NYM Nymagic, Inc.

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2010

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

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

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

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

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

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

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

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

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

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

 

 

FORWARD—LOOKING STATEMENTS

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

NYMAGIC, INC.
INDEX

		Page No.
Part I. Financial Information
Item 1. Financial Statements			2
Consolidated Balance Sheets — March 31, 2009 (Unaudited) and December 31, 2009			2
Consolidated Statements of Operations — Three months ended March 31, 2010 (Unaudited) and March 31, 2009			3
Consolidated Statements of Cash Flows — Three months ended March 31, 2010 (Unaudited) and March 31, 2009			4
Notes to Consolidated Financial Statements (Unaudited)			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures About Market Risk			30
Item 4. Controls and Procedures			30
Part II. Other Information
Item 1. Legal Proceedings			31
Item 1A. Risk Factors			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			31
Item 3. Defaults Upon Senior Securities			31
Item 4. Submission of Matters to a Vote of Security Holders			31
Item 5. Other Information			31
Item 6. Exhibits			32
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Item 1. Financial Statements

NYMAGIC, INC.

CONSOLIDATED BALANCE SHEETS

		March 31,				December 31,
		2010				2009
		(unaudited)
ASSETS
Investments:
Fixed maturities:
Held to maturity at amortized cost (fair value $56,505,313 and $59,327,813)		$	55,145,340			$	56,589,704
Available for sale at fair value (amortized cost $328,871,967 and $385,378,334)			328,588,469				386,519,408
Equity securities — available for sale at fair value (cost $117,968 and $117,968)			117,968				117,968
Commercial loans at fair value (amortized cost $6,083,738 and $7,738,677)			3,324,857				5,001,118
Limited partnerships at equity (cost $168,865,068 and $127,379,526)			197,375,017				151,891,838
Short-term investments			8,888,718				8,788,718
Cash and cash equivalents			68,791,421				66,755,909
Total cash and investments			662,231,790				675,664,663
Accrued investment income			1,507,605				3,365,535
Premiums and other receivables, net			34,675,333				24,753,976
Receivable for investments disposed			130,618				4,221,356
Reinsurance receivables on unpaid losses, net			190,456,678				205,077,080
Reinsurance receivables on paid losses, net			33,511,259				13,116,607
Deferred policy acquisition costs			20,915,250				16,438,088
Prepaid reinsurance premiums			19,748,443				19,643,170
Deferred income taxes			27,369,535				29,251,550
Property, improvements and equipment, net			14,250,778				14,602,141
Other assets			7,189,367				4,074,424
Total assets		$	1,011,986,656			$	1,010,208,590
LIABILITIES
Unpaid losses and loss adjustment expenses		$	530,583,692			$	555,485,502
Reserve for unearned premiums			105,990,771				89,458,244
Ceded reinsurance payable			15,433,360				13,580,535
Notes payable			100,000,000				100,000,000
Dividends payable			1,111,967				737,308
Other liabilities			35,926,144				34,937,369
Total liabilities			789,045,934				794,198,958
SHAREHOLDERS’ EQUITY
Common stock			15,825,490				15,796,465
Paid-in capital			52,831,825				51,699,572
Accumulated other comprehensive loss			(23,172,013	)			(22,977,781	)
Retained earnings			265,492,011				259,527,967
			310,977,313				304,046,223
Treasury stock, at cost, 7,333,977 shares			(88,036,591	)			(88,036,591	)
Total shareholders’ equity			222,940,722				216,009,632
Total liabilities and shareholders’ equity		$	1,011,986,656			$	1,010,208,590

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

NYMAGIC, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

		Three months ended March 31,
		2010				2009
Revenues:
Net premiums earned		$	43,705,367			$	40,129,597
Net investment income			7,045,198				6,551,912
Net realized investment gains (losses)			1,823,802				(416,698	)
Total other-than-temporary impairments			(300,199	)			—
Portion of loss recognized in OCI (before taxes)			—				—
Net impairment loss recognized in earnings			(300,199	)			—
Commission and other income			4,151				5,198
Total revenues			52,278,319				46,270,009
Expenses:
Net losses and loss adjustment expenses incurred			23,537,262				20,682,328
Policy acquisition expenses			10,232,641				9,296,480
General and administrative expenses			11,271,862				10,044,249
Interest expense			1,683,939				1,680,213
Total expenses			46,725,704				41,703,270
Income before income taxes			5,552,615				4,566,739
Income tax provision:
Current			(3,280,838	)			(786,715	)
Deferred			1,986,601				1,875,451
Total income tax (benefit) expense			(1,294,237	)			1,088,736
Net income		$	6,846,852			$	3,478,003
Weighted average number of shares of common stock outstanding-basic			8,472,555				8,411,121
Basic earnings per share		$	.81			$	.41
Weighted average number of shares of common stock outstanding-diluted			8,748,918				8,590,238
Diluted earnings per share		$	.78			$	.40
Dividends declared per share		$	.10			$	.04

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

NYMAGIC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

		Three months ended March 31,
		2010				2009
Cash flows (used in) provided by operating activities:
Net income		$	6,846,852			$	3,478,003
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for deferred taxes			1,986,601				1,875,450
Net realized investment (gain) loss			(1,823,802	)			416,698
Net impairment loss recognized in earnings			300,199				—
Equity in (earnings) loss of limited partnerships			(4,175,564	)			(1,212,026	)
Net amortization from bonds and commercial loans			(42,467	)			80,034
Depreciation and other, net			209,543				293,149
Trading portfolio activities			—				15,974,640
Commercial loan activities			1,688,243				107,619
Changes in:
Premiums and other receivables			(9,921,357	)			(11,161,023	)
Reinsurance receivables paid and unpaid, net			(5,774,250	)			4,131,749
Ceded reinsurance payable			1,852,825				3,488,531
Accrued investment income			1,857,930				2,323,640
Deferred policy acquisition costs			(4,477,162	)			(3,814,805	)
Prepaid reinsurance premiums			(105,273	)			(3,129,611	)
Other assets			(3,114,943	)			(997,649	)
Unpaid losses and loss adjustment expenses			(24,901,810	)			3,699,573
Reserve for unearned premiums			16,532,527				16,014,989
Other liabilities			988,775				763,785
Total adjustments			(28,919,985	)			28,854,743
Net cash (used in) provided by operating activities			(22,073,133	)			32,332,746
Cash flows provided by (used in) investing activities:
Held to maturity fixed maturities matured, repaid and redeemed			2,591,989				1,428,122
Available for sale fixed maturities acquired			(345,751,245	)			(152,809,442	)
Available for sale fixed maturities sold			403,789,832				95,147,313
Capital contributed to limited partnerships			(44,323,966	)			—
Distributions and redemptions from limited partnerships			3,016,348				10,486,447
Net purchase of short-term investments			(100,000	)			(35,669,356	)
Receivable for investments disposed and not yet settled			4,090,738				15,171,004
Acquisition of property & equipment, net			141,820				(1,306,254	)
Net cash provided by (used in) investing activities			23,455,516				(67,552,166	)
Cash flows provided by (used in) from financing activities:
Proceeds from stock issuance and other			1,161,278				450,230
Cash dividends paid to stockholders			(508,149	)			(671,059	)
Net cash provided by (used in) financing activities			653,129				(220,829	)
Net increase (decrease) in cash			2,035,512				(35,440,249	)
Cash and cash equivalents at beginning of period			66,755,909				75,672,102
Cash and cash equivalents at end of period		$	68,791,421			$	40,231,853
Supplemental disclosures:
Interest paid		$	3,250,000			$	3,250,031
Net federal income tax paid		$	894,958			$	—

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

(1) Basis of Presentation and Accounting Policies

Basis of presentation

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

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

Adoption of new accounting pronouncements

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

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

Future adoption of new accounting pronouncements

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

(2) Investments:

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

		March 31, 2010				Percent				December 31, 2009				Percent
Fixed maturities held to maturity (amortized cost):
Residential mortgage-backed securities		$	55,145,340				8.33	%		$	56,589,704				8.37	%
Total fixed maturities held to maturity		$	55,145,340				8.33	%		$	56,589,704				8.37	%
Fixed maturities available for sale (fair value):
U.S. Treasury securities		$	327,770,212				49.50	%		$	385,715,035				57.09	%
Municipal obligations			818,257				0.12	%			804,373				0.12	%
Total fixed maturities available for sale		$	328,588,469				49.62	%		$	386,519,408				57.21	%
Total fixed maturities		$	383,733,809				57.95	%		$	443,109,112				65.58	%
Equity securities trading (fair value):
Common stock		$	117,968				0.02	%		$	117,968				0.02	%
Total equity securities		$	117,968				0.02	%		$	117,968				0.02	%
Cash, cash equivalents and short-term investments			77,680,139				11.73	%			75,544,627				11.18	%
Total fixed maturities, equity securities, cash, cash equivalents and short-term investments		$	461,531,916				69.70	%		$	518,771,707				76.78	%
Commercial loans (fair value)			3,324,857				0.50	%			5,001,118				0.74	%
Limited partnership hedge funds (equity)			197,375,017				29.80	%			151,891,838				22.48	%
Total investment portfolio		$	662,231,790				100.00	%		$	675,664,663				100.00	%

As of March 31, 2010, 90.5% of the carrying value of the Company’s fixed income and short-term investment portfolios were considered investment grade by S&P.

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

Details of the residential mortgage-backed securities portfolio as of March 31, 2010, including publicly available qualitative information, are presented below:

														Weighted
														Average				Average
														Loan to				FICO				D60+				Credit				S&P				Moody’s
Security														Value %				Credit				Delinquency				Support				Rating				Rating
description		Issue date				Amortized cost				Fair value				(1)				Score (2)				Rate (3)				Level (4)				(5)				(5)
AHMA 2006-3			7/2006			$	10,858,563			$	9,761,310				85.0				705				37.8				38.5			AA				Caa1
CWALT 2005-69			11/2005				7,009,470				6,547,764				81.3				698				52.6				48.2			CCC				Ba3
CWALT 2005-76			12/2005				6,892,460				6,709,498				81.9				700				54.7				48.7			CCC				B2
RALI 2005-QO3			10/2005				7,362,919				6,206,361				80.6				703				46.7				42.4			B-				B1
WaMu 2005-AR17			12/2005				6,022,377				6,931,329				73.6				715				30.0				50.0			AAA				A1
WaMu 2006-AR9			7/2006				8,296,483				10,065,532				74.5				731				32.6				23.9			B				Ba1
WaMu 2006-AR13			9/2006				8,703,068				10,283,519				75.6				728				33.4				24.8			CCC				B3
						$	55,145,340			$	56,505,313

The Company’s cash flow analysis for each of these securities attempts to estimate the likelihood of any future impairment. While the Company does not believe there are any OTTI currently, future estimates may change depending upon the actual performance statistics reported for each security to the Company. This may result in future charges based upon revised estimates for delinquency rates, severity rates or prepayment patterns. These changes in estimates may be material. These securities are collateralized by pools of “Alt-A” mortgages, and receive priority payments from these pools. The Company’s securities rank senior to subordinated tranches of debt collateralized by each respective pool of mortgages. The Company has collected all applicable interest and principal repayments on such securities to date. As of April 25, 2010, the levels of subordination ranged from 24% to 50% of the total debt outstanding for each pool. Delinquencies within the underlying mortgage pools ranged from 30% to 55% of total amounts outstanding. For comparison purposes, as of April 25, 2009, delinquencies ranged from 22% to 45%, while subordination levels ranged from 27% to 52%. Delinquency rates are not the same as severity rates, or actual loss, but are an indication of the potential for losses of some degree in future periods.

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

As of March 31, 2010, there was variance in RMBS securities prices from different pricing sources. Management also determined that the few trades of RMBS were not consistent with the prices received and analysis performed at quarter end. This confirmed management’s previously established view that the market is dislocated and illiquid. Accordingly, the Company determined fair value using a matrix pricing analysis.

The Company used a weighted pricing matrix to determine fair value. The pricing matrix was based on risk profile and qualitative and quantitative data for similar vintage RMBS that had recently established prices. The securities were evaluated in each of the following 10 categories: super senior, sector, collateral, current S&P rating, current credit support, 3 month conditional default rate, 3 month voluntary prepayment, 1 month loss severity, 60+ delinquencies, and FICO score. The price for each RMBS was based upon the prices of those RMBS securities that had the most similar underlying characteristics to the Company’s RMBS portfolio.

There are government sponsored programs that may affect the performance of the Company’s RMBS. The Company is uncertain as to the impact, if any, these programs will have on the fair value of the Company’s RMBS. The fair value of such securities at March 31, 2010 was approximately $56.5 million.

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

		March 31, 2010
						OTTI				Amortized				Gross				Gross
		Amortized				Recognized				Cost after				Unrealized				Unrealized				Fair
		Cost				In OCI (a)				OTTI				Gains				Losses				Value
RMBS		$	90,511,091			$	(35,365,751	)		$	55,145,340			$	4,258,452			$	(2,898,479	)		$	56,505,313
U.S. Treasury securities available for sale			328,131,622				—				328,131,622				262,219				(623,630	)			327,770,212
Municipal obligations available for sale			740,345				—				740,345				77,913				—				818,257
Totals		$	419,383,058			$	(35,365,751	)		$	384,017,307			$	4,598,584			$	(3,522,109	)		$	385,093,782

		December 31, 2009
						OTTI				Amortized				Gross				Gross
		Amortized				Recognized				Cost after				Unrealized				Unrealized				Fair
		Cost				In OCI (a)				OTTI				Gains				Losses				Value
RMBS		$	93,081,210			$	(36,491,506	)		$	56,589,704			$	5,077,950			$	(2,339,841	)		$	59,327,813
U.S. Treasury securities available for sale			384,638,048				—				384,638,048				1,317,809				(240,822	)			385,715,035
Municipal obligations available for sale			740,286				—				740,286				64,087				—				804,373
Totals		$	478,459,544			$	(36,491,506	)		$	441,968,038			$	6,459,846			$	(2,580,663	)		$	445,847,221

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

		(in millions)
		Three months ended March 31,
		2010				2009
Fixed maturities held to maturity		$	0.3			$	0.6
Fixed maturities available for sale			2.5				2.0
Trading securities			—				3.1
Commercial loans			0.1				0.1
Equity in earnings of limited partnerships			4.7				1.2
Short-term investments			—				0.2
Total investment income			7.6				7.2
Investment expenses			(0.6	)			(0.6	)
Net investment income		$	7.0			$	6.6

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

		(in millions)
		Three months ended March 31,
		2010				2009
Interest and dividends earned		$	0.1			$	0.5
Net realized losses			—				(0.3	)
Net unrealized depreciation			—				3.0
Total investment income from commercial loans and trading activities		$	0.1			$	3.2

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

		2010
		Less than 12 months								12 months or longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Loss				Value				Loss (1)				Value				Loss (1)
Residential mortgage-backed securities held to maturity		$	—			$	—			$	56,505,313			$	(34,005,778	)		$	56,505,313			$	(34,005,778	)
U.S. Treasury Securities			178,013,705				(623,630	)			—				—				178,013,705				(623,630	)
Total temporarily impaired securities		$	178,013,705				(623,630	)		$	56,505,313			$	(34,005,778	)		$	234,519,018			$	(34,629,408	)

		2009
		Less than 12 months								12 months or longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Loss				Value				Loss (1)				Value				Loss (1)
Residential mortgage-backed securities held to maturity		$	—			$	—			$	59,327,813			$	(33,753,397	)		$	59,327,813			$	(33,753,397	)
U.S. Treasury Securities			198,588,058				(240,822	)			—				—				198,588,058				(240,822	)
Total temporarily impaired securities		$	198,588,058				(240,822	)		$	59,327,813			$	(33,753,397	)		$	257,915,871			$	(33,994,219	)

At March 31, 2010, the Company was holding eight 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. The Company does not intend to sell nor does it expect to be required to sell the securities outlined above.

The amortized cost and fair value of debt securities that are not included in the Company’s Commercial Loans portfolio at March 31, 2010 are shown below by contractual maturity. Expected maturities will differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Amortized				Fair
		Cost				Value
Due in one year or less		$	6,377,768			$	6,513,985
Due after one year through five years			125,625,295				125,750,027
Due after five years through ten years			481,619				528,495
Due after ten years			196,387,285				195,795,962
Subtotal			328,871,967				328,588,469
Residential mortgage-backed securities			55,145,340				56,505,313
Totals		$	384,017,307			$	385,093,782

The components for net realized gains (losses) for the three months ended March 31, 2010 and 2009 are as follows:

		Three months ended March 31,
		2010				2009
Realized gains (losses) on investments before impairments:
Fixed maturities gains		$	1,840,671			$	1,331,388
Fixed maturities losses			(16,869	)			(1,610,475	)
Short-term investments			—				(137,611	)
Net realized investment gains (losses) before impairments			1,823,802				(416,698	)
Fixed maturities impairments			(300,199	)			—
Net realized investment gains (losses) after impairments		$	1,523,603			$	(416,698	)

Proceeds from redemptions in investments held to maturity or disposals of fixed income investments available for sale for the three months ended March 31, 2010 and 2009 were $406,381,821 and $96,575,435, respectively.

The OTTI of $300,199 recognized for the three months ended March 31, 2010 resulted from the Company’s intention to sell certain U.S. Treasury securities under circumstances in which those securities are not expected to recover their entire amortized cost prior to sale.

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

The following table lists the financial guarantors, as well as the average S&P ratings and the average underlying S&P ratings, excluding the impact of credit enhancement, of the guaranteed municipal bonds in our investment portfolio in which there are a total of two municipal securities with a fair value of approximately $818,000 containing credit enhancements. The Company does not have any investments directly in the following financial guarantors.

Fair

Average

Average

Value

S&P

Underlying

Financial Guarantors

(in millions)

Rating

Rating

Financial Guaranty Insurance Company

0.3

AAA

AAA

Assured Guaranty Municipal Corporation

0.5

AAA

BBB-

Total

$

0.8

(3) Fair Value Measurements:

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

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

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

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

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

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

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

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

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

The primary pricing sources for the Company’s commercial loan and common stock portfolios are reviewed for reasonableness, based on the Company’s understanding of the respective market. Prices may then be determined using valuation methodologies such as discounted cash flow models, as well as matrix pricing analyses performed on non-binding quotes from brokers or other market-makers. As of March 31, 2010, the Company did not utilize an alternate valuation methodology for its commercial loan or common stock portfolios.

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

		Level 1:
		Quoted
		Prices in				Level 2:
		Active				Significant				Level 3:
		Markets for				Other				Significant				Total at
		Identical				Observable				Unobservable				March 31,
		Assets				Inputs				Inputs				2010
Fixed maturities available for sale		$	327,770,212			$	818,257			$	—			$	328,588,469
Commercial loans			—				—				3,324,857				3,324,857
Common stock			—				—				117,968				117,968
Total		$	327,770,212			$	818,257			$	3,442,825			$	332,031,294

The investments classified as Level 3 in the above table consist of commercial loans, for which the Company has determined that quoted market prices of similar investments are not determinative of fair value. Since the broker quotes do not reflect current market information from actual transactions, the Company has elected to deviate from quoted prices using a matrix pricing analysis. The following table presents a reconciliation of the beginning and ending balances for all investments measured at fair value using Level 3 inputs during the three months ended March 31, 2010.

		Three months ended March 31, 2010
		Commercial				Common
		Loans				Stocks				Total
Beginning balance		$	5,001,118			$	117,968			$	5,119,086
Total gains or losses (realized/unrealized):
Included in earnings (or changes in net assets)			4,454				—				4,454
Included in other comprehensive income			—				—				—
Purchases, sales, maturities, repayments, redemptions and amortization			(1,680,715	)			—				(1,680,715	)
Transfers from Level 3			—				—				—
Transfers to Level 3			—				—				—
Ending balance		$	3,324,857			$	117,968			$	3,442,825

Management believes that the use of the fair value option to record commercial loan purchases is consistent with its objective for such investments. As such, the entire commercial loan portfolio, consisting of three securities, of $3.3 million at March 31, 2010 was recorded at fair value. All loans are current with respect to interest payments. The Company also has two small common stock positions at March 31, 2010, which were recorded at cost as management deems it an approximation of fair value.

(4) Income Taxes:

The Company files tax returns subject to the tax regulations of federal, state and local tax authorities. A tax benefit taken in the tax return but not in the financial statements is known as an “unrecognized tax benefit.” The Company had no unrecognized tax benefits at either March 31, 2010 or March 31, 2009. The Company’s policy is to record interest and penalties related to unrecognized tax benefits to income tax expense. The Company did not incur any interest or penalties related to unrecognized tax benefits for each of the three months ended March 31, 2010 and March 31, 2009.

At March 31, 2010, state net operating losses that can be carried forward are $12,166,751 and realized capital losses that can be carried forward are $12,339,197. The range of years in which the state NOL carryforwards, which are primarily in the State of New York, can be carried forward against future tax liabilities is from 2010 to 2029. The range of years in which the federal capital loss carryforwards can be carried forward is from 2010 to 2014. The estimate for capital losses may differ from the actual amount ultimately filed in the Company’s tax return.

As of March 31, 2010, the Company has recorded a valuation allowance of $8,078,395 with respect to the uncertainty in the realization of capital loss carryforwards. The Company considered various tax planning strategies to support the recoverability of existing deferred income taxes for capital loss carryforwards. This included an analysis of the timing and availability of unrealized positions in the fixed income maturity portfolio. The Company recorded tax benefits of $3,240,915 for the three months ended March 31, 2010, primarily as a result of the reversal of the deferred tax valuation allowance previously provided for capital losses that are now considered ordinary. There were no tax benefits recorded from the reversal of the deferred tax valuation during the first quarter of 2009. Management believes the deferred tax asset, net of the recorded valuation allowance account, as of December 31, 2009 will more-likely-than-not be fully realized.

(5) Comprehensive Income

The Company’s comparative comprehensive income is as follows:

		Three months ended March 31,
		2010				2009
		(in thousands)
Net income		$	6,847			$	3,478
Other comprehensive (loss) income, net of deferred taxes:
Unrealized holding gains on securities, net of deferred tax (benefit) expense of $(2,161) and $1,733			2,260				3,219
Accretion of noncredit portion of impairment on held-to-maturity, net of deferred tax expense of $394 and $0			732				—
Less : reclassification adjustment for gains (losses) realized in net income, net of tax benefit of $(1,663) and $(146)			3,486				(271	)
Less : reclassification adjustment for impairment (losses) recognized in net income, net of tax (benefit) of $0 and $0			(300	)			—
Other comprehensive (loss) income			(194	)			3,490
Comprehensive income		$	6,653			$	6,968

(6) Common Stock Repurchase Plan:

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

(7) Earnings per share:

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

		Three months ended March 31,
		2010												2009
						Weighted												Weighted
						Average												Average
		Net				Shares								Net				Shares
		Income				Outstanding				Per				Income				Outstanding				Per
		(Numerator)				(Denominator)				Share				(Numerator)				(Denominator)				Share
		(In thousands, except for per share data)
Basic EPS		$	6,847				8,428			$	.81			$	3,478				8,411			$	.41
Effect of dilutive securities:
Equity awards and purchased options			—				321			$	(.03	)			—				179			$	(.01	)
Diluted EPS		$	6,847				8,749			$	.78			$	3,478				8,590			$	.40

(8) Incentive Compensation:

Share-based Plans:

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

The Company has established three share-based incentive compensation plans (the “Plans”), which are described below. Management believes that the Plans provide a means whereby the Company may attract and retain persons of ability to exert their best efforts on behalf of the Company. The Plans generally allow for the issuance of grants and exercises through newly issued shares, treasury stock, or any combination thereof to officers, key employees and directors who are employed by, or provide services to the Company. The compensation cost that has been charged against income for the Plans was approximately $1,153,000 and $710,000 for the three months ended March 31, 2010 and 2009, respectively. The approximate total income tax benefit accrued and recognized in the Company’s financial statements for the three months ended March 31, 2010 and 2009 related to share-based compensation expenses was approximately $304,000 and $248,000, respectively.

1991 and 2002 Stock Option Plans

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

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

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

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

		March 31, 2010				March 31, 2009
Expected volatility			N/A				58.4	%
Expected dividends			N/A				1.62	%
Expected term (in years)			N/A				3
Risk-free rate			N/A				1.34	%

The Company did not grant any stock option awards through the Option Plans during the quarter ended March 31, 2010. The weighted-average grant-date fair value of options granted during the first quarter 2010 and 2009 was $0 and $2.5 per share, respectively. There was $171,472 of unrecognized compensation cost related to unvested options awarded pursuant to the Option Plans as of March 31, 2010, which will be recognized over the remaining weighted-average vesting period of approximately 2.7 years. The total intrinsic value of options exercised during the quarter ended March 31, 2010 was approximately $9,551. As of March 31, 2010, the aggregate intrinsic value was $1,724,062 for both options outstanding and vested and exercisable.

The following table sets forth stock option activity for the Option Plans for the three months ended March 31, 2010 and 2009:

		March 31, 2010								March 31, 2009
						Weighted								Weighted
						Average								Average
						Exercise								Exercise
		Number of				Price				Number of				Price
Shares Under Option		Shares				Per Share				Shares				Per Share
Outstanding, beginning of year			314,950			$	15.76				185,950			$	16.48
Granted			—			$	—				100,000			$	15.00
Exercised			(2,500	)		$	14.47				—			$	—
Forfeited			—			$	—				—				—
Outstanding, end of period			312,450			$	15.88				285,950			$	15.96
Exercisable, end of period			259,950			$	15.72				168,450			$	51.83

The weighted-average remaining contractual term as of March 31, 2010 for options outstanding and options vested and exercisable was approximately 3.2 and 2.5 years, respectively. For the three months ended March 31, 2010 and March 31, 2009, the Company received approximately $36,000 and $0, respectively, in cash for the exercise of stock options granted under the Option Plans.

2004 Long-Term Incentive Plan

RSUs, as well as restricted shares, become vested and convertible into shares of common stock when the restrictions applicable to them lapse. In accordance with ASC 718, the fair value of nonvested shares is estimated on the date of grant based on the market price of the Company’s stock and is amortized to compensation expense on a straight-line basis over the related vesting periods. As of March 31, 2010, there was $2,997,520 of unrecognized compensation cost related to RSUs, which is expected to be recognized over a remaining weighted-average vesting period of approximately two years. The total fair value of RSUs vested and converted to shares of common stock during the three months ended March 31, 2010 and 2009 was $158,650 and $99,145, respectively.

The Company has settled annual Board of Directors fees, in part, through the issuance of DSUs. DSUs are vested immediately and are converted into shares of the Company’s common stock upon the departure of the grantee director. For the three months ended March 31, 2010, fees of $456,200, have been settled by the grant of 27,498 DSUs.

The following table sets forth activity for the LTIP as it relates to RSUs and DSUs for the three months ended March 31, 2010 and 2009:

		March 31, 2010								March 31, 2009
						Weighted								Weighted
						Average								Average
						Grant								Grant
						Date Fair								Date Fair
		Number of				Value				Number of				Value
RSUs and DSUs		Shares				Per Share				Shares				Per Share
Nonvested, beginning of year			113,292			$	24.49				136,900			$	27.14
Granted			123,523			$	17.78				8,000			$	19.05
Vested			(49,012	)		$	18.56				(8,500	)		$	23.13
Forfeited			(4,000	)		$	40.15				—				—
Nonvested, end of period			183,803			$	21.22				136,400			$	26.92

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

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 the quarters ended March 31, 2010 and 2009.

Executive Compensation Agreements:

On March 11, 2010, A. George Kallop, our President and Chief Executive Officer, announced his intention to retire from the Company, effective April 2, 2010, and on March 12, 2010, the Board of Directors appointed George R. Trumbull as Senior Executive Vice President of the Company. In addition, the Board resolved that Mr. Trumbull would become the President and Chief Executive Officer of the Company upon the effective time of Mr. Kallop’s resignation on April 2, 2010. Also on March 12, 2010 the Company entered into a new employment agreement with Mr. Trumbull (the “Trumbull Employment Agreement”). The Trumbull Employment Agreement, which merges into it the services Mr. Trumbull performed under a previous consulting agreement between the Company and Mr. Trumbull, entered into May 21, 2008, and ratifies the option award granted to Mr. Trumbull under it, commenced on March 12, 2010 and will continue until terminated. Mr. Trumbull will be paid $42,000 per month (the “Cash Compensation”) during the period which the Trumbull Employment Agreement is in effect. In addition, in accordance with the terms of the Trumbull Employment Agreement, on March 12, 2010, Mr. Trumbull was granted 20,000 restricted share units under the Company’s Amended and Restated 2004 Long-Term Incentive Plan, which will vest on the first anniversary of the grant date. Mr. Trumbull may elect to defer receipt of these units as provided in the Trumbull Employment Agreement. The Trumbull Employment Agreement may be terminated by the Company for any reason, with or without cause. In the event Mr. Trumbull’s engagement with the Company pursuant to the Trumbull Employment Agreement is terminated for any reason, Mr. Trumbull shall be entitled to his Cash Compensation through the date of such termination, and he is also eligible for a cash bonus at the sole discretion of the Human Resources Committee of the Board of Directors as well as the elimination of any restrictions on any restricted share unit grant or deferred stock awards outstanding at the time of his termination at the sole discretion of the Board of Directors. During the term of the Trumbull Employment Agreement and after its termination, Mr. Trumbull will be subject to certain confidentiality and non-solicitation provisions.

(9) Nature of Business and Segment Information:

The Company’s subsidiaries include three insurance companies and three insurance agencies. These subsidiaries underwrite commercial insurance in three major lines of business. The Company considers ocean marine, inland marine/fire and other liability as appropriate segments for purposes of evaluating the Company’s overall performance. A final segment includes the aircraft business. The Company ceased writing any new policies covering common carrier aircraft risks subsequent to March 31, 2002, although in October 2009 it began to write policies on small, non-common carrier aircraft. The Company evaluates revenues and income or loss by the aforementioned segments. Revenues include premiums earned and commission income. Income or loss includes premiums earned and commission income less the sum of losses incurred and policy acquisition costs.

The financial information by segment is as follows:

		Three months ended March 31,
		2010								2009
		(in thousands)
						Income								Income
		Revenues				(Loss)				Revenues				(Loss)
Ocean marine		$	12,385			$	7,764			$	13,289			$	7,024
Inland marine/fire			2,015				518				1,182				104
Other liability			29,277				1,390				25,686				2,762
Aircraft			28				264				(27	)			261
Subtotal			43,705				9,936				40,130				10,151
Net investment income			7,045				7,045				6,552				6,552
Net realized investment gains			1,824				1,824				(417	)			(417	)
Total other-than-temporary impairments			(300	)			(300	)			—				—
Portion of loss recognized in OCI (before taxes)			—				—				—				—
Net impairment loss recognized in earnings			(300	)			(300	)			—				—
Other income			4				4				5				5
General and administrative expenses			—				(11,272	)			—				(10,044	)
Interest expense			—				(1,684	)			—				(1,680	)
Income tax (expense) benefit			—				1,294				—				(1,089	)
Total		$	52,278			$	6,847			$	46,270			$	3,478