any criminal proceedings pending or previously filed against such contractor may form a basis upon which Landlord may withhold or withdraw its consent.

ARTICLE 24

JURY WAIVER

          24.01 Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim involving any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant’s use or occupancy of the Premises or involving the right to any statutory relief or remedy. Tenant will not interpose any counterclaim of any nature (other than a compulsory counterclaim) in any summary proceeding.

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ARTICLE 25

NO WAIVER, ETC.

          25.01 No act or omission of Landlord or its agents shall constitute an actual or constructive eviction, unless Landlord shall have first received written notice of Tenant’s claim and shall have had a reasonable opportunity to meet such claim. In the event that any payment herein provided for by Tenant to Landlord shall become overdue for a period in excess of ten (10) days, then at Landlord’s option a “late charge” shall become due and payable to Landlord, as Additional Rent, from the date it was due until payment is made, at the following rates: for individual and partnership lessees, said late charge shall be computed at the maximum legal rate of interest; for corporate or governmental entity lessees the late charge shall be computed at two percent per month unless there is an applicable maximum legal rate of interest which then shall be used. No act or omission of Landlord or its agents shall constitute an acceptance of a surrender of the Premises, except a writing signed by Landlord. The delivery or acceptance of keys to Landlord or its agents shall not constitute a termination of this Lease or a surrender of the Premises. Acceptance by Landlord of less than the Rent herein provided shall at Landlord’s option be deemed on account of earliest Rent remaining unpaid. No endorsement on any check, or letter accompanying Rent, shall be deemed an accord and satisfaction, and such check may be cashed without prejudice to Landlord. No waiver of any provision of this Lease shall be effective, unless such waiver be in writing signed by the party to be charged. In no event shall Tenant be entitled to make, nor shall Tenant make any claim, and Tenant hereby waives any claim for money damages (nor shall Tenant claim any money damages by way of set-off, counterclaim or defense) based upon any claim or assertion by Tenant that Landlord had unreasonably withheld, delayed or conditioned its consent or approval to any request by Tenant made under a provision of this Lease. Tenant’s sole remedy shall be an action or proceeding to enforce any such provision, or for specific performance or declaratory judgment. Tenant shall comply with the rules and regulations contained in this Lease, and any reasonable modifications thereof or additions thereto. Landlord shall not be liable to Tenant for the violation of such rules and regulations by any other tenant. Failure of Landlord to enforce any provision of this Lease, or any rule or regulation, shall not be construed as the waiver of any subsequent violation of a provision of this Lease, or any rule or regulation. This Lease shall not be affected by nor shall Landlord in any way be liable for the closing, darkening or bricking up of windows in the Premises, for any reason, including as the result of construction on any property of which the Premises are not a part or by Landlord’s own acts.

ARTICLE 26

OCCUPANCY AND USE BY TENANT

          26.01 If this Lease is terminated because of Tenant’s default hereunder, then, in addition to Landlord’s rights of re-entry, restoration, preparation for and rerental, and anything elsewhere in this Lease to the contrary notwithstanding, all Rent and Additional Rent reserved in this Lease from the date of such breach to the expiration date of this Lease shall become immediately

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due and payable to Landlord and Landlord shall retain its right to judgment on and collection of Tenant’s aforesaid obligation to make a single payment to Landlord of a sum equal to the total of all Rent and Additional Rent reserved for the remainder of the original Term of this Lease, subject to future credit or repayment to Tenant in the event of any rerenting of the Premises by Landlord, after first deducting from rerental income all expenses incurred by Landlord in reducing to judgment or otherwise collecting Tenant’s aforesaid obligation, and in obtaining possession of, restoring, preparing for and re-letting the Premises. In no event shall Tenant be entitled to a credit or repayment for rerental income which exceeds the sums payable by Tenant hereunder or which covers a period after the original Term of this Lease.

ARTICLE 27

NOTICES

          27.01 Any bill, notice or demand from Landlord to Tenant, may be delivered personally at the Premises or sent by registered or certified mail or by any nationally recognized overnight delivery service and addressed to Tenant at the Premises or at the address first set forth herein. Such bill, notice or demand shall be deemed to have been given at the time of delivery, mailing or receipt by such delivery service. Any notice, request or demand from Tenant to Landlord must be sent by registered or certified mail to the last address designated in writing by Landlord.

ARTICLE 28

WATER

          28.01 Tenant shall pay the amount of Landlord’s cost for all excessive water (“Excessive Water”) used by Tenant for any purpose other than ordinary lavatory, drinking, pantry and cleaning uses, and any sewer rent or tax based thereon. If Tenant shall consume excessive amounts of water, Landlord may install a water meter to measure Tenant’s Excessive Water consumption and Tenant agrees to pay for any such Excess Water consumption as shown on said meter at Landlord’s cost therefor plus seven (7%) percent. If water is made available to Tenant in the Building or the Premises through a meter which also supplies other Premises, or without a meter, then Tenant shall pay to Landlord a reasonable charge per month for Excessive Water use. Landlord reserves the right to discontinue water service to the Premises if either the quantity or character of such service is changed or is no longer available or suitable for Tenant’s requirements without releasing Tenant from any liability under this Lease and without Landlord or Landlord’s agent incurring any liability for any damage or loss sustained by Tenant by such discontinuance of service.

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ARTICLE 29

SPRINKLER SYSTEM

          29.01 If there shall be a “sprinkler system” in the Premises for any period during this Lease, Tenant shall pay a reasonable charge per month, for sprinkler supervisory service. If such sprinkler system is damaged by any act or omission of Tenant or its agents, employees, licensees or visitors, Tenant shall restore the system to good working condition at its own expense. If the New York Board of Fire Underwriters, the New York Fire Insurance Exchange, the Insurance Services Office, or any governmental authority requires the installation of, or any alteration to a sprinkler system by reason of Tenant’s particular manner of occupancy or use of the Premises, including any alteration necessary to obtain the full allowance for a sprinkler system in the fire insurance rate of Landlord, or for any other reason, Tenant shall make such installation or alteration promptly, and at its own expense.

ARTICLE 30

HEAT, ELEVATOR, ETC.

          30.01 Landlord shall provide elevator service during all usual business hours, except on Sundays, State holidays, Federal holidays, or Building Service Employees Union Contract holidays. Landlord shall furnish heat to the Premises during the same hours on the same days in the cold season in each year. If the elevators in the Building are manually operated, Landlord may convert to automatic elevators at any time, without in any way affecting Tenant’s obligations hereunder.

ARTICLE 31

SECURITY DEPOSIT

          31.01 As of the Commencement Date, Landlord shall not require Tenant to deposit with Landlord any monies as and for security (the “Security”) for the performance by Tenant of the terms of this Lease, provided that (i) Tenant shall maintain a A.M. Best Company credit rating (or credit rating off any successor thereto) (“Best’s rating”) of A- or greater, and (ii) on or before January 1^st of each calendar year during the Term of the Lease, Tenant shall provide Landlord with a certification of Tenant’s Best’s rating, certified by an officer of Tenant and accompanied by reasonable, detailed documentary evidence which establishes the foregoing to the reasonable satisfaction of Landlord. Notwithstanding the immediately preceding sentence, however, in the event that at any time during the Term, Tenant’s credit rating falls below a Best’s rating of A-, then within ten (10) days notice from Landlord, Tenant shall deposited with Landlord the sum of $790,887.50 as the Security for the performance by Tenant of the terms of this Lease. Landlord may use any part of the Security to satisfy any default of Tenant and any expenses arising from such default, including but not limited to legal fees and any damages or rent deficiency before or after re-entry by Landlord. Tenant shall, upon demand, deposit with Landlord the full amount so used,

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and/or any amount not so deposited by Tenant, in order that Landlord shall have the full Security deposit on hand at all times during the term of this Lease. If Tenant shall comply fully with the terms of this Lease, the Security shall be returned to Tenant after the date fixed as the end of the Lease. In the event of a sale or lease of the Building containing the Premises, Landlord may transfer the Security to the purchaser or tenant, and Landlord shall thereupon be released from all liability for the return of the Security. This provision shall apply to every transfer or assignment of the Security to a new Landlord. Tenant shall have no legal power to assign or encumber the Security herein described.

          31.02 (a) In lieu of a cash deposit required hereunder, Tenant shall be permitted to deliver to Landlord as and for security hereunder a clean, irrevocable and unconditional letter of credit in an amount equal to the security required to be deposited by Tenant pursuant hereto which shall comply conform in all material respects with the form annexed hereto and made apart hereof as Exhibit C (hereinafter called the “Credit”), to be held, used and drawn upon solely under the security provisions of this Lease, which Credit shall be issued by a bank which is a member of the New York Clearing House Association, naming Landlord (or its successor as Landlord) as beneficiary. The Credit shall be transferable. All transfer fees shall be payable by Tenant.

          (b) If during the term of this Lease, the Credit and/or the proceeds of all or part of said Credit become less than the full amount of the security hereinabove required, then and in such event Tenant shall, upon demand, deposit with Landlord the amount of any security /Credit theretofore used or applied by Landlord pursuant to the terms hereof in order that Landlord shall have the full security on hand at all times during the term of this Lease. If at the expiration of the term of this Lease, Landlord holds all or part of said Credit, and Tenant is not in default under any of the terms, covenants and conditions of this Lease, then Landlord will turn over said Credit to Tenant or assign it to the designee of Tenant.

          (c) It shall be the obligation of Tenant during the term of this Lease to deliver to Landlord at least forty-five (45) days prior to the expiration date of the then existing Credit, a renewal or extension of said Credit or a substitute Credit (each fully complying with the foregoing). If for any reason Landlord has not received such renewal or extension or substitute Credit within forty-five (45) days prior to the expiration date of the then existing Credit, then and in such event Landlord shall be free to draw on the Credit and hold and use and apply the proceeds thereof in accordance with the security deposit provisions of this Lease. Tenant agrees to reimburse Landlord for any reasonable attorneys’ fees incurred by Landlord, after the commencement of the term of this Lease, in connection with reviewing the Credit and any renewals, extensions or substitutions therefor, ensuring that the provisions of the Credit and any renewals, extensions or substitutions therefor comply with the provisions of this Article, drawing down upon the proceeds of Credit, or any renewals, extensions or substitution therefor, or ensuring that the security/Credit is maintained as required under this Lease.

          31.03 Notwithstanding the foregoing, Tenant shall cause the Guarantor (as hereinafter defined) to execute and deliver to Landlord, simultaneously with the execution and delivery of this Lease by Tenant, the guaranty agreement (“Guaranty”) in the form attached hereto and made a part hereof as Annex I. Tenant acknowledges and understands that such agreement by Tenant to cause the guarantor to so execute and deliver the Guaranty constitutes a material

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inducement to Landlord to enter into this Lease, and that Landlord would not have agreed to enter into this Lease but for such agreement by Tenant to cause the Guarantor to so execute and deliver the Guaranty. For purposes hereof, the Guarantor shall mean NYMAGIC, INC.

ARTICLE 32

TAX ESCALATION

          32.01 Tenant shall pay to Landlord, as Additional Rent, tax escalation in accordance with this Article:

          (a) For purposes of this Lease, Landlord and Tenant acknowledge and agree that the rentable square foot area of the Premises shall be deemed to be 30,615 square feet.

          (b) For the purpose of this Article, the following definitions shall apply:

          (i) The term “Tenant’s Share”, for purposes of computing tax escalation, shall mean 2.293 percent (2.293%) with respect to the Premises of which .995 percent (.995%) shall be allocated to Space A and 1.298 percent (1.298%) shall be allocated to Space B. Tenant’s Share has been computed on the basis of a fraction, the numerator of which is the rentable square foot area of the Premises and the denominator of which is the total rentable square foot area of the office and commercial space in the Building Project. The parties acknowledge and agree that the total rentable square foot area of the office and commercial space in the Building Project shall be deemed to be 1,335,345 sq. ft.

          (ii) The term the “Building Project” shall mean the aggregate combined parcel of land on a portion of which are the improvements of which the Premises form a part, with all the improvements thereon, said improvements being a part of the block and lot for tax purposes which are applicable to the aforesaid land.

          (iii) The “Base Tax Year” shall mean the New York City fiscal tax year commencing on July 1, 2007 through June 30, 2008.

          (iv) The term “Comparative Year” shall mean the twelve (12) month period following the Base Tax Year, and each subsequent period of twelve (12) months thereafter.

          (v) The term “Real Estate Taxes” shall mean the total of all taxes and special or other assessments levied, assessed or imposed at any time by any governmental authority upon or against the Building Project including, without limitation, any tax or assessment levied, assessed or imposed at any time by any governmental authority in connection with the receipt of income or rents from said Building Project to the extent that same shall be in lieu of all or a portion of any of the aforesaid taxes or assessments, or additions or increases thereof, upon or against said Building Project. If, due to a future change in the method of taxation or in the taxing authority, or for any other reason, a franchise, income, transit, profit or other tax or governmental imposition, however designated, shall be levied against Landlord in substitution in whole or in part for the Real Estate Taxes, or in lieu of

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additions to or increases of said Real Estate Taxes, then such franchise, income, transit, profit or other tax or governmental imposition shall be deemed to be included within the definition of “Real Estate Taxes” for the purposes hereof.

          (vi) Where more than one assessment is imposed by the City of New York for any tax year, whether denominated an “actual assessment” or a “transitional assessment” or otherwise, then the phrases herein “assessed value” and “assessments” shall mean whichever of the actual, transitional or other assessment is designated by the City of New York as the taxable assessment for that tax year.

          32.02 In the event that the Real Estate Taxes payable for any Comparative Year shall exceed the amount of the Real Estate Taxes payable during the Base Tax Year, Tenant shall pay to Landlord, as Additional Rent for such Comparative Year, an amount equal to Tenant’s Share of the excess. Before or after the start of each Comparative Year, Landlord shall furnish to Tenant a statement of the Real Estate Taxes payable during the Comparative Year. If the Real Estate Taxes payable for such Comparative Year exceed the Real Estate Taxes payable during the Base Tax Year, Additional Rent for such Comparative Year, in an amount equal to Tenant’s Share of the excess, shall be due from Tenant to Landlord, and such Additional Rent shall be payable by Tenant to Landlord within thirty (30) days after receipt of the aforesaid statement. The benefit of any discount for any early payment or prepayment of Real Estate Taxes shall accrue solely to the benefit of Landlord, and such discount shall not be subtracted from the Real Estate Taxes payable for any Comparative Year. In addition to the foregoing, Tenant shall pay to Landlord, on demand, as Additional Rent, a sum equal to Tenant’s Share of any business improvement district assessment payable by the Building Project.

          32.03 Should the Real Estate Taxes payable during the Base Tax Year be reduced by final determination of legal proceedings, settlement or otherwise, then, the Real Estate Taxes payable during the Base Tax Year shall be correspondingly revised, the Additional Rent theretofore paid or payable hereunder for all Comparative Years shall be recomputed on the basis of such reduction, and Tenant shall pay to Landlord as Additional Rent, within ten (10) days after being billed therefor, any deficiency between the amount of such Additional Rent as theretofore computed and the amount thereof due as the result of such recomputations.

          32.04 If, after Tenant shall have made a payment of Additional Rent under Section 32.02, Landlord shall receive a refund of any portion of the Real Estate Taxes payable for any Comparative Year after the Base Tax Year on which such payment of Additional Rent shall have been based, as a result of a reduction of such Real Estate Taxes by final determination of legal proceedings, settlement or otherwise, Landlord shall within ten (10) days after receiving the refund pay to Tenant Tenant’s Share of the refund less Tenant’s Share of expenses (including attorneys’ and appraisers’ fees) incurred by Landlord and not previously paid by Tenant, in connection with any such application or proceeding. In addition to the foregoing, Tenant shall pay to Landlord, as Additional Rent, within ten (10) days after Landlord shall have delivered to Tenant a statement therefor, Tenant’s Share of all expenses incurred by Landlord in reviewing or contesting the validity or amount of any Real Estate Taxes or for the purpose of obtaining reductions in the assessed valuation of the Building Project prior to the billing of Real Estate Taxes, including without limitation, the fees and disbursements of attorneys, third party consultants, experts and others.

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          32.05 The statements of the Real Estate Taxes to be furnished by Landlord as provided above shall be certified by Landlord and shall constitute a final determination as between Landlord and Tenant of the Real Estate Taxes for the periods represented thereby, unless Tenant within thirty (30) days after they are furnished shall give a written notice to Landlord that it disputes their accuracy or their appropriateness, which notice shall specify the particular respects in which the statement is inaccurate or inappropriate. If Tenant shall so dispute said statement then, pending the resolution of such dispute, Tenant shall pay the Additional Rent to Landlord in accordance with the statement furnished by Landlord. If Landlord and Tenant are unable to resolve any such dispute within thirty (30) days after Tenant’s notice of objection, then either party may within ten (10) days thereafter refer the dispute to an independent, third party certified public accounting firm selected by Landlord and reasonably acceptable to Tenant. In connection therewith, Landlord, Tenant and such firm shall enter into a confidentiality agreement, in form and substance reasonably satisfactory to the parties, whereby such parties shall agree not to disclose to any third party any of the information in connection with the prosecution, review and determination of such dispute or of any resulting reconciliation, compromise or resolution. Such firm may request such supporting documentation as it reasonably deems appropriate in order to promptly determine the dispute. The determination of such firm shall be rendered within thirty (30) days after the referral of the dispute, and shall be conclusive and binding upon Landlord and Tenant and shall be set forth in a written determination along with the rationale for the determination; however such firm shall not have the power to add to, modify or delete any of the provisions of this Lease or to award any relief whatsoever to either party, the sole function of said firm being to determine the accuracy of any and all statements disputed by Tenant hereunder. Landlord and Tenant shall each be responsible for any respective fees and expenses (including, without limitation, attorneys’ fees) incurred in connection with said dispute, unless the such firm determines that a disputed statement overstated the Additional Rent due from Tenant hereunder by more than five (5%) percent for the applicable Comparison Year, as finally determined, in which event, Landlord shall reimburse Tenant for any such fees and expenses in connection with the dispute of said statement, by way of credit against the monthly installments of Fixed Annual Rent next accruing under this Lease until such credit is exhausted.

          32.06 In no event shall the Fixed Annual Rent under this Lease be reduced by virtue of this Article.

          32.07 If the Space A Commencement Date or Space B Commencement Date of the Term of this Lease is not the first day of the first Comparative Year, then the Additional Rent due hereunder for such first Comparative Year shall be a proportionate share of said Additional Rent for the entire Comparative Year, said proportionate share to be based upon the length of time that the lease Term will be in existence during such first Comparative Year. Upon the date of any expiration or termination of this Lease (except termination because of Tenant’s default) whether the same be the date hereinabove set forth for the expiration of the Term or any prior or subsequent date, a proportionate share of said Additional Rent for the Comparative Year during which such expiration or termination occurs shall immediately become due and payable by Tenant to Landlord, if it was not theretofore already billed and paid. The said proportionate share shall be based upon the length of time that this Lease shall have been in existence during such Comparative Year. Landlord shall promptly cause statements of said Additional Rent for that Comparative Year to be prepared and furnished to Tenant. Landlord and Tenant shall thereupon make appropriate adjustments of amounts

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then owing.

          32.08 Landlord’s and Tenant’s obligations to make the adjustments referred to in Section 32.07 above shall survive any expiration or termination of this Lease. Any delay or failure of Landlord in billing any tax escalation hereinabove provided shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to pay such tax escalation hereunder.

ARTICLE 33

RENT CONTROL

          33.01 In the event the Fixed Annual Rent or Additional Rent or any part thereof provided to be paid by Tenant under the provisions of this Lease during the Term shall become uncollectible or shall be reduced or required to be reduced or refunded by virtue of any Federal, State, County or City law, order or regulation, or by any direction of a public officer or body pursuant to law, or the orders, rules, code or regulations of any organization or entity formed pursuant to law, whether such organization or entity be public or private, then Landlord, at its option, may at any time thereafter terminate this Lease, by not less than thirty (30) days’ written notice to Tenant, on a date set forth in said notice, in which event this Lease and the term hereof shall terminate and come to an end on the date fixed in said notice as if the said date were the date originally fixed herein for the termination of the demised term. Landlord shall not have the right to so terminate this Lease if Tenant within such period of thirty (30) days shall in writing lawfully agree that the rentals herein reserved are a reasonable rental and agree to continue to pay said rentals, and if such agreement by Tenant shall then be legally enforceable by Landlord.

ARTICLE 34

SUPPLIES

          34.01 Only Landlord or any one or more persons, firms, or corporations authorized in writing by Landlord shall be permitted to furnish laundry, linens, towels, drinking water, water coolers, ice and other similar supplies and services to tenants and licensees in the Building such authorization not to be unreasonably withheld. Landlord may fix, in its own reasonable discretion, from time to time, the hours during which and the regulations under which such supplies and services are to be furnished.

          34.02 Tenant and its employees, guests and invitees may personally bring food or beverages into the Building for consumption within the Premises by the said employees, but not for resale or for consumption by any other tenant. Landlord may fix in its reasonable discretion from time to time the hours during which, and the regulations under which, food and beverages may be brought into the Building by Tenant or its employees, guests or invitees.

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ARTICLE 35

AIR CONDITIONING

          35.01 Subject to the provisions of this Article and all other applicable provisions of this Lease, Landlord shall supply air-conditioning service to the Premises through the Building’s central air-conditioning facilities (the “Building HVAC System”) Monday to Friday from 8:00 a.m. to 6:00 p.m. during the Building’s “Cooling Season” (which is currently May 15 through October 15), subject to and in accordance with the provisions of this Lease. Tenant shall pay Tenant’s proportionate share of all electricity (and also water, gas and/or steam, if applicable) consumed in the operation of the Building HVAC System and for the production of chilled and/or condenser water and its supply to the Premises. Subject to the review and approval by Landlord of Tenant’s Plans (as herein defined in Article 49), if supplementary air-conditioning equipment is required to accommodate Tenant’s special usage areas (i.e. computer rooms, conference rooms, cafeteria/lunchroom or any special usage which subjects a portion or the entire premises to a high density of office personnel and/or heat generating machines or appliances), Tenant shall be permitted to install air cooled supplemental air-conditioning equipment to service to the Premises (the “Supplemental A/C System”) including, without limitation, the ducts, dampers, registers, grilles and appurtenances utilized in connection therewith, provided that Tenant hereby acknowledges and agrees that at all times the Supplemental A/C System once installed by Tenant shall be and remain the property of Landlord and, further, that Tenant shall at all times, at its sole cost and expense, be responsible to operate, maintain, repair in good working order and in compliance with all present and future laws and regulations relating thereto at Tenant’s sole cost and expense. Tenant shall pay to Landlord, within twenty (20) days after demand as Additional Rent hereunder, charges for all electricity consumption in connection with the Supplemental A/C System, in accordance with the provisions of Article 41 of this Lease. Tenant shall pay for all parts and supplies necessary for the proper operation of the Supplemental A/C System (and any restoration or replacement by Tenant of all or any part thereof shall be in quality and class at least equal to the original work or installations. Without limiting the generality of the foregoing, Tenant shall at all times during the term hereof contract for and maintain regular service of said the Supplemental A/C System through an independent, licensed, professional third party maintenance company approved by Landlord and shall, within thirty (30) days of installation of the Supplemental A/C System, forward to Landlord a fully executed original copy of such contract. Such contract shall provide for the thorough overhauling of the Supplemental A/C System at least once each year during the Term of this Lease and shall expressly state that (i) it shall be an automatically renewing contract terminable upon not less than thirty (30) days prior written notice to the Landlord (sent by certified mail, return receipt requested) and (ii) the contractor providing such service shall maintain a log at the Premises detailing the service provided during each visit pursuant to such contract. Tenant shall keep such log at the Premises and permit Landlord to review same promptly after Landlord’s request. Landlord reserves the right to suspend operation of the Building HVAC System and/or Supplemental A/C System, if any, at any time that Landlord, in its reasonable judgment, deems it necessary to do so for reasons such as accidents, emergencies or any situation arising in the Premises or within the Building which has an adverse affect, either directly or indirectly, on the operation of Building HVAC System and /or Supplemental A/C System, if any, including without limitation, reasons relating to the making of repairs, alterations or improvements in the Premises or the Building, and Tenant agrees that any such suspension in the operation of the Building HVAC System may

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continue until such time as the reason causing such suspension has been remedied and that Landlord shall not be held responsible or be subject to any claim by Tenant due to such suspension. Tenant further agrees that Landlord shall have no responsibility or liability to Tenant if operation of the Building HVAC System and/or Supplemental A/C System, if any, is prevented by strikes or accidents or any cause beyond Landlord’s reasonable control, or by the orders or regulations of any federal, state, county or municipal authority or by failure of the equipment or electric current, steam and/or water or other required power source.

ARTICLE 36

SHORING

          36.01 Tenant shall permit any person authorized to make an excavation on land adjacent to the Building containing the Premises to do any work within the Premises necessary to preserve the wall of the Building from injury or damage, and Tenant shall have no claim against Landlord for damages or abatement of rent by reason thereof.

ARTICLE 37

EFFECT OF CONVEYANCE, ETC.

          37.01 If the Building containing the Premises shall be sold, transferred or leased, or the lease thereof transferred or sold, Landlord shall be relieved of all future obligations and liabilities hereunder and the purchaser, transferee or tenant of the Building shall be deemed to have assumed and agreed to perform all such obligations and liabilities of Landlord hereunder. In the event of such sale, transfer or lease, Landlord shall also be relieved of all existing obligations and liabilities hereunder, provided that the purchaser, transferee or tenant of the Building assumes in writing such obligations and liabilities.

ARTICLE 38

RIGHTS OF SUCCESSORS AND ASSIGNS

          38.01 This Lease shall bind and inure to the benefit of the heirs, executors, administrators, successors, and, except as otherwise provided herein, the assigns of the parties hereto. If any provision of any Article of this Lease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of that Article, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each provision of said Article and of this Lease shall be valid and be enforced to the fullest extent permitted by law.

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ARTICLE 39

CAPTIONS

          39.01 The captions herein are inserted only for convenience, and are in no way to be construed as a part of this Lease or as a limitation of the scope of any provision of this Lease.

ARTICLE 40

BROKERS

          40.01 Tenant covenants, represents and warrants that Tenant has had no dealings or negotiations with any broker or agent in connection with the consummation of this Lease other than SL Green Leasing LLC and Studley, Inc. (collectively, the “Brokers”) and Tenant covenants and agrees to defend, hold harmless and indemnify Landlord from and against any and all cost, expense (including reasonable attorneys’ fees) or liability for any compensation, commissions or charges claimed by any broker or agent with respect to this Lease or the negotiation thereof.

          40.02 Landlord represents and warrants to Tenant that it did not consult or negotiate with any broker, finder, or consultant with regard to the Premises other than the Brokers, and that no other broker, finder or consultant participated with Landlord in procuring this Lease. Landlord hereby indemnifies and agrees to defend and hold Tenant, its agents, servants and employees harmless from any suit, action, proceeding, controversy, claim or demand whatsoever at law or in equity that may be instituted against Tenant by anyone with whom Landlord has dealt for recovery of compensation or damages for procuring this Lease.

ARTICLE 41

ELECTRICITY

          41.01 Landlord and Tenant agree that Landlord shall furnish electricity to Tenant on a “submetered basis”. Landlord shall make available during the Term of this Lease at the combined electrical closets servicing the Premises electricity for all purposes with an average capacity of not less than six (6) watts connected load per usable square foot of the Premises, which shall be distributed by Tenant at its sole cost and expense, subject to all other applicable provisions of this Lease.

          41.02 Tenant agrees that the charges for redistributed electricity shall be computed in the manner hereinafter described, to wit, a sum equal to Landlord’s cost for such electricity (“Landlord’s Cost”) plus five (5%) percent thereof. Landlord’s Cost for such redistributed electricity shall be equal to (i) the consumption of KW demand and KW hours recorded on Tenant’s submeter(s), billed at the service classification under which Landlord purchases electric current and the rate that is appropriate for Tenant’s level of consumption, (ii) Landlord’s costs for measuring, calculating and reporting Tenant’s electricity charges, including the fees of an electrical consultant

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(“Consultant Costs”) and (iii) and all surcharges, energy charges, fuel adjustment charges, rate adjustments and taxes paid by Landlord.

          41.03 Landlord shall install submeters at Tenant’s sole cost and expense to measure Tenant’s electricity consumption, KWH and KW. Bills therefor shall be rendered at such times as Landlord may elect, and the amount, as computed from said meters, shall be deemed to be, and shall be paid as Additional Rent. If any tax is imposed upon Landlord’s receipt from the resale of electrical energy to Tenant by any Federal, State or Municipal authority, Tenant covenants and agrees that, where permitted by law, Tenant’s share of such taxes based upon its usage and demand shall be passed on to, and shall be included in the bill of, and shall be paid by Tenant to Landlord. Where more than one meter measures the service of Tenant in the Building, the KWH and KW recorded by each meter shall be computed and billed separately in accordance with rates set forth herein.

          41.04 Landlord shall not be liable to Tenant for any loss or damage or expense which Tenant may sustain or incur if either the quantity or character of electric service is changed or is no longer available or suitable for Tenant’s requirements. Tenant covenants and agrees that at all times its use of electric current shall never exceed the capacity of existing feeders to the building or the risers or wiring installation. If Tenant shall require any additional riser or risers, feeders or other equipment or service proper or necessary to supply Tenant’s electrical requirements, upon written request of Tenant, the same will be installed by Landlord, at the sole cost and expense of Tenant if, in Landlord’s reasonable judgment, the same are necessary, will not result in a diminution in the amount of electrical power available to other tenants or occupants in the building and provided that same is then available and will not cause damage or injury to the building or Premises or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repairs or expense or interfere with or unreasonably disturb other tenants or occupants in the building. In addition to any such installation, Landlord will also at the sole cost and expense of Tenant, install all other equipment proper and necessary in connection therewith, subject to the aforesaid terms and conditions.

          41.05 In the event that all or part of the meters, or system by which Landlord measures Tenant’s consumption of electricity (the “Submetering System”), shall malfunction, (a) Landlord, through an independent, electrical consultant selected by Landlord, shall reasonably estimate the readings that would have been yielded by said Submetering System as if the malfunction had not occurred, on the basis of Tenant’s prior usage and demand and the lightning and equipment installed within the Premises and (b) Tenant shall utilize such estimated readings and the bill rendered based thereon shall be binding and conclusive on Tenant unless, within thirty (30) days after receipt of such a bill, Tenant challenges, in writing to Landlord, the accuracy or method of computation thereof. If, within thirty (30) days of Landlord’s receipt of such a challenge, the parties are unable to agree on the amount of the contested bill, the controlling determination of same shall be made by an independent electrical consultant agreed upon by the parties or, upon their inability to agree, as selected by the American Arbitration Association. The determination of such electrical consultant shall be final and binding on both Landlord and Tenant and the expenses of such consultant shall be divided equally between the parties. Pending such controlling determination, Tenant shall timely pay additional rent to Landlord in accordance with the contested bill. Tenant shall be entitled to a prompt refund from Landlord, or shall make prompt additional payment to

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Landlord, in the event that the electrical consultant determines that the amount of a contested bill should have been other than as reflected thereon.

          41.06 If all or part of the Additional Rent payable in accordance with this Article becomes uncollectible or reduced or refunded by virtue of any law, order or regulation, the parties agree that, at Landlord’s option, in lieu thereof, and in consideration of Tenant’s use of the building’s electrical distribution system and receipt of redistributed electricity and payment by Landlord of consultants’ fees and other redistribution costs, the fixed annual rental rate(s) to be paid under this Lease shall be increased by an “alternative charge” which shall be a sum equal to Landlord’s Cost, plus ten (10%) percent thereof (or the maximum such percentage then permitted by law but not more than ten (10%) percent.

          41.07 Landlord reserves the right to terminate the furnishing of redistributed electricity on a submetered or any other basis at any time, upon thirty (30) days’ written notice to Tenant, in which event Tenant shall make application directly to the public utility for Tenant’s entire separate supply of electric current and Landlord shall permit its risers, feeders, meters, wires and conduits, to the extent available and safely capable, to be used for such purpose. Any meters, risers or other equipment or connections necessary to enable Tenant to obtain electric current directly from such utility shall be installed at Tenant’s sole cost and expense. Landlord, upon the expiration of the aforesaid thirty (30) days’ written notice to Tenant, may discontinue furnishing the redistributed electric current, but this Lease shall otherwise remain in full force and effect.

          41.08 Where more than one meter measures the service of Tenant in the Building, the service rendered through each meter may be computed and billed separately in accordance with the rates herein specified. Bills for monies payable under this Article shall be rendered at such times as Landlord may elect and the amount, as computed from a meter, shall be deemed to be, and be paid as, Additional Rent. In the event that such bills are not paid within five (5) days after the same are rendered, Landlord may, without further notice, discontinue the service of electric current to the Premises without releasing Tenant from any liability under this Lease and without Landlord or Landlord’s agent incurring any liability for any damage or loss sustained by Tenant by such discontinuance of service. If any tax is imposed upon Landlord’s receipt from the sale, resale or redistribution of electricity or gas or telephone service to Tenant by any Federal, State, or Municipal authority, Tenant covenants and agrees that where permitted by law, Tenant’s pro-rata share of such taxes shall be passed on to and included in the bill of, and paid by, Tenant to Landlord.

          41.09 At the option of Landlord, Tenant agrees to purchase from Landlord or its agents all lamps and bulbs used in the Premises and to pay for the cost of installation thereof. If all or part of the submetering Additional Rent payable in accordance with this Article becomes uncollectible or reduced or refunded by virtue of any law, order or regulations, the parties agree that, at Landlord’s option, in lieu of submetering Additional Rent and in consideration of Tenant’s use of the Building’s electrical distribution system and receipt of redistributed electricity and payment by Landlord of consultant’s fees and other redistribution costs, the Fixed Annual Rental rate(s) to be paid under this Lease shall be increased by an “alternative charge” which shall be a sum equal to $3.25 per year per rentable square foot of the Premises, changed in the same percentage as any increase in the cost to Landlord for electricity for the entire Building subsequent to May 1, 1996, because of electric rate, service classification or market price changes, such percentage change to be computed as in Section 41.04 provided.

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          41.10 Landlord shall not be liable to Tenant for any loss or damage or expense which Tenant may sustain or incur if either the quantity or character of electric service is changed or is no longer available or suitable for Tenant’s requirements. Tenant covenants and agrees that at all times its use of electric current shall never exceed the capacity of existing feeders to the Building or wiring installation. Any riser or risers to supply Tenant’s electrical requirements, upon written request of Tenant, will be installed by Landlord, at the sole cost and expense of Tenant, if, in Landlord’s sole judgment, the same are necessary and will not cause permanent damage or injury to the Building or the Premises or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repairs or expense or interfere with or disturb other tenants or occupants. In addition to the installation of such riser or risers, Landlord will also at the sole cost and expense of Tenant, install all other equipment proper and necessary in connection therewith subject to the aforesaid terms and conditions. The parties acknowledge that they understand that it is anticipated that electric rates, charges, etc., may be changed by virtue of time-of-day rates or changes in other methods of billing, and/or electricity purchases and the redistribution thereof, and fluctuation in the market price of electricity, and that the references in the foregoing paragraphs to changes in methods of or rules on billing are intended to include any such changes. Anything hereinabove to the contrary notwithstanding, in no event is the submetering Additional Rent or any “alternative charge” to be less than an amount equal to the total of Landlord’s payments to public utilities and/or other providers for the electricity consumed by Tenant (and any taxes thereon or on redistribution of same) plus five (5%) percent thereof for transmission line loss, plus fifteen (15%) thereof for other redistribution costs. The Landlord reserves the right, at any time upon thirty (30) days’ written notice, to change its furnishing of electricity to Tenant from a rent inclusion basis to a submetering basis, or vice versa, or to change to the distribution of less than all the components of the existing service to Tenant. The Landlord reserves the right to terminate the furnishing of electricity on a rent inclusion, submetering, or any other basis at any time, upon thirty (30) days’ written notice to the Tenant, if required by any applicable law, code, rule or regulation of any governmental or quasi-governmental authority or agency having jurisdiction or if Landlord also terminates the furnishing of redistributed electricity to the majority (i.e., over fifty (50%) percent) of the office tenants in the Building, in which event the Tenant may make application directly to the public utility and/or other providers for the Tenant’s entire separate supply of electric current and Landlord shall permit its wires and conduits, to the extent available and safely capable, to be used for such purpose, but only to the extent of Tenant’s then authorized load. Any meters, risers, or other equipment or connections necessary to furnish electricity on a submetering basis or to enable Tenant to obtain electric current directly from such utility and/or other providers shall be installed at Tenant’s sole cost and expense. Only rigid conduit or electricity metal tubing (EMT) will be allowed. Landlord, upon the expiration of the aforesaid thirty (30) days’ written notice to the Tenant may discontinue furnishing the electric current but this Lease shall otherwise remain in full force and effect. Notwithstanding the foregoing, provided that Tenant promptly applies for such direct service and diligently pursues such application to completion, Landlord shall not so discontinue such redistributed service until Tenant obtains electric service directly from the public utility, unless required by law. If Tenant was provided electricity on a rent inclusion basis when it was so discontinued, then commencing when Tenant receives such direct service and as long as Tenant shall continue to receive such service, the Fixed Annual Rent payable under this Lease shall be reduced by the amount of the ERIF which was payable immediately prior to such discontinuance of electricity on a rent inclusion basis.

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ARTICLE 42

LEASE SUBMISSION

          42.01 Landlord and Tenant agree that this Lease is submitted to Tenant on the understanding that it shall not be considered an offer and shall not bind Landlord in any way unless and until (i) Tenant has duly executed and delivered duplicate originals thereof to Landlord and (ii) Landlord has executed and delivered one of said originals to Tenant.

ARTICLE 43

INSURANCE

          43.01 Tenant shall not violate, or permit the violation of, any condition imposed by the standard fire insurance policy then issued for office buildings in the Borough of Manhattan, City of New York, and shall not do, or permit anything to be done, or keep or permit anything to be kept in the Premises which would subject Landlord to any liability or responsibility for personal injury or death or property damage, or which would increase the fire or other casualty insurance rate on the Building or the property therein over the rate which would otherwise then be in effect (unless Tenant pays the resulting premium as hereinafter provided for) or which would result in insurance companies of good standing refusing to insure the building or any of such property in amounts reasonably satisfactory to Landlord.

          43.02 Tenant covenants to provide on or before the earlier to occur of (i) the first Space A Commencement Date and Space B Commencement Date, and (ii) ten (10) days from the date of this Lease, and to keep in force, at Tenant’s own cost, during the term hereof the following insurance coverage which coverage shall be effective from and after such first Space A Commencement Date and Space B Commencement Date, respectively:

               (a) A Commercial General Liability insurance policy naming Landlord and its designees as additional insureds protecting Landlord, its designees against any alleged liability, occasioned by any incident involving injury or death to any person or damage to property of any person or entity, on or about the Building, the Premises, common areas or areas around the Building or premises. Such insurance policy shall include Products and Completed Operations Liability and Contractual Liability covering the liability of the Tenant to the Landlord by virtue of the indemnification agreement in this Lease, covering bodily injury liability, property damage liability, personal injury & advertising liability and fire legal liability, all in connection with the use and occupancy of or the condition of the Premises, the Building or the related common areas, in amounts not less than:

$5,000,000, general aggregate per location
$5,000,000, per occurrence for bodily injury & property damage
$5,000,000, personal & advertising injury

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$1,000,000, fire legal liability

Such insurance may be carried under a blanket policy covering the Premises and other locations of Tenant, if any, provided such a policy contains an endorsement (i) naming Landlord and its designees as additional insureds, (ii) specifically referencing the Premises; and (iii) guaranteeing a minimum limit available for the Premises equal to the limits of liability required under this Lease;

               (b) “All-risk” insurance, including flood, earthquake and terrorism coverage in an amount adequate to cover the cost of replacement of all personal property, fixtures, furnishings, equipment, improvements, betterments and installations located in the Premises, whether or not installed or paid for by the Landlord.

          43.03 All such policies shall be issued by companies of recognized responsibility permitted to do business within New York State and approved by the Landlord and rated by Best’s Insurance Reports or any successor publication of comparable standing and carrying a rating of A- VIII or better or the then equivalent of such rating, and all such policies shall contain a provision whereby the same cannot be canceled or modified unless Landlord and any additional insured are given at least thirty (30) days prior written notice of such cancellation or modification.

          43.04 Prior to the time such insurance is first required to be carried by Tenant and thereafter, at least fifteen (15) days prior to the expiration of any such policies, Tenant shall deliver to Landlord either duplicate originals of the aforesaid policies or a 2003 Accord 28 certificates evidencing such insurance (the 2006 Accord 28 being unacceptable to Landlord), together with evidence of payment for the policy. If Tenant delivers certificates as aforesaid Tenant, upon reasonable prior notice from Landlord, shall make available to Landlord, at the Premises, duplicate originals of such policies from which Landlord may make copies thereof, at Landlord’s cost. Tenant’s failure to provide and keep in force the aforementioned insurance shall be regarded as a material default hereunder, entitling Landlord to exercise any or all of the remedies as provided in this Lease in the event of Tenant’s default. In addition, in the event Tenant fails to provide and keep in force the insurance required by this Lease, at the times and for the durations specified in this Lease, Landlord shall have the right, but not the obligation, at any time and from time to time, and without notice, to procure such insurance and/or pay the premiums for such insurance in which event Tenant shall repay Landlord within five (5) days after demand by Landlord, as Additional Rent, all sums so paid by Landlord and any costs or expenses incurred by Landlord in connection therewith without prejudice to any other rights and remedies of Landlord under this Lease.

          43.05 Landlord and Tenant shall each endeavor to secure an appropriate clause in, or an endorsement upon, each “all-risk” insurance policy obtained by it and covering property as stated in 43.02 (b), pursuant to which the respective insurance companies waive subrogation against each other and any other parties, if agreed to in writing prior to any damage or destruction. The waiver of subrogation or permission for waiver of any claim hereinbefore referred to shall extend to the agents of each party and its employees and, in the case of Tenant, shall also extend to all other persons and entities occupying or using the Premises in accordance with the terms of this Lease. If and to the extent that such waiver or permission can be obtained only upon payment of an additional charge then, except as provided in the following two paragraphs, the party benefiting from the waiver or permission shall pay such charge upon demand, or shall be deemed to have agreed that the party

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required to obtain such insurance coverage shall be relieved of any obligation hereunder to secure such waiver or permission.

          43.06 Subject to the foregoing provisions of this Article, and insofar as may be permitted by the terms of the insurance policies carried by it, each party hereby releases the other with respect to any claim (including a claim for negligence) which it might otherwise have against the other party for loss, damages or destruction with respect to its property by fire or other casualty (including rental value or business interruption, as the case may be) occurring during the Term of this Lease.

          43.07 If, by reason of a failure of Tenant to comply with the provisions of this Lease, the rate of fire insurance with extended coverage on the building or equipment or other property of Landlord shall be higher than it otherwise would be, Tenant shall reimburse Landlord, on demand, for that part of the premiums for fire insurance and extended coverage paid by Landlord because of such failure on the part of Tenant.

          43.08. Landlord may, from time to time, require that the amount of the insurance to be provided and maintained by Tenant hereunder be increased so that the amount thereof adequately protects Landlord’s interest, but in no event in excess of the amount that would be required of other tenants in other similar office buildings in the Borough of Manhattan.

          43.09 A schedule or make up of rates for the building or the Premises, as the case may be, issued by the New York Fire Insurance Rating Organization or other similar body making rates for fire insurance and extended coverage for the premises concerned, shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rate with extended coverage then applicable to such premises.

          43.10 Each policy evidencing the insurance to be carried by Tenant under this Lease shall contain a clause that such policy and the coverage evidenced thereby shall be primary with respect to any policies carried by Landlord, and that any coverage carried by Landlord shall be excess insurance.

ARTICLE 44

SIGNAGE

          44.01 Tenant shall be permitted to affix either a sign or plaque on or adjacent to the entrance door to the Premises, subject to the prior written approval of Landlord which shall not be unreasonably withheld subject to the other provisions of this Article, with respect to location, design, size, materials, quality, coloring, lettering and shape thereof, and subject, also, to compliance by Tenant, at its expense, with all applicable legal requirements or regulations. All such signage shall be consistent and compatible with the design, aesthetics, signage and graphics program for the Building as established by Landlord. Landlord may remove any sign installed in violation of this provision, and Tenant shall pay the cost of such removal and any restoration costs.

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ARTICLE 45

RIGHT TO RELOCATE

          45.01 Notwithstanding anything contained in this Lease to the contrary, Landlord shall have the right to substitute in lieu of the Premises alternative space in the Building designated by Landlord (the “Relocation Space”) effective as of the date (the “Relocation Effective Date”) set forth in a notice given to Tenant (the “Relocation Notice”); provided however, that such Relocation Space shall be located on a floor contiguous with at least one other premises leased by Tenant in the Building. The Relocation Space shall be reasonably comparable to the Premises with respect to internal configuration, quality of finish and rentable square foot area (i.e., plus or minus ten (10%) percent). The Relocation Effective Date shall not be less than thirty (30) days following the date upon which the Relocation Notice is given to Tenant. In the event that Landlord exercises its rights hereunder, (i) Tenant shall deliver to Landlord possession of the Premises on or before the Relocation Effective Date vacant and broom clean, free of all occupancies and encumbrances and otherwise in accordance with the terms, covenants and conditions of the Lease as if the Relocation Effective Date were the expiration date of the Term of this Lease, (ii) effective as of the Relocation Effective Date, the term and estate hereby granted with respect to the Premises originally demised hereunder shall terminate, the Relocation Space shall be deemed to be the Premises and the Fixed Annual Rent and Additional Rent payable under this Lease shall be adjusted, if necessary, so as to reflect any difference between the deemed rentable square foot area of the original Premises and said Relocation Space.

          45.02 Provided that Tenant is not in default under this Lease, Landlord shall (i) at Landlord’s cost and expense, remove and reinstall Tenants’ personal property, trade fixtures and equipment in the Relocation Space (“Landlord’s Relocation Work”) and (ii) compensate Tenant for Tenant’s actual, reasonable, out-of-pocket moving and related expenses upon Tenant’s submission of paid invoices therefor. Landlord shall complete Landlord’s Relocation Work on or before the Relocation Effective Date provided that Tenant cooperates with Landlord and gives Landlord full access to the Premises to facilitate the performance thereof.

          45.03 Following any relocation undertaken pursuant to this Article, Tenant shall promptly execute and deliver an agreement confirming such relocation and fixing any corresponding adjustments in Fixed Annual Rent and Additional Rent payable under this Lease, but any failure to execute such an agreement by Tenant shall not affect such relocation and adjustments as determined by Landlord.

ARTICLE 46

FUTURE CONDOMINIUM CONVERSION

          46.01 Tenant acknowledges that the Building and the land of which the Premises form a part may be subjected to the condominium form of ownership prior to the end of the Term of this Lease. Tenant agrees that if, at any time during the Term, the Building and the land shall be subjected to the condominium form of ownership, then, this Lease and all rights of Tenant hereunder

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are and shall be subject and subordinate in all respects to any condominium declaration and any other documents (collectively, the “Declaration”) which shall be recorded in order to convert the Building and the land of which the Premises form a part to a condominium form of ownership in accordance with the provisions of Article 9-B of the Real Property Law of the State of New York or any successor thereto. If any such Declaration is to be recorded, Tenant, upon request of Landlord, shall enter into an amendment of this Lease in such respects as shall be necessary to conform to such condominiumization, including, without limitation, appropriate adjustments to Real Estate Taxes payable during the Base Tax Year and Tenant’s Share, as such terms are defined in Article 32 hereof.

ARTICLE 47

MISCELLANEOUS

          47.01 This Lease represents the entire understanding between the parties with regard to the matters addressed herein and may only be modified by written agreement executed by all parties hereto. All prior understandings or representations between the parties hereto, oral or written, with regard to the matters addressed herein are hereby merged herein. Tenant acknowledges that neither Landlord nor any representative or agent of Landlord has made any representation or warranty, express or implied, as to the physical condition, state of repair, layout, footage or use of the Premises or any matter or thing affecting or relating to Premises except as specifically set forth in this Lease. Tenant has not been induced by and has not relied upon any statement, representation or agreement, whether express or implied, not specifically set forth in this Lease. Landlord shall not be liable or bound in any manner by any oral or written statement, broker’s “set-up”, representation, agreement or information pertaining to the Premises, the Building or this Agreement furnished by any real estate broker, agent, servant, employee or other person, unless specifically set forth herein, and no rights are or shall be acquired by Tenant by implication or otherwise unless expressly set forth herein. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this agreement to be drafted.

ARTICLE 48

COMPLIANCE WITH LAW

          48.01 If, at any time during the Term hereof, Landlord expends any sums for alterations or improvements to the Building which are required to be made pursuant to any law, ordinance or governmental regulation, Tenant shall pay to Landlord, as Additional Rent, Tenant’s Share of such cost within ten (10) days after demand therefor; provided, however, that if the cost of such alteration or improvement is one which is required to be amortized over a period of time pursuant to applicable governmental regulations, Tenant shall pay to Landlord, as Additional Rent, during each year in which occurs any part of the Term, Tenant’s Share of the cost thereof amortized on a straight line basis over an appropriate period, but not more than eight (8) years. Notwithstanding anything to the contrary contained herein, in the event that the requirement for the performance of any such alteration or improvement is attributable to the actions, installations, use or manner of use of the Premises by Tenant, then in such event Tenant shall be responsible to pay the

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entire cost imposed by Landlord with respect to such alteration or improvement.

ARTICLE 49

LANDLORD’S CONTRIBUTION

          49.01 Tenant shall have prepared by a registered architect and/or a licensed professional engineer, at its sole cost and expense, and submit to Landlord for its approval in accordance with the applicable provisions of the Lease, final and complete dimensioned architectural, mechanical, electrical and structural drawings and specifications (“Tenant’s Plans”) in a form ready for use as construction drawings for the installation of alterations, installations, decorations and improvements in the Premises to prepare the same for Tenant’s initial occupancy thereof (“Tenant’s Initial Alteration Work”). All such construction plans and specifications and all such work shall be effected in accordance with all applicable provisions of the Lease at Tenant’s sole cost and expense. If and so long as Tenant is not in default under the Lease, subject to and in accordance with the provisions of this Article, Landlord shall contribute up to the sum of (i) $332,200.00 to be applied to the cost of labor and materials for the portion of Tenant’s Initial Alteration Work which constitutes Qualified Renovations made in and to the portion of the Premises designated as Space A (the “Space A Contribution”), and (ii) $433,175.00 to be applied to the cost of labor and materials for the portion of Tenant’s Initial Alteration Work which constitutes Qualified Renovations made in and to the portion of the Premises designated as Space B (the “Space B Contribution” and Space A Contribution collectively referred to as, “Landlord’s Contribution”). Notwithstanding anything to the contrary contained in this Article, from and after the Space B Commencement Date, all or any portion of the Space A Contribution may be applied towards Qualified Renovations made in and to the portion of the Premises designated as Space B, subject to, and to be disbursed in accordance with, the applicable provisions of this Article. “Qualified Renovations” shall be defined as the labor and materials used by Tenant to construct permanent leasehold improvements and alterations to the Premises in compliance with this Lease after the date hereof and prior to twelve (12) months following the Space B Commencement Date. Without limitation, for purposes of this Article, Qualified Renovations shall be deemed not to include and Landlord’s Contribution shall not be applied to the cost of interest, late charges, trade fixtures, furniture, furnishings, equipment, professional fees, workstations, work surfaces (whether or not affixed to walls and/or convector covers), related cabinetry, moveable business equipment or any personal property whatsoever, or to the cost of labor, materials or services used to furnish or provide the same, provided, however, that notwithstanding anything to the contrary contained in this Article, a portion of Landlord’s Contribution up to but not exceeding the sum of $76,537.50 may be applied towards the cost of architectural, planning, engineering and filing fees (“Soft Costs”), subject to and to be disbursed in accordance with the applicable provisions of this Article.

          49.02 “Requisition” shall mean a request by Tenant for payment from Landlord for Qualified Renovations and shall consist of such documents and information from Tenant as Landlord may require to substantiate the completion of, and payment for, such Qualified Renovations to which the Requisition relates (the “Work Cost”) and shall include, without limitation, the following: an itemization of Tenant’s total construction costs, detailed by contractor, subcontractors, vendors and materialmen; bills, receipts, lien waivers and releases from all

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contractors, subcontractors, vendors and materialmen; architects’ and Tenant’s certification of completion, payment and acceptance, and all governmental approvals and confirmations of completion for the portion of the Tenant’s Initial Alteration Work theretofore completed and for which Tenant seeks payment.

          49.03 From time-to-time, but not more than once in any calendar month during the term, Tenant may give Landlord a Requisition for so much of the Work Cost as arose since the end of the period to which the most recent prior Requisition related, or, with respect to the first Requisition, for the initial Work Cost.

          49.04 If Tenant is not in default under this Lease and provided that all documents and information required by Landlord have been provided, within thirty (30) days after Landlord receives a Requisition, Landlord shall pay Tenant eighty five percent (85%) of the Work Cost reflected in such Requisition and shall withhold the remaining fifteen percent (15%) of Work Cost (the “Retainage”); and provided that Tenant is not in default under this Lease, within thirty (30) days after Tenant furnishes Landlord with (x) a final, stamped set of “as-built” plans for the Premises which demonstrates that Tenant’s Initial Alteration Work has been completed in accordance with plans and specifications first approved by Landlord and (y) its final Requisition which demonstrates that Tenant’s Initial Alteration Work has been completed and paid for in full by Tenant and (z) all documents and information required by Landlord, Landlord shall pay Tenant all the Retainages.

          49.05 It is expressly understood and agreed that if the amount of Landlord’s Contribution is less than the cost of Tenant’s Initial Alteration Work, Tenant shall remain solely responsible for the payment and completion of, and in all events shall complete, at its sole cost and expense, Tenant’s Initial Alteration Work on or before twelve months following the Space B Commencement Date. Any portion of Landlord’s Contribution not disbursed shall be retained by Landlord.

ARTICLE 50

OPERATING EXPENSE ESCALATION

          50.01 Tenant shall pay to Landlord, as Additional Rent, operating expense escalations in accordance with this Article.

          50.02 For the purposes of this Article, the following definitions shall apply:

               (i) The term “Base Year” as herein after set forth for the determination of operating expense escalation, shall mean the calendar year 2007, and the term “Base Insurance Expenses” year shall mean the average of the Building Insurance Expenses (hereinafter defined) for the calendar years 2005, 2006 and 2007.

               (ii) The term the “Percentage”, for purposes of computing operating expense escalations hereunder, shall mean two and three hundred and two thousandths (2.302%) percent with respect to the Premises of which .999 percent (.999%) shall be allocated to Space A and 1.303 percent

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(1.303%) shall be allocated to Space B. The Percentage has been computed on the basis of a fraction, the numerator of which is the rentable square foot area of the presently demised premises and the denominator of which is the total rentable square foot area of the office space in the Building. The parties acknowledge and agree that, for purposes of this Article only, the total rentable square foot area of the Premises presently demised to Tenant shall be deemed to be 30,615 square feet, and that the rentable square foot area of the office space in the Building shall be deemed to be 1,330,014 square feet.

               (iii) The term the “Building Project” for purposes of this Article shall mean the aggregate combined parcel of land on a portion of which is the Building of which the Premises form a part, with all the improvements and appurtenances thereon, said improvements being a part of the block and lot for tax purposes which are applicable to the aforesaid land.

               (iv) The term “Comparative Year” for purposes of this Article shall mean the twelve (12) months following the Base Year, and each subsequent period of twelve (12) months, and the term “Comparative Insurance Year” for purposes of this Article shall mean the twelve (12) month period commencing as of January 1, 2007, and each subsequent period of twelve (12) months.

               (v) The term “Building Insurance Expenses” shall mean the total of all the costs and expenses incurred or borne by Landlord with respect to procuring and maintaining in respect of the Building Project: comprehensive all risk insurance on the Building Project and the personal property contained therein or thereon; commercial general liability insurance against claims for personal injury, bodily injury, death or property damage, occurring upon, in or about the Building Project; extended coverage, boiler and machinery, sprinkler, apparatus, rental, business income and plate glass insurance; owner’s contingent or protective liability insurance; workers’ compensation and employer’s liability insurance; insurance against acts of terrorism (including, without limitation, bio-terrorism), and any insurance required by a mortgagee;

               (vi) The term “Expenses” shall mean the total of all the costs and expenses incurred or borne by Landlord with respect to the operation and maintenance of the Building Project and the services provided tenants therein, including, but not limited to, the costs and expenses incurred for and with respect to: steam and any other fuel; water rates and sewer rents; air-conditioning; mechanical ventilation; heating; cleaning, by contract or otherwise; window washing (interior and exterior); elevators, escalators; parking areas and facilities; porters and matron service; Building electric current*; protection and security; lobby decoration; repairs, replacements and improvements which are appropriate for the continued operation of the Building as a first-class building; maintenance; management fees; painting of non-tenant areas; supplies; wages, salaries, disability benefits, pensions, hospitalization, retirement plans and group insurance respecting employees of the Building up to and including the building manager; uniforms and working clothes for such employees and the cleaning thereof and expenses imposed pursuant to law or to any collective bargaining agreement with respect to such employees; workmen’s compensation insurance, payroll, social security, unemployment and other similar taxes with respect to such employees; and association fees or dues.

* i.e. Building electric current shall be deemed to mean all electricity purchased for the Building except that which is redistributed to tenants in the Building; the parties acknowledge and agree that forty-five percent (45%) of the Building’s payment to the public utility for the purchase of electricity shall be deemed to be payment for Building electric current.

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          Provided, however, that the foregoing Expenses shall exclude or have deducted from them, as the case may be and as shall be appropriate:

               (a) leasing commissions;

               (b) managing agents’ fees or commissions in excess of the rates then customarily charged by owner/operators for building management for buildings of like class and character;

               (c) executive’s salaries above the grade of building manager;

               (d) expenditures for capital improvements except those which under generally applied real estate practice are expensed or regarded as deferred expenses and except for capital expenditures required by law, in either of which cases the cost thereof shall be included in Expenses for the Comparative Year in which the costs are incurred and subsequent Comparative Years, amortized on a straight line basis over an appropriate period, but not more then ten years, with an interest factor equal to the prime rate of the JP Morgan Chase, New York, (or the successor thereto) at the time of Landlord’s having incurred said expenditure;

               (e) amounts received by Landlord through proceeds of insurance to the extent the proceeds are compensation for expenses which were previously included in Expenses hereunder;

               (f) cost of repairs or replacements incurred by reason of fire or other casualty to the extent to which Landlord is compensated therefor through proceeds of insurance, or caused by the exercise of the right of eminent domain;

               (g) advertising and promotional expenditures;

               (h) legal fees for disputes with tenants and legal and auditing fees, other than legal and auditing fees reasonably incurred in connection with the maintenance and operation of the Building Project or in connection with the preparation of statements required pursuant to Additional Rent or lease escalation provisions; and

               (i) the incremental cost of furnishing services such as overtime HVAC to any tenant at such tenant’s expense; costs incurred in performing work or furnishing services for individual tenants (including this Tenant) at such tenant’s expense; and costs of performing work or furnishing services for tenants other than this Tenant at Landlord’s expense to the extent that such work or service is in excess of any work or service Landlord is obligated to furnish to this Tenant at Landlord’s expense;

               (j) Building Insurance Expenses.

          50.03 If Landlord shall purchase any item of capital equipment or make any capital expenditure designed to result in savings or reductions in Expenses, then the costs for same shall be

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included in Expenses. The costs of capital equipment or capital expenditures are so to be included in Expenses for the Comparative Year in which the costs are incurred and subsequent Comparative Years, on a straight line basis, to the extent that such items are amortized over such period of time as reasonably can be estimated as the time in which such savings or reductions in Expenses are expected to equal Landlord’s costs for such capital equipment or capital expenditure, with an interest factor equal to the prime rate of JP Morgan Chase, New York, (or the successor thereto) at the time of Landlord’s having incurred said costs. If Landlord shall lease any such item of capital equipment designed to result in savings or reductions in Expenses, then the rentals and other costs paid pursuant to such leasing shall be included in Expenses for the comparative year in which they were incurred.

          50.04 If during all or part of the Base Year or any Comparative Year, Landlord shall not furnish any particular item(s) of work or service (which would constitute an Expense hereunder) to portions of the Building Project due to the fact that such portions are not occupied or leased, or because such item of work or service is not required or desired by the tenant of such portion, or such tenant is itself obtaining and providing such item of work or service, or for other reasons, then, for the purposes of computing the Additional Rent payable hereunder, the amount of the Expenses for such item for such period shall be increased by an amount equal to the additional operating and maintenance expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such item of work or services to the greater of (i) the actual occupancy of the Building, or (ii) ninety-five (95%) percent of the occupancies of the Building.

          50.05 If the Expenses for any Comparative Year shall be greater than the Expenses for the Base Year, Tenant shall pay to Landlord, as Additional Rent for such Comparative Year, in the manner hereinafter provided, an amount equal to the Percentage of the excess of the Expenses for such Comparative Year over the Expenses for the Base Year (such amount being hereinafter called the “Expense Payment”). If the Building Insurance Expenses for any Comparative Insurance Year shall be greater than the Base Insurance Expenses, Tenant shall pay to Landlord, as Additional Rent for such Comparative Insurance Year, in the manner hereinafter provided, an amount equal to the Percentage of the excess of the Building Insurance Expenses for such Comparative Insurance Year over the Base Insurance Expenses (such amount being hereinafter called the “Insurance Expense Payment”).

          50.06 Following the expiration of each Comparative Year and Comparative Insurance Year and after receipt of necessary information and computations from Landlord’s certified public accountant, Landlord shall submit to Tenant a statement or statements, as hereinafter described, setting forth the Expenses for the preceding Comparative Year, and the Expense Payment, if any, due to Landlord from Tenant for such Comparative Year, and a statement setting forth the Base Insurance Expenses and the Insurance Expense Payment, if any, due to Landlord from Tenant for such Insurance Comparative Year. The rendition of any such statement to Tenant shall constitute prima facie proof of the accuracy thereof and, if such statement shows an Expense Payment and/or Insurance Expense Payment due from Tenant to Landlord with respect to the preceding Comparative Year and/or Comparative Insurance Year, then (i) Tenant shall make payment of any unpaid portion thereof within ten (10) days after receipt of such statement; and (ii) Tenant shall also pay Landlord, as Additional Rent within ten (10) days after receipt of such statement, an amount equal to the product obtained by multiplying the Expense Payment and/or Insurance Expense Payment for the Comparative Year or the Comparative Insurance Year, as the case may be, by a fraction, the denominator of which shall be 12 and the numerator of which shall be the number of months of the current Comparative Year or

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Comparative Insurance Year, as the case may be, which shall have elapsed prior to the first day of the month immediately following the rendition of such statement; and (iii) Tenant shall also pay to Landlord, as Additional Rent, commencing as of the first day of the month immediately following the rendition of such statement and on the first day of each month thereafter until a new statement is rendered an amount equal to 1/12th of the total Expense Payment for the preceding Comparative Year and/or 1/12th of the total Insurance Expense Payment for the preceding Comparative Insurance Year. The aforesaid monthly payments based on the total Expense Payment for the preceding Comparative Year or the total Insurance Expense Payment for the preceding Comparative Insurance Year, as the case may be, shall from time to time be adjusted to reflect, if Landlord can reasonably so estimate, known increases in rates or cost, for the current Comparative Year or the current Comparative Insurance Year, as the case may be, applicable to the categories involved in computing Expenses or Building Insurance Expenses, whenever such increases become known prior to or during such current Comparative Year or the current Comparative Insurance Year, as the case may be. The payments required to be made under (ii) and (iii) above shall be credited toward the Expense Payment or the Insurance Expense payment due from Tenant for the then current Comparative Year or the current Comparative Insurance Year, as the case may be, subject to adjustment as and when the statement for such current Comparative Year or the current Comparative Insurance Year is rendered by Landlord.

          50.07 The statements of the Expenses and the Building Insurance Expenses to be furnished by Landlord as provided above shall be certified by Landlord, and shall be prepared in reasonable detail and based on information and computations made for the Landlord by a Certified Public Accountant (who may be the CPA now or then employed by Landlord for the audit of its accounts): said Certified Public Accountant may rely on Landlord’s allocations and estimates wherever operating cost allocations or estimates are needed for this Article. The statements thus furnished to Tenant shall constitute a final determination as between Landlord and Tenant of the Expenses for the periods represented thereby, unless Tenant within thirty (30) days after they are furnished shall give notice to Landlord that it disputes their accuracy or their appropriateness, which notice shall specify the particular respects in which the statement is inaccurate or inappropriate or, in the event that such statement does not itemize or provide reasonable supporting documentation for the increase in such Expenses and Building Insurance Expenses, then such notice shall be accompanied by a statement from an independent, third party real estate professional with at least ten (10) years experience in commercial office leasing and/or management in midtown Manhattan, indicating with reasonable detail the basis for such dispute such as, for example, a comparison of those Expenses or Building Insurance Expenses to those of various other Buildings of comparable age, class and character in midtown Manhattan. Pending the resolution of any such dispute, Tenant shall pay the Additional Rent to Landlord in accordance with the statements furnished by Landlord.

          50.08 In no event shall the Fixed Annual Rent under this Lease be reduced by virtue of this Article.

          50.09 Landlord’s and Tenants obligation to make adjustments as provided for above in this Article shall survive any expiration or termination of this Lease.

          50.10 Any delay or failure of Landlord in billing any escalation hereinabove provided shall not constitute a waiver of or in way impair the continuing obligation of Tenant to pay such escalation hereunder.

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          IN WITNESS WHEREOF, the said Landlord, and the Tenant have duly executed this Lease as of the day and year first above written.

METROPOLITAN 919 THIRD AVENUE LLC
By:	/s/ Steven M. Durels
	Name:	Steven M. Durels
	Title:	Executive Vice President, Director of Leasing

Witness:

/s/ Monica Perez
Name:	Monica Perez
Title:	Admin. Asst.

NEW YORK MARINE AND GENERAL INSURANCE COMPANY
By:	/s/ A. George Kallop
	Name:	A. George Kallop
	Title:	Chief Executive Officer

Witness:

Name:  

Title:  

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ARTICLE 51

RULES AND REGULATIONS
MADE A PART OF THIS LEASE

          1. No animals, birds, bicycles or vehicles shall be brought into or kept in the Premises. The Premises shall not be used for manufacturing or commercial repairing or for sale or display of merchandise or as a lodging place, or for any immoral or illegal purpose, nor shall the Premises be used for a public stenographer or typist; barber or beauty shop; telephone, secretarial or messenger service; employment, travel or tourist agency; school or classroom; commercial document reproduction; or for any business other than specifically provided for in the Tenant’s lease. Tenant shall not cause or permit in the Premises any disturbing noises which may interfere with occupants of this or neighboring Buildings, any cooking or objectionable odors, or any nuisance of any kind, or any inflammable or explosive fluid, chemical or substance. Canvassing, soliciting and peddling in the Building are prohibited, and each tenant shall cooperate so as to prevent the same.

          2. The toilet rooms and other water apparatus shall not be used for any purposes other than those for which they were constructed, and no sweepings, rags, ink, chemicals or other unsuitable substances shall be thrown therein. Tenant shall not place anything out of doors, windows or skylights, or into hallways, stairways or elevators, nor place food or objects on outside window sills. Tenant shall not obstruct or cover the halls, stairways and elevators, or use them for any purpose other than ingress and egress to or from Tenant’s Premises, nor shall skylights, windows, doors and transoms that reflect or admit light into the Building be covered or obstructed in any way. All drapes and blinds installed by Tenant on any exterior window of the Premises shall conform in style and color to the Building standard.

          3. Tenant shall not place a load upon any floor of the Premises in excess of the load per square foot which such floor was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight and position of all safes, file cabinets and filing equipment in the Premises. Business machines and mechanical equipment shall be placed and maintained by Tenant, at Tenant’s expense, only with Landlord’s consent and in settings approved by Landlord to control weight, vibration, noise and annoyance. Smoking or carrying lighted cigars, pipes or cigarettes in the elevators of the Building is prohibited.

          4. Tenant shall not move any heavy or bulky materials into or out of the Building or make or receive large deliveries of goods, furnishings, equipment or other items without Landlord’s prior written consent, and then only during such hours and in such manner as Landlord shall approve and in accordance with Landlord’s rules and regulations pertaining thereto. If any material or equipment requires special handling, Tenant shall employ only persons holding a Master Rigger’s License to do such work, and all such work shall comply with all legal requirements. Landlord reserves the right to inspect all freight to be brought into the Building, and to exclude any freight which violates any rule, regulation or other provision of this Lease.

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          5. No sign, advertisement, notice or thing shall be inscribed, painted or affixed on any part of the Building, without the prior written consent of Landlord. Landlord may remove anything installed in violation of this provision, and Tenant shall pay the cost of such removal and any restoration costs. Interior signs on doors and directories shall be inscribed or affixed by Landlord at Tenant’s expense. Landlord shall control the color, size, style and location of all signs, advertisements and notices. No advertising of any kind by Tenant shall refer to the Building, unless first approved in writing by Landlord.

          6. No article shall be fastened to, or holes drilled or nails or screws driven into, the ceilings, walls, doors or other portions of the Premises, nor shall any part of the Premises be painted, papered or otherwise covered, or in any way marked or broken, without the prior written consent of Landlord.

          7. No existing locks shall be changed, nor shall any additional locks or bolts of any kind be placed upon any door or window by Tenant, without the prior written consent of Landlord. Two (2) sets of keys to all exterior and interior locks shall be furnished to Landlord . At the termination of this Lease, Tenant shall deliver to Landlord all keys for any portion of the Premises or Building. Before leaving the Premises at any time, Tenant shall close all windows and close and lock all doors.

          8. No Tenant shall purchase or obtain for use in the Premises any spring water, ice, towels, food, bootblacking, barbering or other such service furnished by any company or person not approved by Landlord. Any necessary exterminating work in the Premises shall be done at Tenant’s expense, at such times, in such manner and by such company as Landlord shall require. Landlord reserves the right to exclude from the Building, from 6:00 p.m. to 8:00 a.m., and at all hours on Sunday and legal holidays, all persons who do not present a pass to the Building signed by Landlord. Landlord will furnish passes to all persons reasonably designated by Tenant. Tenant shall be responsible for the acts of all persons to whom passes are issued at Tenant’s request.

          9. Whenever Tenant shall submit to Landlord any plan, agreement or other document for Landlord’s consent or approval, Tenant agrees to pay Landlord as Additional Rent, on demand, an administrative fee equal to the sum of the reasonable fees of any architect, engineer or attorney employed by Landlord to review said plan, agreement or document and Landlord’s administrative costs for same.

          10. The use in the Premises of auxiliary heating devices, such as portable electric heaters, heat lamps or other devices whose principal function at the time of operation is to produce space heating, is prohibited.

          11. Tenant shall keep all doors from the hallway to the Premises closed at all times except for use during ingress to and egress from the Premises. Tenant acknowledges that a violation of the terms of this paragraph may also constitute a violation of codes, rules or regulations of governmental authorities having or asserting jurisdiction over the Premises, and Tenant agrees to indemnify Landlord from any fines, penalties, claims, action or increase in fire insurance rates which might result from Tenant’s violation of the terms of this paragraph.

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          12. Tenant shall be permitted to maintain an “in-house” messenger or delivery service within the Premises, provided that Tenant shall require that any messengers in its employ affix identification to the breast pocket of their outer garment, which shall bear the following information: name of Tenant, name of employee and photograph of the employee. Messengers in Tenant’s employ shall display such identification at all time. In the event that Tenant or any agent, servant or employee of Tenant, violates the terms of this paragraph, Landlord shall be entitled to terminate Tenant’s permission to maintain within the Premises in-house messenger or delivery service upon written notice to Tenant.

          13. Tenant will be entitled to three (3) listings on the Building lobby directory board, without charge. Any additional directory listing (if space is available), or any change in a prior listing, with the exception of a deletion, will be subject to a fourteen ($14.00) dollar service charge, payable as Additional Rent.

          14. In case of any conflict or inconsistency between any provisions of this Lease and any of the rules and regulations as originally or as hereafter adopted, the provisions of this Lease shall control.

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EX-21.1

Exhibit 21.1

Subsidiaries of the Registrant

New York Marine And General Insurance Company

Gotham Insurance Company

Southwest Marine And General Insurance Company

MMO EU, Ltd.

Mutual Marine Office, Inc.

Pacific Mutual Marine Office, Inc.

Mutual Marine Office of the Midwest, Inc.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
NYMAGIC, INC.:

We consent to the incorporation by reference in the registration statements on Form S-3 (No. 333-106547) and in the related Prospectuses and on Forms S-8 (Nos. 33-88342, 333-103018 and 333-116091) of NYMAGIC, INC. of our reports dated March 12, 2008, with respect to the consolidated balance sheets of NYMAGIC, INC. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, shareholders’ equity and cash flows, for each of the years in the three-year period ended December 31, 2007, and all related financial statement schedules, and the effectiveness of internal control over financial reporting as of December 31, 2007, which reports appear in the December 31, 2007 annual report on Form 10-K of NYMAGIC, INC. and subsidiaries.

/s/ KPMG LLP  

New York, New York
March 14, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, A. George Kallop, certify that:

1.	I have reviewed this annual report on Form 10-K of NYMAGIC, INC.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 12, 2008	/s/ A. George Kallop
	A. George Kallop
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, Thomas J. Iacopelli certify that:

1.	I have reviewed this annual report on Form 10-K of NYMAGIC, INC.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 12, 2008	/s/ Thomas J. Iacopelli
	Thomas J. Iacopelli
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officer of NYMAGIC, INC. (the “Corporation”) hereby certifies that the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007, fully complies with the applicable reporting requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

March 12, 2008	/s/ A. George Kallop
	A. George Kallop
	President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officer of NYMAGIC, INC. (the “Corporation”) hereby certifies that the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007, fully complies with the applicable reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

March 12, 2008	/s/ Thomas J. Iacopelli
	Thomas J. Iacopelli
	Chief Financial Officer