ptp10q_sep09.htm
 


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2009
   
 
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: 001-31341

Platinum Underwriters Holdings, Ltd.
(Exact name of registrant as specified in its charter)

Bermuda
 
98-0416483
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

The Belvedere Building
69 Pitts Bay Road
Pembroke, Bermuda
 
HM 08
(Address of principal executive offices)
 
(Zip Code)

(441) 295-7195
(Registrant's telephone number, including area code)

Not Applicable
(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 X   No ___

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 ___ No ___

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

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

The registrant had 49,826,544 common shares, par value $0.01 per share, outstanding as of October 15, 2009.


 
 

 
 
PLATINUM UNDERWRITERS HOLDINGS, LTD.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2009

TABLE OF CONTENTS
   
Page
     
PART I  –  FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements
 
     
 
Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008
1
 
Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2009 and 2008 (Unaudited)
2
 
Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2009 and 2008 (Unaudited)
3
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 (Unaudited)
4
 
Notes to the Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2009 and 2008 (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
35
Item 4.
Controls and Procedures
36
     
PART II  –  OTHER INFORMATION
 
     
Item 6.
Exhibits
36
     
SIGNATURES
37

 
 

 

PART I - FINANCIAL INFORMATION
 
 
ITEM 1.
FINANCIAL STATEMENTS
 
Platinum Underwriters Holdings, Ltd. and Subsidiaries
Consolidated Balance Sheets
($ in thousands, except share data)
 
     (Unaudited)        
   
September 30,
2009
   
December 31, 2008
 
ASSETS
           
Investments:
           
Fixed maturity available-for-sale securities at fair value (amortized cost – $3,694,116 and $3,267,571, respectively)
  $ 3,662,144     $ 3,063,804  
Fixed maturity trading securities at fair value (amortized cost – $273,433 and $296,837, respectively)
    287,942       305,237  
Preferred stocks (cost – $1,879 and $3,087, respectively)
    3,534       2,845  
Short-term investments
    47,888       75,036  
Total investments
    4,001,508       3,446,922  
Cash and cash equivalents
    412,283       813,017  
Accrued investment income
    32,646       29,041  
Reinsurance premiums receivable
    272,489       307,539  
Reinsurance recoverable on ceded losses and loss adjustment expenses
    17,967       12,413  
Prepaid reinsurance premiums
    13,204       10,897  
Funds held by ceding companies
    85,211       136,278  
Deferred acquisition costs
    45,581       50,719  
Income tax recoverable
    5,693       11,973  
Deferred tax assets
    52,805       71,444  
Other assets
    218,235       36,920  
Total assets
  $ 5,157,622     $ 4,927,163  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Liabilities
               
Unpaid losses and loss adjustment expenses
  $ 2,373,151     $ 2,463,506  
Unearned premiums
    209,951       218,890  
Debt obligations
    250,000       250,000  
Ceded premiums payable
    13,077       2,918  
Commissions payable
    93,013       125,551  
Other liabilities
    48,365       56,901  
Total liabilities
    2,987,557       3,117,766  
                 
Shareholders’ Equity
               
Preferred shares, $.01 par value, 25,000,000 shares authorized, none and 5,750,000 shares issued and outstanding, respectively
          57  
Common shares, $.01 par value, 200,000,000 shares authorized, 49,826,544 and 47,482,161 shares issued and outstanding, respectively
    498       475  
Additional paid-in capital
    1,025,939       1,114,135  
Accumulated other comprehensive loss
    (33,279 )     (188,987 )
Retained earnings
    1,176,907       883,717  
Total shareholders' equity
    2,170,065       1,809,397  
                 
Total liabilities and shareholders' equity
  $ 5,157,622     $ 4,927,163  

 
See accompanying Notes to the Consolidated Financial Statements.
 
 
- 1 -

 
 
Platinum Underwriters Holdings, Ltd. and Subsidiaries
Consolidated Statements of Operations (Unaudited) and
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
For the Three and Nine Months Ended September 30, 2009 and 2008
($ in thousands, except per share data)
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Revenue:
                       
Net premiums earned
  $ 229,538       280,725       709,752     $ 840,558  
Net investment income
    44,747       48,043       123,070       144,037  
Net realized gains (losses) on investments
    22,553       (71 )     53,917       (3,267 )
Total other-than-temporary impairment losses
    (15,398 )     (13,096 )     (29,052 )     (13,096 )
Portion of impairment losses recognized in accumulated other comprehensive loss
    10,323             17,313        
Net impairment losses on investments
    (5,075 )     (13,096 )     (11,739 )     (13,096 )
Other income (expense)
    (1,222 )     (88 )     4,222       533  
Total revenue
    290,541       315,513       879,222       968,765  
                                 
Expenses:
                               
Net losses and loss adjustment expenses
    99,240       270,863       368,349       524,458  
Net acquisition expenses
    50,009       56,320       128,503       182,999  
Net changes in fair value of derivatives
    4,305       6,645       6,828       8,415  
Operating expenses
    25,210       21,153       68,984       67,943  
Net foreign currency exchange losses (gains)
    (616 )     6,134       (157 )     3,263  
Interest expense
    4,757       4,752       14,268       14,253  
Total expenses
    182,905       365,867       586,775       801,331  
                                 
Income (loss) before income tax expense (benefit)
    107,636       (50,354 )     292,447       167,434  
Income tax expense (benefit)
    (1,832 )     (5,014 )     (73 )     5,246  
                                 
Net income (loss)
    109,468       (45,340 )     292,520       162,188  
Preferred dividends
          2,602       1,301       7,806  
                                 
Net income (loss) attributable to common shareholders
  $ 109,468       (47,942 )     291,219     $ 154,382  
                                 
Earnings per share:
                               
Basic earnings (loss) per share
  $ 2.20       (0.99 )     5.83     $ 3.09  
Diluted earnings (loss) per share
  $ 2.10       (0.99 )     5.57     $ 2.81  
                                 
Comprehensive income (loss):
                               
Net income (loss)
  $ 109,468       (45,340 )     292,520     $ 162,188  
Other comprehensive income (loss) – net change in unrealized gains and losses on available-for-sale securities, net of deferred taxes
    106,570       (102,921 )     169,952       (145,918 )
Comprehensive income (loss)
  $ 216,038       (148,261 )     462,472     $ 16,270  
                                 
Shareholder dividends:
                               
Preferred shareholder dividends declared
  $       2,602       2,602     $ 7,806  
Dividends declared per preferred share
          0.45       0.45       1.36  
Common shareholder dividends declared
    3,985       3,842       12,273       11,972  
Dividends declared per common share
  $ 0.08       0.08       0.24     $ 0.24  

 
See accompanying Notes to the Consolidated Financial Statements.
 
 
- 2 -

 
 
Platinum Underwriters Holdings, Ltd. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
For the Nine Months Ended September 30, 2009 and 2008
($ in thousands)
   
2009
   
2008
 
             
Preferred shares:
           
Balances at beginning of period
  $ 57     $ 57  
Conversion of preferred shares
    (57 )      
Balances at end of period
          57  
                 
Common shares:
               
Balances at beginning of period
    475       538  
Issuance of common shares
          3  
Purchase of common shares
    (37 )     (75 )
Settlement of equity awards
    2        
Conversion of preferred shares
    57        
Exercise of common share options
    1       11  
Balances at end of period
    498       477  
                 
Additional paid-in capital:
               
Balances at beginning of period
    1,114,135       1,338,466  
Issuance of common shares
    246       1,693  
Purchase of common shares
    (101,346 )     (260,323 )
Share based compensation
    11,175       10,303  
Settlement of equity awards
    (1,126 )     (999 )
Exercise of common share options
    2,855       25,885  
Tax benefit of share options
          1,025  
Balances at end of period
    1,025,939       1,116,050  
                 
Accumulated other comprehensive loss:
               
Balances at beginning of period
    (188,987 )     (24,339 )
Cumulative effect of accounting change, net of deferred tax
    (14,244 )      
Noncredit component of impairment losses on available-for-sale securities, net of deferred tax
    (14,870 )      
Net change in unrealized gains and losses on available-for-sale securities, net of deferred tax
    184,822       (145,918 )
Balances at end of period
    (33,279 )     (170,257 )
                 
Retained earnings:
               
Balances at beginning of period
    883,717       683,655  
Cumulative effect of accounting change, net of deferred tax
    14,244        
Net income
    292,520       162,188  
Preferred share dividends
    (1,301 )     (7,806 )
Common share dividends
    (12,273 )     (11,972 )
Balances at end of period
    1,176,907       826,065  
                 
Total shareholders’ equity
  $ 2,170,065     $ 1,772,392  

 
See accompanying Notes to the Consolidated Financial Statements.
 
 
- 3 -

 
 
Platinum Underwriters Holdings, Ltd. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2009 and 2008
($ in thousands)
 
   
2009
   
2008
 
             
Operating Activities:
           
Net income
  $ 292,520     $ 162,188  
Adjustments to reconcile net income to cash used in operations:
               
Depreciation and amortization
    13,576       5,810  
Net realized (gains) losses on investments
    (53,917 )     5,257  
Net impairment losses on investments
    11,739       13,096  
Net foreign currency exchange (gains) losses
    ( 157 )     3,263  
Share based compensation
    11,175       10,303  
Deferred income tax expense
    (205 )     (9,938 )
Trading securities activities, net
    208,318       5,639  
Changes in assets and liabilities:
               
(Increase) decrease in accrued investment income
    (3,604 )     3,764  
(Increase) decrease in reinsurance premiums receivable
    32,746       (53,657 )
Decrease in funds held by ceding companies
    51,067       19,134  
Decrease in deferred acquisition costs
    5,277       11,777  
Decrease in net current income tax accounts
    5,180        
Increase (decrease) in net unpaid losses and loss adjustment expenses
    (108,760 )     126,161  
Decrease in net unearned premiums
    (11,246 )     (41,856 )
Increase (decrease) in ceded premiums payable
    10,159       172  
Increase (decrease) in commissions payable
    (32,538 )     22,495  
Changes in other assets and liabilities
    (8,839 )     (19,214 )
Other net
    (14 )     (150 )
Net cash provided by operating activities
    422,477       264,244  
                 
Investing Activities:
               
Proceeds from sale of available-for-sale securities
    1,007,097       80,126  
Proceeds from maturity or paydown of available-for-sale securities
    366,416       860,063  
Acquisition of available-for-sale securities
    (1,957,486 )     (1,341,153 )
Acquisition of trading securities
    (159,748 )      
Net change in short-term investments
    27,456       (80,559 )
Net cash used in investing activities
    (716,265 )     (481,523 )
                 
Financing Activities:
               
Dividends paid to preferred shareholders
    (2,602 )     (7,806 )
Dividends paid to common shareholders
    (12,273 )     (11,972 )
Purchase of common shares
    (101,384 )     (260,399 )
Proceeds from exercise of share options
    2,856       25,896  
Net cash used in financing activities
    (113,403 )     (254,281 )
Effect of foreign currency exchange rate changes on cash
    6,457       (4,038 )
Net decrease in cash and cash equivalents
    (400,734 )     (475,598 )
Cash and cash equivalents at beginning of period
    813,017       1,076,279  
                 
Cash and cash equivalents at end of period
  $ 412,283     $ 600,681  
                 
Supplemental disclosures of cash flow information:
               
Income taxes paid (refunded)
  $ (5,464 )   $ 27,900  
Interest paid
  $ 9,375     $ 9,375  


See accompanying Notes to the Consolidated Financial Statements.
 
 
- 4 -

 
 
Platinum Underwriters Holdings, Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements (Unaudited)
For the Three and Nine Months Ended September 30, 2009 and 2008
 
 
1.
Basis of Presentation and Significant Accounting Policies
 
Basis of Presentation and Consolidation
 
Platinum Underwriters Holdings, Ltd. (“Platinum Holdings”) is a Bermuda holding company organized in 2002.  Platinum Holdings and its consolidated subsidiaries (collectively, the “Company”) operate through two licensed reinsurance subsidiaries:  Platinum Underwriters Bermuda, Ltd. (“Platinum Bermuda”) and Platinum Underwriters Reinsurance, Inc. (“Platinum US”).  The terms “we,” “us,” and “our” also refer to Platinum Holdings and its consolidated subsidiaries, unless the context otherwise indicates.  We provide property and marine, casualty and finite risk reinsurance coverages, through reinsurance intermediaries, to a diverse clientele of insurers and select reinsurers on a worldwide basis.
 
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of Platinum Holdings and its consolidated subsidiaries, including Platinum Bermuda, Platinum US, Platinum Re (UK) Limited (“Platinum UK”), Platinum Underwriters Finance, Inc. (“Platinum Finance”), Platinum Regency Holdings (“Platinum Regency”), Platinum Administrative Services, Inc. and Platinum UK Services Company Limited.  In 2007, Platinum UK ceased underwriting reinsurance business.  All material inter-company transactions have been eliminated in preparing these consolidated financial statements.  The consolidated financial statements included in this report as of and for the three and nine months ended September 30, 2009 and 2008 are unaudited and include adjustments consisting of normal recurring items that management considers necessary for a fair presentation under U.S. GAAP.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2008.
 
The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could materially differ from these estimates.  The results of operations for any interim period are not necessarily indicative of results for the full year.
 
Certain prior period amounts have been reclassified in the consolidated statement of operations and in the consolidated statement of cash flows to conform to the 2009 presentation.
 
Recently Issued Accounting Pronouncements
 
In June 2009, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (“SFAS 168”).  SFAS 168 establishes the “FASB Accounting Standards Codification” (“ASC”) as the single source of authoritative U.S. GAAP.  The ASC is effective for interim and annual periods ending after September 15, 2009.  Accordingly, we adopted the ASC effective as of the interim period ending September 30, 2009.  As the ASC only required changes to the way the Company refers to U.S. GAAP in its financial statements, the adoption of the ASC had no effect on our consolidated financial statements.
 
In April 2009, the FASB issued additional guidance under the FASB Accounting Standards Codification 320, “Investments – Debt and Equity Securities” (“ASC 320”) that provides guidance with respect to other-than-temporary impairment (“OTTI”) for debt securities.  The FASB’s objective was to make the guidance more operational and to improve presentation and disclosure of OTTI.  In accordance with ACS 320, we recognize the portion of the OTTI related to the credit loss in the consolidated statement of operations and recognize the portion related to the other factors in accumulated other comprehensive income, net of deferred tax.  ASC 320 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  We adopted this guidance effective as of the interim period ending March 31, 2009.
 
The adoption of ASC 320 resulted in cumulative effect adjustments to debt securities that were impaired prior to 2009.  The cumulative effect adjustments increased the amortized cost of certain available-for-sale securities by $15.1 million and decreased deferred tax assets by $0.9 million.  The cumulative effect adjustments also decreased accumulated other comprehensive income and increased retained earnings by $14.2 million.  The adjustments to the amortized cost of these securities represent OTTI charges not related to credit that we recognized in earnings prior to 2009.  Under ASC 320, the portion of the OTTI not related to the credit loss is now recognized in other comprehensive income which increased net income in 2009.
 
In May 2009, the FASB issued FASB Accounting Standards Codification 855, “Subsequent Events” (“ASC 855”).  This standard provides new accounting and disclosure guidance on management’s assessment of subsequent events.  It establishes requirements for recognition and disclosure of events that occur after the balance sheet date and through the date that the financial statements are issued.  The guidance is effective for interim and annual reporting periods beginning after June 15, 2009.  The adoption of ASC 855 did not have an impact on our results of operations or financial position.
 
In April 2009, the FASB issued additional guidance under the FASB Accounting Standards Codification 820, “Fair Value Measurements and Disclosures” (“ASC 820”) for estimating fair value when the volume and level of activity for an asset or liability has significantly decreased, emphasizing that the fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.  The guidance is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  We adopted the guidance effective as of the interim period ending March 31, 2009.
 
 
- 5 -

 
 
In April 2009, the FASB issued additional guidance under the FASB Accounting Standards Codification 825, “Financial Instruments” (“ASC 825”) that increases the frequency of the disclosures about fair value with the objective of improving the transparency of financial reporting.  The guidance is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  We adopted the guidance effective as of the interim period ending March 31, 2009.
 
In March 2008, the FASB issued additional guidance under ASC 825 that amends and expands the disclosure requirements in FASB Accounting Standards Codification 815, “Derivatives and Hedging,” relating to an entity’s derivative and hedging activities and how these activities affect an entity’s financial position, financial performance and cash flows, with the objective of improving the transparency of financial reporting.  The guidance is effective for interim and annual reporting periods beginning after November 15, 2008.  The adoption of the guidance did not have any material impact on the presentation of our consolidated financial statements.
 
Significant Accounting Policies
 
In accordance with ASC 320, if we intend to sell a debt security or it is more likely than not that we will be required to sell the debt security before its anticipated recovery, we recognize a charge for OTTI in the consolidated statement of operations equal to the entire difference between the investment’s amortized cost basis and its fair value at the time of impairment.  If we do not intend to sell a debt security or it is more likely than not that we will not be required to sell a debt security before its anticipated recovery, we must assess whether the impairment is other-than-temporary.  If we determine a security is other-than-temporarily impaired, the impairment is separated into the portion related to credit loss and the portion related to all other factors.  The amount of the credit loss is the difference between the present value of expected future cash flows from an impaired debt security and the amortized cost of the security.  The credit loss is recognized in net income and the portion related to all other factors is recognized in accumulated other comprehensive income.
 
If an available-for-sale security is determined to have a credit loss, the impairment is separated into:  (a) the portion of the total OTTI related to the credit loss, which is recognized in the consolidated statement of operations and (b) the portion of the impairment related to all other factors, which is recognized in accumulated other comprehensive income, net of deferred tax in the consolidated statements of changes in shareholders' equity.  The non-credit component of OTTI related to securities with a net impairment loss recognized during the reporting period is recorded as a separate component of accumulated other comprehensive income.
 
2.
Investments
 
Available-for-sale Securities
 
The following table sets forth our fixed maturity available-for-sale securities and preferred stocks as of September 30, 2009 ($ in thousands):

               
Gross Unrealized Losses
       
   
Amortized Cost
   
Gross Unrealized
Gains
   
Non-OTTI
   
Non-credit portion of OTTI
   
Fair Value
 
                               
U.S. Government
  $ 363,824       2,540                 $ 366,364  
U.S. Government agencies
    100,100       987                   101,087  
Corporate bonds
    641,165       29,555       11,042             659,678  
Commercial mortgage-backed securities
    262,161       215       32,087       2,493       227,796  
Residential mortgage-backed securities
    1,034,584       19,632       45,282       13,489       995,445  
Asset-backed securities
    89,457       1,461       15,631       14,015       61,272  
Municipal bonds
    668,980       33,449       72             702,357  
Non-U.S. governments
    533,845       14,366       66             548,145  
Total fixed maturity available-for-sale securities
    3,694,116       102,205        104,180        29,997        3,662,144  
Preferred stocks
    1,879       1,655                   3,534  
Total available-for-sale securities
  $ 3,695,995       103,860       104,180       29,997     $ 3,665,678  
 
U.S. Government agencies consist primarily of securities issued by financial institutions under the Temporary Liquidity Guarantee Program guaranteed by the Federal Deposit Insurance Corporation.  Non-U.S. governments consist primarily of securities issued by governments and financial institutions that are explicitly guaranteed by the respective government and are U.S. dollar denominated securities.
 
 
- 6 -

 
 
Unrealized Gains and Losses
 
The following table sets forth the net changes in unrealized investment gains and losses on our available-for-sale securities for the three and nine months ended September 30, 2009 ($ in thousands):
             
   
Three Months Ended September 30, 2009
   
Nine Months Ended September 30, 2009
 
             
Available-for-sale securities
  $ 121,591     $ 173,692  
Less deferred tax
    (15,021 )     (17,984 )
Cumulative effect of accounting change, net of deferred tax
          14,244  
Net change in unrealized gains and losses
  $ 106,570     $ 169,952  
 
The following table sets forth our unrealized losses on securities classified as available-for-sale aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2009 ($ in thousands):

   
Fair Value
   
Unrealized Loss
 
             
Less than twelve months:
           
Corporate bonds
  $ 12,396     $ 37  
Commercial mortgage-backed securities
    4,725       130  
Residential mortgage-backed securities
    15,524       9,793  
Asset-backed securities
    928       561  
Municipal bonds
    5,800       4  
Non-U.S. governments
           
Total
  $ 39,373     $ 10,525  
                 
Twelve months or more:
               
Corporate bonds
  $ 88,994     $ 11,005  
Commercial mortgage-backed securities
    202,226       34,450  
Residential mortgage-backed securities
    101,091       48,978  
Asset-backed securities
    27,850       29,085  
Municipal bonds
    8,843       68  
Non-U.S. governments
    1,654       66  
Total
  $ 430,658     $ 123,652  
                 
Total:
               
Corporate bonds
  $ 101,390     $ 11,042  
Commercial mortgage-backed securities
    206,951       34,580  
Residential mortgage-backed securities
    116,615       58,771  
Asset-backed securities
    28,778       29,646  
Municipal bonds
    14,643       72  
Non-U.S. governments
    1,654       66  
Total
  $ 470,031     $ 134,177  
 
 
- 7 -

 
 
We routinely review our available-for-sale investments to determine whether unrealized losses represent temporary changes in fair value or are the result of OTTI.  The process of determining whether a security is other-than-temporarily impaired requires judgment and involves analyzing many factors.  These factors include the overall financial condition of the issuer, the length and magnitude of an unrealized loss, specific credit events, the collateral structure and the credit support that may be applicable.  The amount of the credit loss is the difference between the present value of expected future cash flows from an impaired debt security and the amortized cost of the security.  The credit loss is recognized in net income and the portion of OTTI related to all other factors is recognized in accumulated other comprehensive income.
 
Investment holdings within our corporate bond portfolio were diversified across approximately 30 industry sectors and across many individual issuers and issues within each sector.  As of September 30, 2009, the single largest unrealized loss within our corporate bond portfolio was $1.9 million related to a security with an amortized cost of $7.4 million.  We evaluate the credit worthiness of our corporate bond portfolio by reviewing various performance metrics of the issuer including financial condition and credit ratings of the issuer as well as other public information.  We did not determine that any corporate bonds were other than temporarily impaired in the three and nine months ended September 30, 2009.  We recorded credit impairment losses of $7.4 million related to corporate bonds in the three and nine months ended September 30, 2008.
 
We analyze our commercial mortgage-backed securities (“CMBS”) on a periodic basis using default loss models based on the performance of the underlying loans.  Performance metrics include delinquencies, defaults, foreclosures, debt-service-coverage ratios and cumulative losses incurred.  The expected losses for a mortgage pool are compared to the current level of subordination, which generally represents the point at which our security would experience losses.  We evaluate projected cash flows as well as other factors in order to determine if a credit impairment has occurred.  We recorded credit impairment losses related to CMBS of $1.7 million and $2.6 million, for the three and nine months ended September 30, 2009, respectively.  We did not determine that any CMBS were other than temporarily impaired in the three and nine months ended September 30, 2008.
 
Our residential mortgage-backed securities (“RMBS”) include U.S. Government agency-backed RMBS and non-agency-backed RMBS.  Our securities with underlying sub-prime mortgages as collateral are included in asset-backed securities.  As of September 30, 2009, the single largest unrealized loss was a sub-prime asset-backed security with an amortized cost of $10.1 million and an unrealized loss of $8.9 million.  We analyze our RMBS and sub-prime asset-backed securities on a periodic basis using default loss models based on the performance of the underlying loans.  Performance metrics include delinquencies, defaults, foreclosures, prepayment speeds and cumulative losses incurred.  The expected losses for a mortgage pool are compared to the current level of subordination, which generally represents the point at which our security would experience losses.  We evaluate projected cash flows as well as other factors in order to determine if a credit impairment has occurred.  We recorded credit impairment losses related to non-agency RMBS of $2.0 million and $5.8 million, for the three and nine months ended September 30, 2009, respectively.  We also recorded credit impairment losses related to sub-prime asset-backed securities of $1.4 million and $2.1 million, for the three and nine months ended September 30, 2009, respectively.  We did not determine that any non-agency RMBS or sub-prime asset-backed securities were other than temporarily impaired in the three and nine months ended September 30, 2008.
 
The following table sets forth a summary of the credit losses recognized on our fixed maturity available-for-sale securities ($ in thousands):
       
Beginning balance at January 1, 2009
  $  
Cumulative effect of accounting change
    2,300  
Credit losses on securities not previously impaired
    6,892  
Additional credit losses on securities previously impaired
    3,639  
Ending balance at September 30, 2009
  $ 12,831  
 
In evaluating the potential for OTTI, we also consider our intent to sell a security and the likelihood that we will be required to sell a security before the unrealized loss is recovered.  Our intent to sell a security is based, in part, on adverse changes in the credit worthiness of a debt issuer, pricing and other market conditions, and our anticipated net cash flows.  If we determine that we intend to sell a security that is in an unrealized loss position, then the unrealized loss related to such security, representing the difference between the security’s amortized cost and its fair value, is recognized as a realized loss in our consolidated statement of operations at the time we determine our intent is to sell.
 
We evaluate the unrealized losses of our perpetual preferred stocks by individual issuer and determine if we can forecast a reasonable period of time by which the fair value of the securities will increase and we will recover our cost.  If we are unable to forecast a reasonable period of time in which we will recover the cost of our perpetual preferred stocks, we record a charge for OTTI in our consolidated statement of operations equivalent to the entire unrealized loss.  There were no OTTI charges related to our perpetual preferred stocks for the three months ended September 30, 2009.  We recorded OTTI charges related to our perpetual preferred stocks of $1.2 million for the nine months ended September 30, 2009.  We recorded OTTI charges related to our perpetual preferred stocks of $5.6 million for the three and nine months ended September 30, 2008.
 
Overall, we believe that the gross unrealized loss in our available-for-sale portfolio represents temporary declines in fair value.  We believe that the unrealized loss is not necessarily predictive of ultimate performance and that the provisions we have made for net impairment losses are adequate.  However, economic conditions may deteriorate more than expected and may adversely affect the expected cash flows of our securities, which in turn may lead to impairment losses recorded in future periods.
 
 
- 8 -

 
 
Trading Securities
 
The following table sets forth the fair value of our fixed maturity trading securities as of September 30, 2009 ($ in thousands):
       
U.S. Government
  $ 148,647  
Insurance-linked securities
    20,215  
Corporate bonds
    79  
Non-U.S. governments
    119,001  
Total trading securities
  $ 287,942  
 
We elected to apply the fair value measurement attributes of ASC 825 to our investments in U.S. Treasury Inflation-Protected Securities (“TIPS”) and insurance-linked securities.  We believe that recognizing changes in the fair value of the TIPS in net realized gains or losses on investments in our consolidated statement of operations is a better presentation of the total return on these securities.  Insurance-linked securities have exposure to catastrophe loss, which we actively manage.  We believe that the various risk elements of insurance-linked securities are more appropriately accounted for in accordance with the fair value measurement attributes of ASC 825.  We have included TIPS and insurance-linked securities at a fair value of $168.9 million in our fixed maturity trading securities on our consolidated balance sheets.  Net favorable changes in the fair value of these securities were $3.4 million and $6.2 million for the three and nine months ended September 30, 2009, respectively, and were included in net realized gains on investments in our consolidated statements of operations.  At acquisition, we determine our trading intent in the near term for securities accounted for in accordance with ASC 825.  If we do not intend to sell these securities in the near term, then the purchases and sales are included in investing activities in our consolidated statements of cash flows.  Accordingly, for the nine months ended September 30, 2009 purchases of $159.7 million were classified as investing activities and $208.3 million of net sales were classified as net trading securities activities and included in operating activities of the cash flow statements.  For the nine months ended September 30, 2008, no securities were elected under ASC 825.
 
The non-U.S. government securities consist of securities that are non-U.S. dollar denominated securities.
 
Net Investment Income
 
The following table sets forth our net investment income for the three and nine months ended September 30, 2009 ($ in thousands):
             
   
Three Months Ended September 30, 2009
   
Nine Months Ended September 30, 2009
 
             
Fixed maturity securities
  $ 43,777     $ 121,501  
Short-term investments and cash and cash equivalents
    237       1,534  
Funds held
    1,981       3,690  
Subtotal
    45,995       126,725  
Less investment expenses
    1,248       3,655  
Net investment income
  $ 44,747     $ 123,070  
 
Net Realized Gains and Losses on Investments
 
The following table sets forth our net realized gains and losses on investments for the three and nine months ended September 30, 2009 ($ in thousands):
             
   
Three Months Ended September 30, 2009
   
Nine Months Ended September 30, 2009
 
             
Net gains (losses) on the sale of investments:
           
Gross realized gains
  $ 22,960     $ 53,277  
Gross realized losses
    (4,882 )     (5,431 )
Subtotal
    18,078       47,846  
Mark-to-market adjustments on trading securities
    4,475       6,071  
Net realized gains on investments
  $ 22,553     $ 53,917  
 
 
- 9 -

 
 
Maturities
 
Actual maturities of our fixed maturity available-for-sale and trading securities could differ from stated maturities due to call or prepayment provisions.  The following table sets forth the amortized cost and fair value of our fixed maturity available-for-sale and trading securities by stated maturity as of September 30, 2009 ($ in thousands):
             
   
Amortized Cost
   
Fair Value
 
             
Due in one year or less
  $ 116,000     $ 117,174  
Due from one to five years
    1,402,896       1,445,197  
Due from five to ten years
    578,635       605,461  
Due in ten or more years
    483,817       497,741  
Mortgage-backed and asset-backed securities
    1,386,201       1,284,513  
Total
  $ 3,967,549     $ 3,950,086  
 
3.
Fair Value Measurements
 
We classify our assets and liabilities in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.  This classification requires judgment in assessing the market and pricing methodologies for a particular security.  We obtain prices for all of our fixed maturity securities, preferred stocks and short-term investments from pricing services, which include index providers, pricing vendors and broker-dealers.
 
We consider prices for actively traded government securities and exchange traded preferred stocks to be based on quoted prices in active markets for identical assets (Level 1 as defined by ASC 820).  The fair values of our other fixed maturity securities, which generally include mortgage-backed and asset-backed securities, corporate bonds, municipal bonds, and bonds issued or guaranteed by governmental entities, are based on prices obtained from independent pricing vendors, index providers, or broker-dealers using observable inputs (Level 2 as defined by ASC 820).  The inputs used by pricing vendors may include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, bids, offers and industry and economic indicators.  The inputs used in index pricing may include benchmark yields, transactional data, broker-dealer quotes, security cash flows and structures, credit ratings, prepayment speeds, loss severities, credit risks and default rates.  Broker-dealers value securities through trading desks primarily based on observable inputs.  The fair values of our derivative instruments, which are included in other liabilities in our consolidated balance sheets, are determined by management primarily using unobservable inputs through the application of our own assumptions and internal valuation pricing models (Level 3 as defined by ASC 820).
 
The following table presents the fair value measurement levels for all assets and liabilities which the Company has recorded at fair value as of September 30, 2009 ($ in thousands):

         
Fair Value Measurement Using:
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
                         
Financial assets:
                       
U.S. Government
  $ 515,011       515,011           $  
U.S. Government agencies
    101,087             101,087        
Corporate
    659,757       21,428       638,329        
Commercial mortgage-backed securities
    227,796             227,796        
Residential mortgage-backed securities
    995,445             995,445        
Asset-backed securities
    61,272             61,272        
Municipal bonds
    702,357             702,357        
Non-U.S. governments
    667,146       35,666       631,480        
Insurance-linked securities
    20,215             20,215        
Preferred stocks
    3,534       3,534              
Short-term investments
    47,888             47,888        
Total
  $ 4,001,508       575,639       3,425,869     $  
                                 
Financial liabilities:
                               
Derivative instruments
    4,245                   4,245  
Total
  $ 4,245                 $ 4,245  
 
 
- 10 -

 
 
The following table presents the reconciliation of the beginning and ending fair value measurements of our Level 3 liabilities, consisting of derivative instruments, measured at fair value using significant unobservable inputs for the nine months ended September 30, 2009 ($ in thousands):
       
Beginning balance at January 1, 2009
  $ (4,753 )
Purchases, issuances, and settlements
    7,336  
Total unrealized and realized losses included in earnings
    (6,828 )
Ending balance at September 30, 2009
  $ (4,245 )
Losses for the period attributable to the net change in unrealized losses relating to liabilities outstanding
  $ (6,828 )
 
The net change in unrealized losses for the nine months ended September 30, 2009 of $6.8 million relating to derivative instruments outstanding was included in the net changes in fair value of derivatives in our consolidated statement of operations.  We settled balances of $7.3 million on derivatives in the nine months ended September 30, 2009 and such payments were also included in the net changes in fair value of derivatives in our consolidated statement of operations.
 
4.
Derivative Instruments
 
In August 2008, we entered into a derivative agreement with Topiary Capital Limited (“Topiary”), a Cayman Islands special purpose vehicle, that provides us with the ability to recover up to $200.0 million should two catastrophic events involving U.S. wind, U.S. earthquake, European wind or Japanese earthquake occur that meet specified loss criteria during any of three annual periods commencing August 1, 2008.  Any recovery we make under this contract is based on insured property industry loss estimates for the U.S. perils and European wind and a parametric index for Japanese earthquake events.  Recovery is based on both a physical and a financial variable and is not based on actual losses we may incur.  Consequently, the transaction is accounted for as a derivative and carried at the estimated net fair value.
 
Under the terms of the agreement, we pay Topiary approximately $9.8 million during each of the three annual periods.  The net derivative liability at September 30, 2009 of $4.2 million was included in other liabilities on our consolidated balance sheet.  The net change in fair value for the nine months ended September 30, 2009 of $6.8 million was included in the change in fair value of derivatives on our consolidated statement of operations.
 
Topiary’s limit of loss is collateralized with high quality investment grade securities in a secured collateral account.  The performance of the securities in the collateral account is guaranteed under a total return swap agreement with Goldman Sachs International whose obligations under the swap agreement are guaranteed by Goldman Sachs Group, Inc.
 
5.
Earnings per Share
 
The following is a calculation of the basic and diluted earnings per share for the three and nine months ended September 30, 2009 and 2008 ($ in thousands, except per share data):

   
Net Income
   
Weighted Average
Shares Outstanding
   
Earnings per Share
 
                   
Three Months Ended September 30, 2009:
                 
Basic earnings per share:
                 
Net income
  $ 109,468       49,660     $ 2.20  
Effect of dilutive securities - common share options, restricted common shares and common share units
          2,379          
Adjusted net income for diluted earnings per share
  $ 109,468       52,039     $ 2.10  
                         
Three Months Ended September 30, 2008:
                       
Basic and diluted earnings per share:
                       
Net loss attributable to common shareholders
  $ (47,942 )     48,260     $ (0.99 )
 
 
- 11 -

 
 
   
Net Income
    Weighted Average
Shares Outstanding
   
Earnings per Share
 
                   
Nine Months Ended September 30, 2009:
                 
Basic earnings per share:
                 
Net income attributable to common shareholders
  $ 291,219       49,955     $ 5.83  
Effect of dilutive securities:
                       
Common share options, restricted common shares and common share units
          1,581          
Conversion of preferred shares
          1,011          
Preferred share dividends
    1,301                
Adjusted net income for diluted earnings per share
  $ 292,520       52,547     $ 5.57  
                         
Nine Months Ended September 30, 2008:
                       
Basic earnings per share:
                       
Net income attributable to common shareholders
  $ 154,382       49,963     $ 3.09  
Effect of dilutive securities:
                       
Common share options, restricted common shares and common share units
          2,674          
Conversion of preferred shares
          4,996          
Preferred share dividends
    7,806                
Adjusted net income for diluted earnings per share
  $ 162,188       57,633     $ 2.81  
 
6.
Operating Segment Information
 
We conduct our worldwide reinsurance business through three operating segments: Property and Marine, Casualty and Finite Risk.  The Property and Marine operating segment includes property reinsurance, crop reinsurance and marine and aviation reinsurance.  This operating segment includes reinsurance contracts that are either catastrophe excess-of-loss, per-risk excess-of-loss or proportional contracts.  The Casualty operating segment includes principally reinsurance contracts that cover umbrella liability, general and product liability, professional liability, workers' compensation, casualty clash, automobile liability, surety, trade credit, political risk and accident and health.  We generally seek to write casualty reinsurance on an excess-of-loss basis.  We write proportional casualty reinsurance contracts on an opportunistic basis.  The Finite Risk operating segment includes principally structured reinsurance contracts with ceding companies whose needs may not be met efficiently through traditional reinsurance products.  The finite risk contracts that we underwrite generally provide prospective protection, meaning coverage is provided for losses that are incurred after inception of the contract, as contrasted with retrospective coverage, which covers losses that are incurred prior to inception of the contract.
 
In managing our operating segments, we use measures such as underwriting income and underwriting ratios to evaluate segment performance.  We do not allocate assets or certain income and expenses such as investment income, interest expense and certain corporate expenses to segments.  The measures we use in evaluating our operating segments should not be used as a substitute for measures determined under U.S. GAAP.  The following table summarizes underwriting activity and ratios for the three operating segments, together with a reconciliation of underwriting income to income before income tax expense for the three and nine months ended September 30, 2009 and 2008 ($ in thousands):

   
Property
and Marine
   
Casualty
   
Finite Risk
   
Total
 
                         
Three Months Ended September 30, 2009:
                       
Net premiums written
  $ 147,448       88,467       7,675     $ 243,590  
                                 
Net premiums earned
    132,567       90,591       6,380       229,538  
Net losses and loss adjustment expenses
    46,307       59,243       (6,310 )     99,240  
Net acquisition expenses
    16,821       19,393       13,795       50,009  
Other underwriting expenses
    9,643       6,751       342       16,736  
Segment underwriting income (loss)
  $ 59,796       5,204       (1,447 )     63,553  
                                 
Net investment income
      44,747  
Net realized gains on investments
      22,553  
Net impairment losses
      (5,075 )
Net changes in fair value of derivatives
      (4,305 )
Net foreign currency exchange gains
      616  
Other expense
      (1,222 )
Corporate expenses not allocated to segments
      (8,474 )
Interest expense
      (4,757 )
Income before income tax benefit
    $ 107,636  
                                 
Ratios:
                               
Net loss and loss adjustment expenses
    34.9 %     65.4 %     (98.9 %)     43.2 %
Net acquisition expense
    12.7 %     21.4 %     216.2 %     21.8 %
Other underwriting expense
    7.3 %     7.5 %     5.4 %     7.3 %
Combined
    54.9 %     94.3 %     122.7 %     72.3 %
 
 
- 12 -

 
 
     Property
and Marine
     
Casualty
     
Finite Risk
     
Total
 
                         
Three Months Ended September 30, 2008:
                       
Net premiums written
  $ 167,136       106,826       5,180     $ 279,142  
                                 
Net premiums earned
    151,763       124,319       4,643       280,725  
Net losses and loss adjustment expenses
    183,759       86,057       1,047       270,863  
Net acquisition expenses
    23,691       29,191       3,438       56,320  
Other underwriting expenses
    11,543       4,948       286       16,777  
Segment underwriting (loss) income
  $ (67,230 )     4,123       (128 )     (63,235 )
                                 
Net investment income
      48,043  
Net realized losses on investmets
      (71 )
Net impairment losses
      (13,096 )
Net changes in fair value of derivatives
      (6,645 )
Net foreign currency exchange losses
      (6,134 )
Other expense
      (88 )
Corporate expenses not allocated to segments
      (4,376 )
Interest expense
      (4,752 )
Loss before income tax benefit
    $ (50,354 )
                                 
Ratios:
                               
Net loss and loss adjustment expenses
    121.1 %     69.2 %     22.6 %     96.5 %
Net acquisition expense
    15.6 %     23.5 %     74.0 %     20.1 %
Other underwriting expense
    7.6 %     4.0 %     6.2 %     6.0 %
Combined
    144.3 %     96.7 %     102.8 %     122.6 %
                                 
Nine Months Ended September 30, 2009:
                               
Net premiums written
  $ 402,588       273,940       20,451     $ 696,979  
                                 
Net premiums earned
    394,554       299,712       15,486       709,752  
Net losses and loss adjustment expenses
    186,565       179,426       2,358       368,349  
Net acquisition expenses
    47,711       66,020       14,772       128,503  
Other underwriting expenses
    26,925       18,550       1,042       46,517  
Segment underwriting income (loss)
  $ 133,353       35,716       (2,686 )     166,383  
                                 
Net investment income
      123,070  
Net realized gains on investments
      53,917  
Net impairment losses
      (11,739 )
Net changes in fair value of derivatives
      (6,828 )
Net foreign currency exchange gains
      157  
Other income
      4,222  
Corporate expenses not allocated to segments
      (22,467 )
Interest expense
      (14,268 )
Income before income tax benefit
    $ 292,447  
                                 
Ratios:
                               
Net loss and loss adjustment expenses
    47.3 %     59.9 %     15.2 %     51.9 %
Net acquisition expense
    12.1 %     22.0 %     95.4 %     18.1 %
Other underwriting expense
    6.8 %     6.2 %     6.7 %     6.6 %
Combined
    66.2 %     88.1 %     117.3 %     76.6 %
 
 
- 13 -

 
 
     Property
and Marine
     
Casualty
     
Finite Risk
     
Total
 
                         
Nine Months Ended September 30, 2008:
                       
Net premiums written
  $ 454,541       335,295       10,437     $ 800,273  
                                 
Net premiums earned
    446,869       385,059       8,630       840,558  
Net losses and loss adjustment expenses
    279,165       252,233       (6,940 )     524,458  
Net acquisition expenses
    69,119       98,893       14,987       182,999  
Other underwriting expenses
    29,774       18,734       961       49,469  
Segment underwriting income (loss)
  $ 68,811       15,199       (378 )     83,632  
                                 
Net investment income
      144,037  
Net realized losses on investment
      (3,267 )
Net impairment losses
      (13,096 )
Net changes in fair value of derivatives
      (8,415 )
Net foreign currency exchange losses
      (3,263 )
Other income
      533  
Corporate expenses not allocated to segments
      (18,474 )
Interest expense
      (14,253 )
Income before income tax expense
    $ 167,434  
                                 
Ratios:
                               
Net loss and loss adjustment expenses
    62.5 %     65.5 %     (80.4 %)     62.4 %
Net acquisition expense
    15.5 %     25.7 %     173.7 %     21.8 %
Other underwriting expense
    6.7 %     4.9 %     11.1 %     5.9 %
Combined
    84.7 %     96.1 %     104.4 %     90.1 %
 
7.
Income Taxes
 
We provide for income tax expense or benefit based upon income reported in the consolidated financial statements and the provisions of currently enacted tax laws.  Platinum Holdings and Platinum Bermuda are incorporated in Bermuda.  Under current Bermuda law, they are not taxed on any Bermuda income or capital gains and they have received an assurance that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of an estate duty or inheritance tax, then the imposition of any such tax will not be applicable to Platinum Holdings or Platinum Bermuda or any of their respective operations, shares, debentures or other obligations until March 28, 2016.  We also have subsidiaries in the United States, the United Kingdom and Ireland that are subject to the tax laws thereof.  The income tax returns of our U.S. based subsidiaries that remain open to examination are for calendar years 2003 and forward.  The income tax returns of 2003 and 2004 are currently under examination by the U.S. Internal Revenue Service.
 
8.
Condensed Consolidating Financial Information
 
Platinum Finance is a U.S. based intermediate holding company and a wholly owned subsidiary of Platinum Regency.  The outstanding Series B 7.5% Notes issued by Platinum Finance, due June 1, 2017, are fully and unconditionally guaranteed by Platinum Holdings.
 
The payment of dividends from our regulated reinsurance subsidiaries is limited by applicable laws and statutory requirements of the jurisdictions in which the subsidiaries operate, including Bermuda, the United States, the United Kingdom, and Ireland.  Based on the regulatory restrictions of the applicable jurisdictions, the maximum amount available for payment of dividends or other distributions by Platinum US to Platinum Finance in 2009 without prior regulatory approval is estimated to be approximately $57.4 million.  The maximum amount available for payment of dividends or other distributions by the reinsurance subsidiaries of Platinum Holdings in 2009, including Platinum US, without prior regulatory approval is estimated to be approximately $386.4 million.  During the nine months ended September 30, 2009, dividends of $105.0 million were paid by Platinum Bermuda to Platinum Holdings, and dividends of $20.0 million were paid by Platinum US to Platinum Finance.
 
 
- 14 -

 
 
The tables below present condensed consolidating financial information of Platinum Holdings, Platinum Finance and the non-guarantor subsidiaries of Platinum Holdings as of September 30, 2009 and December 31, 2008 and for the three and nine months ended September 30, 2009 and 2008 ($ in thousands):

Condensed Consolidating Balance Sheet
September 30, 2009
 
Platinum
Holdings
   
Platinum
Finance
   
Non-guarantor Subsidiaries
   
Consolidating
Adjustments
   
Consolidated
 
                               
ASSETS
                             
Total investments
  $       26,469       3,975,039           $ 4,001,508  
Investment in subsidiaries
    2,110,061       545,044       342,776       (2,997,881 )      
Cash and cash equivalents
    47,726       15,113       349,444             412,283  
Reinsurance assets
                434,452             434,452  
Other assets
    18,686       2,093       288,600             309,379  
Total assets
  $ 2,176,473       588,719       5,390,311       (2,997,881 )   $ 5,157,622  
                                         
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                       
Liabilities
                                       
Reinsurance liabilities
  $             2,689,192           $ 2,689,192  
Debt obligations
          250,000                   250,000  
Other liabilities
    6,408       1,924       40,033             48,365  
Total liabilities
    6,408       251,924       2,729,225             2,987,557  
                                         
Shareholders’ Equity
                                       
Common shares
    498             6,250       (6,250 )     498  
Additional paid-in capital
    1,025,939       212,592       1,883,119       (2,095,711 )     1,025,939  
Accumulated other comprehensive loss
    (33,279 )     5,507       (27,832 )     22,325       (33,279 )
Retained earnings
    1,176,907       118,696       799,549       (918,245 )     1,176,907  
Total shareholders’ equity
    2,170,065       336,795       2,661,086       (2,997,881 )     2,170,065  
                                         
Total liabilities and shareholders’ equity
  $ 2,176,473       588,719       5,390,311       (2,997,881 )   $ 5,157,622  


Condensed Consolidating Balance Sheet
December 31, 2008
 
Platinum
Holdings
   
Platinum
Finance
   
Non-guarantor Subsidiaries
   
Consolidating
Adjustments
   
Consolidated
 
                               
ASSETS
                             
Total investments
  $       2,140       3,444,782           $ 3,446,922  
Investment in subsidiaries
    1,736,321       518,682       302,500       (2,557,503 )      
Cash and cash equivalents
    66,325       10,468       736,224             813,017  
Reinsurance assets
                517,846             517,846  
Other assets
    14,158       2,652       132,568             149,378  
Total assets
  $ 1,816,804       533,942       5,133,920       (2,557,503 )   $ 4,927,163  
                                         
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                       
Liabilities
                                       
Reinsurance liabilities
  $             2,810,865           $ 2,810,865  
Debt obligations
          250,000                   250,000  
Other liabilities
    7,407       2,412       47,082             56,901  
Total liabilities
    7,407       252,412       2,857,947             3,117,766  
                                         
Shareholders’ Equity
                                       
Preferred shares
    57                         57  
Common shares
    475             6,250       (6,250 )     475  
Additional paid-in capital
    1,114,135       194,264       1,898,582       (2,092,846 )     1,114,135  
Accumulated other comprehensive loss
    (188,987 )     (27,899 )     (216,870 )     244,769       (188,987 )
Retained earnings
    883,717       115,165       588,011       (703,176 )     883,717  
Total shareholders' equity
    1,809,397       281,530       2,275,973       (2,557,503 )     1,809,397  
                                         
Total liabilities and shareholders’ equity
  $ 1,816,804       533,942       5,133,920       (2,557,503 )   $ 4,927,163  

 
- 15 -

 

Consolidating Statement of Operations
For the Three Months Ended September 30, 2009
 
Platinum Holdings
   
Platinum Finance
   
Non-guarantor Subsidiaries
   
Consolidating
Adjustments
   
Consolidated
 
                               
Revenue:
                             
Net premiums earned
  $             229,538           $ 229,538  
Net investment income
    7       34       44,706             44,747  
Net realized gains on investments
                22,553             22,553  
Net impairment losses on investments
                (5,075 )           (5,075 )
Other income (expense)
    3,813             (5,035 )           (1,222 )
Total revenue
    3,820       34       286,687             290,541  
                                         
Expenses:
                                       
Net losses and loss adjustment expenses
                99,240             99,240  
Net acquisition expenses
                50,009             50,009  
Net changes in fair value of derivatives
                4,305             4,305  
Operating expenses
    7,316       111       17,783             25,210  
Net foreign currency exchange gains
                (616 )           ( 616 )
Interest expense
          4,757                   4,757  
Total expenses
    7,316       4,868       170,721             182,905  
                                         
Income (loss) before income tax expense (benefit)
    (3,496 )     (4,834 )     115,966             107,636  
Income tax expense (benefit)
    300       (1,751 )     (381 )           (1,832 )
                                         
Income (loss) before equity in earnings of subsidiaries
    (3,796 )     (3,083 )     116,347             109,468  
Equity in earnings of subsidiaries
    113,264       312       (3,123 )     (110,453 )      
                                         
Net income (loss)
  $ 109,468       (2,771 )     113,224       (110,453 )   $ 109,468  


Consolidating Statement of Operations
For the Three Months Ended September 30, 2008
 
Platinum Holdings
   
Platinum Finance
   
Non-guarantor Subsidiaries
   
Consolidating Adjustments
   
Consolidated
 
                               
Revenue:
                             
Net premiums earned
  $             280,725           $ 280,725  
Net investment income
    586       129       47,328             48,043  
Net realized losses on investments
          (14 )     (57 )           (71 )
Net impairment losses on investments
                (13,096 )             (13,096 )
Other income (expense)
    811             (899 )           (88 )
Total revenue
    1,397       115       314,001             315,513  
                                         
Expenses:
                                       
Net losses and loss adjustment expenses
                270,863             270,863  
Net acquisition expenses
                56,320             56,320  
Net changes in fair value of derivatives
                6,645             6,645  
Operating expenses
    4,282       63       16,808             21,153  
Net foreign currency exchange losses
                6,134             6,134  
Interest expense
          4,752                   4,752  
Total expenses
    4,282       4,815       356,770             365,867  
                                         
Income (loss) before income tax expense (benefit)
    (2,885 )     (4,700 )     (42,769 )           (50,354 )
Income tax expense (benefit)
    150       (2,250 )     (2,914 )           (5,014 )
                                         
Income (loss) before equity in earnings of subsidiaries
    (3,035 )     (2,450 )     (39,855 )           (45,340 )
Equity in earnings of subsidiaries
    (42,305 )     (3,576 )     175,905       (130,024 )      
                                         
Net income (loss)
    (45,340 )     (6,026 )     136,050       (130,024 )     (45,340 )
Preferred dividends
    2,602                         2,602  
                                         
Net income (loss) attributable to common shareholders
  $ (47,942 )     (6,026 )     136,050       (130,024 )   $ (47,942 )

 
- 16 -

 

Consolidating Statement of Operations
For the Nine Months Ended September 30, 2009
 
Platinum
Holdings
   
Platinum
Finance
   
Non-guarantor Subsidiaries
   
Consolidating
Adjustments
   
Consolidated
 
                               
Revenue:
                             
Net premiums earned
  $             709,752           $ 709,752  
Net investment income
    51       95       122,924             123,070  
Net realized gains on investments
          1       53,916             53,917  
Net impairment losses on investments
                (11,739 )           (11,739 )
Other income
    4,715             (493 )           4,222  
Total revenue
    4,766       96       874,360             879,222  
                                         
Expenses:
                                       
Net losses and loss adjustment expenses
                368,349             368,349  
Net acquisition expenses
                128,503             128,503  
Net changes in fair value of derivatives
                6,828             6,828  
Operating expenses
    20,475       330       48,179             68,984  
Net foreign currency exchange gains
                (157 )           ( 157 )
Interest expense
          14,268                   14,268  
Total expenses
    20,475       14,598       551,702             586,775  
                                         
Income (loss) before income tax expense (benefit)
    (15,709 )     (14,502 )     322,658             292,447  
Income tax expense (benefit)
    600       (4,961 )     4,288             (73 )
                                         
Income (loss) before equity in earnings of subsidiaries
    (16,309 )     (9,541 )     318,370             292,520  
Equity in earnings of subsidiaries
    308,829       11,477       2,330       (322,636 )      
                                         
Net income
    292,520       1,936       320,700       (322,636 )     292,520  
Preferred dividends
    1,301                         1,301  
                                         
Net income attributable to common shareholders
  $ 291,219       1,936       320,700       (322,636 )   $ 291,219  


Consolidating Statement of Operations
For the Nine Months Ended September 30, 2008
 
Platinum
Holdings
   
Platinum
Finance
   
Non-guarantor Subsidiaries
   
Consolidating
Adjustments
   
Consolidated
 
                               
Revenue:
                             
Net premiums earned
  $             840,558           $ 840,558  
Net investment income
    1,441       529       142,067             144,037  
Net realized losses on investments
          (10 )     (3,257 )           (3,267 )
Net impairment losses on investments
                (13,096 )           (13,096 )
Other income (expense)
    1,895             (1,362 )           533  
Total revenue
    3,336       519       964,910             968,765  
                                         
Expenses:
                                       
Net losses and loss adjustment expenses
                524,458             524,458  
Net acquisition expenses
                182,999             182,999  
Net changes in fair value of derivatives
                8,415             8,415  
Operating expenses
    18,098       243       49,602             67,943  
Net foreign currency exchange losses
                3,263             3,263  
Interest expense
          14,253                   14,253  
Total expenses
    18,098       14,496       768,737             801,331  
                                         
Income (loss) before income tax expense (benefit)
    (14,762 )     (13,977 )     196,173             167,434  
Income tax expense (benefit)
    450       (4,555 )     9,351             5,246  
                                         
Income (loss) before equity in earnings of subsidiaries
    (15,212 )     (9,422 )     186,822             162,188  
Equity in earnings of subsidiaries
    177,400       21,850       11,050       (210,300 )      
                                         
Net income
    162,188       12,428       197,872       (210,300 )     162,188  
Preferred dividends
    7,806                         7,806  
                                         
Net income attributable to common shareholders
  $ 154,382       12,428       197,872       (210,300 )   $ 154,382  

 
- 17 -

 

Condensed Consolidating Statement of Cash Flows
 
Platinum
   
Platinum
   
Non-guarantor
   
Consolidating
       
For the Nine Months Ended September 30, 2009
 
Holdings
   
Finance
   
Subsidiaries
   
Adjustments
   
Consolidated
 
                               
Net cash provided by (used in) operating activities
  $ (10,195 )     (9,504 )     442,176           $ 422,477  
                                         
Investing Activities:
                                       
Proceeds from sale of available-for-sale securities
                1,007,097             1,007,097  
Purchase of subsidiary shares
                (18,367 )     18,367        
Proceeds from maturity or paydown of available-for-sale securities
          718       365,698             366,416  
Acquisition of available-for-sale securities
          (9,986 )     (1,947,500 )           (1,957,486 )
Acquisition of trading securities
                (159,748 )           (159,748 )
Increase in short-term investments
          (14,951 )     42,407             27,456  
Dividends from subsidiaries
    105,000       20,000             (125,000 )      
Net cash provided by (used in) investing activities
    105,000       (4,219 )     (710,413 )     (106,633 )     (716,265 )
                                         
Financing Activities:
                                       
Dividends paid to preferred shareholders
    (2,602 )                       (2,602 )
Dividends paid to common shareholders
    (12,273 )           (125,000 )     125,000       (12,273 )
Proceeds from exercise of share options
    2,856                         2,856  
Purchase of common shares
    (101,384 )                       (101,384 )
Proceeds from common share issuance
          18,367             (18,367 )      
Net cash provided by (used in) financing activities
    (113,403 )     18,367       (125,000 )     106,633       (113,403 )
Effect of foreign currency exchange rate changes on cash
                6,457             6,457  
Net increase (decrease) in cash and cash equivalents
    (18,598 )     4,644       (386,780 )           (400,734 )
Cash and cash equivalents at beginning of period
    66,325       10,468       736,224             813,017  
                                         
Cash and cash equivalents at end of period
  $ 47,727       15,112       349,444           $ 412,283  


Condensed Consolidating Statement of Cash Flows
 
Platinum
   
Platinum
   
Non-guarantor
   
Consolidating
       
For the Nine Months Ended September 30, 2008
 
Holdings
   
Finance
   
Subsidiaries
   
Adjustments
   
Consolidated
 
                               
Net cash provided by (used in) operating activities
  $ (9,229 )     (7,856 )     281,329           $ 264,244  
                                         
Investing Activities:
                                       
Proceeds from sale of available-for-sale securities
                80,126             80,126  
Proceeds from maturity or paydown of available-for-sale securities
          2,426       857,637             860,063  
Acquisition of available-for-sale securities
                (1,341,153 )           (1,341,153 )
Increase in short-term investments
                (80,559 )           (80,559 )
Dividends from subsidiaries
    305,000                   (305,000 )      
Net cash provided by (used in) investing activities
    305,000       2,426       (483,949 )     (305,000 )     (481,523 )
                                         
Financing Activities:
                                       
Dividends paid to preferred shareholders
    (7,806 )                       (7,806 )
Dividends paid to common shareholders
    (11,972 )           (305,000 )     305,000       (11,972 )
Proceeds from exercise of share options
    25,896                         25,896  
Purchase of common shares
    (260,399 )                       (260,399 )
Net cash used in financing activities
    (254,281 )           (305,000 )     305,000       (254,281 )
Effect of foreign currency exchange rate changes on cash
                (4,038 )           (4,038 )
Net increase (decrease) in cash and cash equivalents
    41,490       (5,430 )     (511,658 )           (475,598 )
Cash and cash equivalents at beginning of period
    39,592       18,349       1,018,338             1,076,279  
                                         
Cash and cash equivalents at end of period
  $ 81,082       12,919       506,680           $ 600,681  

 
- 18 -

 
 
9.
Company Share Repurchases
 
Our board of directors has authorized the repurchase of up to $250.0 million of our common shares through a share repurchase program.  Since the program was established, our board has monitored the level of share repurchase activity and periodically restored the repurchase authority under the program to $250.0 million, most recently on July 23, 2009.  During the nine months ended September 30, 2009, we repurchased 3.7 million of our common shares in the open market at an aggregate cost, including commissions, of $101.4 million and a weighted average cost, including commissions, of $27.14 per share.  All of the common shares we repurchased were canceled.  We did not repurchase any common shares during the three months ended September 30, 2009.
 
10.
Subsequent Events
 
The Company has evaluated subsequent events up to and including November 6, 2009, the date of issuance of the unaudited consolidated financial statements.
 
 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q for the period ended September 30, 2009 (this “Form 10-Q”) and the consolidated financial statements and related notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2008 (the “2008 Form 10-K”).  This Form 10-Q contains forward-looking statements that involve risks and uncertainties.  Please see the “Note on Forward-Looking Statements” below.  Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
 
 Our Business
 
Platinum Underwriters Holdings, Ltd. (“Platinum Holdings”) was organized in 2002 as a Bermuda holding company.  We operate through two licensed reinsurance subsidiaries, Platinum Underwriters Bermuda, Ltd. (“Platinum Bermuda”) and Platinum Underwriters Reinsurance, Inc. (“Platinum US”).  Platinum Holdings and its consolidated subsidiaries are collectively referred to in this Form 10-Q as “the Company,” “we,” “us” and “our,” unless the context otherwise indicates.  We provide property and marine, casualty and finite risk reinsurance coverages, through reinsurance intermediaries, to a diverse clientele of insurers and select reinsurers on a worldwide basis.
 
We had $2.4 billion in capital resources as of September 30, 2009 as compared with $2.1 billion in capital resources as of December 31, 2008.  Our net income for the three and nine months ended September 30, 2009 was $109.5 million and $292.5 million, respectively, as compared with a loss of $45.3 million for the three months ended September 30, 2008 and net income of $162.2 million for the nine months ended September 30, 2008.  Our strong net income so far this year reflects disciplined underwriting, lower than expected catastrophe activity, good investment results and net favorable reserve development.  Our net premiums written for the three and nine months ended September 30, 2009 were $243.6 million and $697.0 million, respectively, as compared with net premiums written for the three and nine months ended September 30, 2008 of $279.1 million and $800.3 million, respectively.  The decrease in net premiums written is primarily due to non-renewal of business that fell below our minimum pricing standards.
 
In our Property and Marine segment, we seek to limit our estimated probable maximum loss to a specific level for severe catastrophic events.  We currently expect to limit the probable maximum pre-tax loss for 2009 to no more than 22.5% of total capital for a severe catastrophic event in any geographic zone that could be expected to occur once in every 250 years, although we may change this threshold at any time.  The estimated probable maximum loss for a catastrophic event in any geographic zone arising from a 1-in-250 year event was approximately $404 million and $293 million as of October 1, 2009 and January 1, 2009, respectively.
 
 Current Outlook
 
During 2009, reinsurance companies have generally performed well due, in part, to strong investment performance and the absence of major catastrophe losses.  Accordingly, we anticipate some downward pricing pressure on catastrophe exposed business during 2010.  We have found relatively more attractive underwriting conditions for property and marine business rather than for casualty business so far this year and have accordingly shifted our mix of business toward our Property and Marine segment.  We expect that property and marine business will continue to represent a larger proportion of our overall book of business, which could increase the volatility of our results of operations.  Assuming only modest rate declines, we expect to write a similar portfolio of property and marine business next year compared with the portfolio that we currently have in force.
 
For our Casualty segment, although rates are beginning to increase slightly, we expect the amount of business we write will decrease until such time as rates increase at a pace greater than the trend in loss costs.  However, we believe that the casualty market offers adequate returns on certain accounts.  We believe that financial security is a significant concern for buyers of long-tailed reinsurance protection who typically seek reinsurers with strong balance sheets, quality ratings, and a proven claims-paying record.  We believe that our rating, capitalization and reputation as a lead casualty reinsurer position us well to write profitable business as opportunities arise.
 
We expect that the relatively low level of demand for finite risk products will continue for the foreseeable future.  We have written no new business in our Finite Risk segment since January 1, 2009 and expect little or no activity in this segment going forward.
 
 
- 19 -

 
 
 Significant Accounting Policies
 
The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to make many estimates and valuation assumptions that affect the reported amounts of assets, liabilities (including unpaid losses and loss adjustment expenses (“LAE”)), revenues and expenses, and related disclosures of contingent liabilities.  Certain of these estimates and assumptions result from judgments that are necessarily subjective.  Actual results may differ materially from these estimates.  Our critical accounting estimates include premiums written and earned, unpaid losses and LAE, reinsurance recoverable, valuation of investments and evaluation of risk transfer.  For a detailed discussion of the Company’s critical accounting estimates, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2008 Form 10-K.
 
In April 2009, the FASB issued additional guidance under the FASB Accounting Standards Codification 320, “Investments – Debt and Equity Securities” (“ASC 320”) that amends previous guidance with respect to other-than-temporary impairments for debt securities.  See the discussion of recently issued accounting pronouncements and significant accounting policies in Note 1 to the consolidated financial statements in this Form 10-Q.
 
 Results of Operations
 
 Three Months Ended September 30, 2009 as Compared with the Three Months Ended September 30, 2008
 
Net income (loss) and diluted earnings (loss) per share for the three months ended September 30, 2009 and 2008 were as follows ($ in thousands, except earnings per share):

   
2009
   
2008
   
Increase
 
                   
Net income (loss)
  $ 109,468       (45,340 )   $ 154,808  
Average shares outstanding used to calculate diluted earnings per share
    52,039       48,260       3,779  
Diluted earnings (loss) per share
  $ 2.10       (0.99 )   $ 3.09  
 
The increase in net income in the three months ended September 30, 2009 as compared with the same period in 2008 was primarily due to an increase in net underwriting income of $126.8 million, an increase in net realized gains on investments of $22.6 million and a decrease in net impairment losses on investments of $8.0 million.  Net underwriting income or loss consists of net premiums earned, less net losses and LAE, net acquisition expenses and operating costs related to underwriting operations.  The increase in net underwriting income was primarily due to the decrease in underwriting losses arising from major catastrophes in the three months ended September 30, 2009.
 
The increase in diluted earnings per share for the three months ended September 30, 2009 as compared with the three months ended September 30, 2008 was due to the increase in net income.  The average shares outstanding used to calculate diluted earnings per share was higher in the three months ended September 30, 2009 than in the three months ended September 30, 2008 because the effect of dilutive securities was included in the three months ended September 30, 2009 and excluded in the three months ended September 30, 2008 due to a net loss recorded by the Company.
 
We conduct our worldwide reinsurance business through three operating segments: Property and Marine, Casualty and Finite Risk.  In managing our operating segments, we use measures such as underwriting income and underwriting ratios to evaluate segment performance.  We do not allocate assets or certain income and expenses such as investment income, interest expense and certain corporate expenses to segments.  Segment underwriting income is reconciled to the U.S. GAAP measure of income before income taxes in Note 6 to the consolidated financial statements in this Form 10-Q.  The measures we use in evaluating our operating segments should not be used as a substitute for measures determined under U.S. GAAP.
 
Underwriting Results
 
Net underwriting income for the three months ended September 30, 2009 was $63.6 million as compared with a net underwriting loss of $63.2 million for the three months ended September 30, 2008.  The increase in net underwriting income in the three months ended September 30, 2009 as compared with the same period in 2008 was primarily due to a decrease in underwriting losses arising from major catastrophes in the three months ended September 30, 2009.  Net underwriting losses arising from major catastrophes were $3.8 million and $135.1 million in the three months ended September 30, 2009 and 2008, respectively.  Net underwriting losses from major catastrophes in 2008 were primarily attributable to Hurricanes Gustav and Ike.  Net premiums written decreased in the three months ended September 30, 2009 as compared with the same period in 2008 primarily due to decreases in premiums written in both the Property and Marine and Casualty segments.
 
Net favorable development was $20.3 million and $32.0 million in the three months ended September 30, 2009 and 2008, respectively.  Net favorable or unfavorable development is the development of prior years’ unpaid losses and LAE and the related impact on premiums and commissions.  The net favorable development in the three months ended September 30, 2009 relating to prior years was in both the Property and Marine and Casualty segments.
 
 
- 20 -

 
 
Property and Marine
 
The Property and Marine operating segment generated 60.5% and 59.9% of our net premiums written for the three months ended September 30, 2009 and 2008, respectively.  The following table summarizes underwriting activity and ratios for the Property and Marine segment for the three months ended September 30, 2009 and 2008 ($ in thousands):
                   
   
2009
   
2008
   
Increase (decrease)
 
                   
Gross premiums written
  $ 158,734       176,677     $ (17,943 )
Ceded premiums written
    11,286       9,541       1,745  
Net premiums written
    147,448       167,136       (19,688 )
                         
Net premiums earned
    132,567       151,763       (19,196 )
Net losses and LAE
    46,307       183,759       (137,452 )
Net acquisition expenses
    16,821       23,691       (6,870 )
Other underwriting expenses
    9,643       11,543       (1,900 )
Property and Marine segment underwriting income (loss)
  $ 59,796       (67,230 )   $ 127,026  
                         
Ratios:
                       
Net loss and LAE
    34.9 %     121.1 %  
(86.2) points
 
Net acquisition expense
    12.7 %     15.6 %  
(2.9) points
 
Other underwriting expense
    7.3 %     7.6 %  
(0.3) points
 
Combined
    54.9 %     144.3 %  
(89.4) points
 
 
The increase in underwriting income in the three months ended September 30, 2009 as compared with the same period in 2008 was primarily due to a decrease in underwriting losses arising from major catastrophes, partially offset by a decrease in net favorable development of prior years’ premiums and losses.  We had $3.8 million of underwriting losses from major catastrophes in the three months ended September 30, 2009 as compared with $135.1 million in the same period in 2008.  Underwriting losses from major catastrophes in 2008 were primarily attributable to Hurricanes Gustav and Ike.  Net favorable development was $12.2 million and $19.4 million in the three months ended September 30, 2009 and 2008, respectively.
 
Gross premiums written in the three months ended September 30, 2009 decreased as compared with the same period in 2008 as a result of reinstatement premiums related to major catastrophes.  Reinstatement premiums related to major catastrophes were $0.8 million and $21.6 million in the three months ended September 30, 2009 and 2008, respectively.
 
The decrease in net losses and LAE in the three months ended September 30, 2009 as compared with the same period in 2008 was primarily due to the decrease in losses arising from major catastrophes in the three months ended September 30, 2009.  Losses from major catastrophes were $4.6 million and $148.8 million in the three months ended September 30, 2009 and 2008, respectively.  This decrease was partially offset by a decrease in net favorable loss development.  Net favorable loss development was $12.4 million and $22.2 million in the three months ended September 30, 2009 and 2008, respectively.  Net favorable loss development in these two periods was primarily attributable to a level of cumulative losses reported by our ceding companies that was lower than we expected and that, in our judgment, resulted in sufficient credibility in the loss experience to change our previously selected loss ratios.
 
The following table sets forth the net favorable (unfavorable) development for the three months ended September 30, 2009 by class of business ($ in thousands):
                         
Class of Business
 
Net Losses and LAE
   
Net Acquisition Expense
   
Net Premiums
   
Net Development
 
                         
Property excess-of-loss per risk
  $ 1,552       (3 )     965     $ 2,514  
Catastrophe excess-of-loss (non-major events)
    3,925       453       (109 )     4,269  
Crop
    1,659       (31 )           1,628  
Marine, aviation and satellite
    1,472       106       (371 )     1,207  
Property proportional
    2,850       (143 )           2,707  
Other
    978             (1,068 )     (90 )
Total
  $ 12,436       382       (583 )   $ 12,235  
 
 
- 21 -

 
 
Net favorable development in the property excess-of-loss per risk class arose primarily from the 2007 and 2008 underwriting years.  Net favorable development in the catastrophe excess-of-loss (non-major events) class arose primarily from international business in the 2008 underwriting year.  A change in the expected pattern of reported losses for our international and North American business resulted in approximately $0.7 million of the favorable development in the catastrophe excess-of-loss (non-major events) class.  Net favorable development in the crop class arose primarily in our North American business in the 2008 underwriting year where the loss ratio had been increased in prior periods from the initial expected loss ratio in response to loss experience.  Net favorable development in the marine, aviation and satellite class arose primarily from marine business in the 2007 underwriting year where loss ratios had been increased in prior periods from initial expected loss ratios in response to loss experience.  Net favorable development in the property proportional class arose primarily from the 2006 and 2007 underwriting years.
 
The following table sets forth the net favorable (unfavorable) development for the three months ended September 30, 2008 by class of business ($ in thousands):
                         
Class of Business
 
Net Losses and LAE
   
Net Acquisition Expense
   
Net Premiums
   
Net Development
 
                         
Property excess-of-loss per risk
  $ 3,376       48       185     $ 3,609  
Catastrophe excess-of-loss (non-major events)
    5,018       (52 )     2       4,968  
Major catastrophes
    7,040             (1,222 )     5,818  
Marine, aviation and satellite
    2,172       (2,303 )     308       177  
Property proportional
    3,839       363             4,202  
Other
    705       (110 )           595  
Total
  $ 22,150       (2,054 )     (727 )   $ 19,369  
 
Net favorable development in the property excess-of-loss per risk class arose primarily from the 2007 underwriting year where loss ratios had been increased in prior periods from initial expected loss ratios in response to loss experience.  Net favorable development in the catastrophe excess-of-loss (non-major events) class arose primarily from international business in the 2007 underwriting year.  Net favorable development in major catastrophes related to Hurricane Katrina and several other smaller catastrophe events.  Net favorable development in the property proportional class arose primarily from North American business in the 2003 through 2005 underwriting years, with a change to the expected pattern of reported losses resulting in approximately $2.0 million of the favorable development.
 
Net losses from major catastrophes in the three months ended September 30, 2009 and 2008 were $4.6 million and $148.8 million, respectively.  Net losses from major catastrophes and related premium adjustments increased the net loss and LAE ratio by 3.2 points and 95.6 points in the nine months ended September 30, 2009 and 2008, respectively.  Net favorable loss development and related premium adjustments decreased the net loss and LAE ratio by 9.2 and 13.9 points in the three months ended September 30, 2009 and September 30, 2008, respectively.  Exclusive of losses related to major catastrophes and net favorable loss development, the net loss and LAE ratio was comparable at 40.9% and 41.4% for the three months ended September 30, 2009 and 2008, respectively.
 
Net acquisition expenses were $16.8 million and $23.7 million for the three months ended September 30, 2009 and 2008, respectively.  The decrease was due to decreases in earned premium.  The net acquisition expense ratio was 12.7% and 15.6% for the three months ended September 30, 2009 and 2008, respectively.  The decrease in the net acquisition expense ratio was due to differences in commission adjustments relating to the prior years’ losses.  The decrease in commissions related to prior years’ losses was $0.4 million which, with related premium adjustments, represented 0.2% of net earned premiums in the three months ended September 30, 2009 as compared with an increase of $2.1 million which, with related premium adjustments, represented 1.4% of net premiums earned for the same period in 2008.  Net acquisition expense ratios were also impacted by changes in our mix of business.
 
Casualty
 
The Casualty operating segment generated 36.3% and 38.3% of our net premiums written for the three months ended September 30, 2009 and 2008, respectively.  The following table summarizes underwriting activity and ratios for the Casualty segment for the three months ended September 30, 2009 and 2008 ($ in thousands):
                   
   
2009
   
2008
   
Increase (decrease)
 
                   
Net premiums written
  $ 88,467       106,826     $ (18,359 )
                         
Net premiums earned
    90,591       124,319       (33,728 )
Net losses and LAE
    59,243       86,057       (26,814 )
Net acquisition expenses
    19,393       29,191       (9,798 )
Other underwriting expenses
    6,751       4,948       1,803  
Casualty segment underwriting income
  $ 5,204       4,123     $ 1,081  
                         
Ratios:
                       
Net loss and LAE
    65.4 %     69.2 %  
(3.8) points
 
Net acquisition expense
    21.4 %     23.5 %  
(2.1) points
 
Other underwriting expense
    7.5 %     4.0 %  
3.5 points
 
Combined
    94.3 %     96.7 %  
(2.4) points
 
 
 
- 22 -

 
 
Underwriting income in the three months ended September 30, 2009 as compared with the same period in 2008 was affected by several reinsurance contracts.  As a result of significantly reduced losses reported to us, we decreased underwriting losses related to a reinsurance contract covering leased private passenger automobile residual values (the “RVI Contract”) in the three months ended September 30, 2009 by $10.8 million.  We recorded underwriting losses of $10.0 million related to the RVI Contract in the three months ended September 30, 2008.  At year end 2008, in response to higher losses reported to us, we recorded underwriting losses equal to the remaining aggregate limit on the RVI Contract.  Partially offsetting the difference in underwriting losses related to the RVI contract were losses in the three months ended September 30, 2009 of $5.3 million on an accident and health contract and losses of $6.3 million related to liability arising from Australian wildfires.  Net favorable development was $9.4 million and $13.6 million in the three months ended September 30, 2009 and 2008, respectively.
 
The decrease in net premiums written in the three months ended September 30, 2009 as compared with the same period in 2008 was primarily due to decreases in business written in prior periods in the North American excess-of-loss occurrence class.  The decrease in the business written was the result of fewer opportunities that met our underwriting standards.  The decrease in net premiums earned was the result of the decreases in net premiums written in current and prior periods.  Net premiums written and earned were also affected by changes in the mix of business and the structure of the underlying reinsurance contracts.
 
The decrease in net losses and LAE in the three months ended September 30, 2009 as compared with the same period in 2008 was due to a decrease in net premiums earned and a reduction of the losses on the contracts discussed above.  Net favorable loss development was $7.1 million and $12.5 million in the three months ended September 30, 2009 and 2008, respectively.  Net favorable loss development in the three months ended September 30, 2009 and 2008 was primarily attributable to a level of cumulative losses reported by our ceding companies that was lower than expected and that, in our judgment, resulted in sufficient credibility in the loss experience to change our previously selected loss ratios.
 
The following table sets forth the net favorable (unfavorable) development for the three months ended September 30, 2009 by class of business ($ in thousands):
                         
Class of Business
 
Net Losses and LAE
   
Net Acquisition Expense
   
Net Premiums
   
Net Development
 
                         
North American claims made
  $ 7,061       44           $ 7,105  
International casualty
    (1,628 )     (83 )     (60 )     (1,771 )
North American excess-of-loss occurrence
    (2,831 )     221       11       (2,599 )
North American umbrella
    13,180       524             13,704  
Accident and health
    (7,885 )     1,610             (6,275 )
Other
    (790 )     (181 )     165       (806 )
Total
  $ 7,107       2,135       116     $ 9,358  
 
Net favorable development in the North American claims made class arose primarily from the 2003 and 2005 underwriting years.  Net unfavorable development in the international casualty class arose primarily from the 2007 and 2008 underwriting years, partially offset by favorable development in the 2003 and 2004 underwriting years.  The net unfavorable development primarily related to liability arising from wildfires in California.  Net unfavorable development in the North American excess-of-loss occurrence class arose primarily from construction-related business in the 2004 underwriting year.  Net favorable development in the North American umbrella class arose primarily from the 2003 through 2005 underwriting years.  Net unfavorable development in the accident and health class arose primarily from sports disability and health businesses in the 2006 through 2008 underwriting years.
 
The following table sets forth the net favorable (unfavorable) development for the three months ended September 30, 2008 by class of business ($ in thousands):
                         
Class of Business
 
Net Losses and LAE
   
Net Acquisition Expense
   
Net Premiums
   
Net Development
 
                         
North American excess-of-loss claims made
  $ 13,743       (319 )         $ 13,424  
North American excess-of-loss occurrence
    (1,463 )     (105 )           (1,568 )
International casualty
    1,087       233       41       1,361  
North American clash
    (1,329 )     27       226       (1,076 )
Other
    431       834       223       1,488  
Total
  $ 12,469       670       490     $ 13,629  
 
 
- 23 -

 
 
Net favorable development in the North American excess-of-loss claims made class arose primarily from the 2003 through 2007 underwriting years.  During the quarter ended September 30, 2008, an analysis of our medical malpractice business updated internal and external data including rate changes, trend and loss experience.  This resulted in a reduction of the expected loss ratios for the 2004 through 2008 underwriting years and $8.5 million of the favorable development in the North American excess-of-loss claims made class.  Net unfavorable development in the North American excess-of-loss occurrence class arose primarily from the 2003 and 2007 underwriting years and was partially offset by favorable development in the 2004 underwriting year.  Net favorable development in the international casualty class arose primarily from the motor excess-of-loss business in the 2002 underwriting year.  Net unfavorable development in the North American clash class arose primarily from the 2004 underwriting year.
 
Net favorable loss development and related premium adjustments decreased the net loss and LAE ratios by 7.9 and 10.3 points in the three months ended September 30, 2009 and 2008, respectively.  The net loss and LAE ratios were also affected by changes in the mix of business.
 
Net acquisition expenses were $19.4 million and $29.2 million for the three months ended September 30, 2009 and 2008, respectively.  The decrease in net acquisition expenses was primarily due to the decrease in net premiums earned.  The net acquisition expense ratio was 21.4% and 23.5% for the three months ended September 30, 2009 and 2008, respectively.  The decrease in the net acquisition expense ratio was due to differences in commission and premium adjustments relating to prior years’ losses.  Decreases in commissions related to prior years’ losses were $2.1 million and $0.7 million in the three months ended September 30, 2009 and 2008, respectively.  These commission decreases, with related premium adjustments, represented 2.4% and 1.0% of net premiums earned, in the three months ended September 30, 2009 and 2008, respectively.  Net acquisition expense ratios were also impacted by changes in our mix of business.
 
Finite Risk
 
The Finite Risk segment generated 3.2% and 1.8% of our net premiums written for the three months ended September 30, 2009 and 2008, respectively.  Due to the inverse relationship between losses and commissions for this segment, we believe it is important to evaluate the overall combined ratio, rather than its component parts of net loss and LAE ratio and net acquisition expense ratio.  The following table summarizes underwriting activity and ratios for the Finite Risk segment for the three months ended September 30, 2009 and 2008 ($ in thousands):
                   
   
2009
   
2008
   
Increase (decrease)
 
                   
Net premiums written
  $ 7,675       5,180     $ 2,495  
                         
Net premiums earned
    6,380       4,643       1,737  
Net losses and LAE
    (6,310 )     1,047          
Net acquisition expenses
    13,795       3,438          
Net losses, LAE and acquisition expenses
    7,485       4,485       3,000  
Other underwriting expenses
    342       286       56  
Finite Risk segment underwriting loss
  $ (1,447 )     (128 )   $ (1,319 )
                         
Ratios:
                       
Net loss and LAE
    (98.9 %)     22.6 %        
Net acquisition expense
    216.2 %     74.0 %        
Net loss, LAE and acquisition expense ratios
    117.3 %     96.6 %  
20.7 points
 
Other underwriting expense
    5.4 %     6.2 %  
(0.8) points
 
Combined
    122.7 %     102.8 %  
19.9 points
 
 
The Finite Risk portfolio consists of a small number of contracts that can be large in premium size and, consequently, premium volume may vary significantly from year to year.  Due to the reduction in the premium volume in recent years, current year ratios may be significantly impacted by relatively insignificant adjustments of prior years’ business.  The increases in net premiums written and net premiums earned in the three months ended September 30, 2009 as compared with the same period in 2008 were attributable to an increase in our participation on one contract.  The decrease in underwriting income was due to the increase in the net loss, LAE and acquisition expense ratio in the three months ended September 30, 2009 as compared with the same period in 2008.
 
 
- 24 -

 
 
The increase in net losses, LAE, and acquisition expenses in the three months ended September 30, 2009 as compared with the same period in 2008 was primarily due to the increase in net premiums earned.  The increase in the net loss, LAE and acquisition expense ratio in the three months ended September 30, 2009 as compared with the same period in 2008 was due to a premium adjustment with no associated loss that resulted in a decreased loss ratio in the three months ended September 30, 2008.  Net unfavorable development was $1.3 million and $1.0 million in the three months ended September 30, 2009 and 2008, respectively.  Net unfavorable development resulted from commission adjustments relating to profit commissions, which consider interest income on funds held by the ceding companies.  Interest income was $1.9 million and $1.0 million in the three months ended September 30, 2009 and 2008, respectively.  The net unfavorable development increased the net loss and LAE and acquisition expense ratio by 20.4 points and 20.8 points in the three months ended September 30, 2009 and 2008, respectively.  Exclusive of net favorable development and the premium adjustment, the net loss, LAE and acquisition expense ratio was 96.9% and 102.5% for the three months ended September 30, 2009 and 2008, respectively.
 
Non-Underwriting Results
 
Net investment income for the three months ended September 30, 2009 and 2008 was $44.7 million and $48.0 million, respectively.  Net investment income decreased in the more recent period primarily due to decreases in yields on invested assets and cash and cash equivalents.
 
The following table sets forth our net realized gains and losses on investments for the three months ended September 30, 2009 and 2008 ($ in thousands):
                   
   
2009
   
2008
   
Net change
 
                   
Net gains (losses) on the sale of investments
  $ 18,078       (5,118 )   $ 23,196  
Mark-to-market increase (decrease) in value of trading securities
    4,475       5,047       (572 )
Net realized gains (losses) on investments
  $ 22,553       (71 )   $ 22,624  
 
We sold U.S. Government agency securities, realizing a net gain of $19.3 million, and commercial mortgage-backed securities (“CMBS”), realizing a net loss of $1.3 million, in the three months ended September 30, 2009.  The U.S. Government agency securities that we sold consisted of securities issued by financial institutions under the Temporary Liquidity Guarantee Program and are guaranteed by the Federal Deposit Insurance Corporation.  Losses on the sale of investments in the three months ended September 30, 2008 resulted from the sale of corporate bonds and other investment instruments issued by financial institutions.
 
Net impairment losses on investments were $5.1 million and $13.1 million for the three months ended September 30, 2009 and 2008, respectively.  The net impairment losses recorded during the three months ended September 30, 2009 included $2.0 million of non-agency residential mortgage-backed securities (“RMBS”), $1.7 million of CMBS and $1.4 million of sub-prime asset-backed securities.  The net impairment losses recorded in the three months ended September 30, 2009 reflect the portion of total other-than-temporary impairments attributed to the credit losses for the impaired securities.  The net impairment losses recorded in the three months ended September 30, 2008 reflect the entire difference between the amortized cost basis and fair value of the impaired securities at the balance sheet date.
 
The net changes in fair value of derivatives for the three months ended September 30, 2009 and 2008 were $4.3 million and $6.6 million, respectively.  The net changes in fair value of derivatives in the three months ended September 30, 2009 was attributed to a three year derivative contract with Topiary Capital Limited (“Topiary”) that commenced in August 2008 and provides us with annual second event catastrophe protection.  The seasonality of the subject perils and the second event nature of the contract result in significant fluctuation in the fair value of the derivative.  There were two other derivative contracts, in addition to Topiary, in effect for the three months ended September 30, 2008.  The first derivative contract provided second event catastrophe protection and the other derivative contract was an option to purchase reinsurance.  The decrease in expense in the three months ended September 30, 2009 as compared with the same period in 2008 was due to the two other derivative contracts, in addition to Topiary, in effect for the three months ended September 30, 2008.
 
Other expense for the three months ended September 30, 2009 and 2008 was $1.2 million and $0.1 million, respectively.  Other expense in the three months ended September 30, 2009 related primarily to a reinsurance contract that was accounted for as a deposit.
 
Operating expenses for the three months ended September 30, 2009 and 2008 were $25.2 million and $21.2 million, respectively.  Operating expenses include costs such as salaries, rent and other costs to support our reinsurance operations and costs associated with operating as a publicly traded company.  The increase in operating expenses was primarily attributed to an increase in performance based compensation accruals in 2009 as compared with a decrease in the same period in 2008 resulting in a net increase of $6.5 million, partially offset by a $4.3 million decrease in expenses attributable to entering into the agreement with Topiary in 2008.
 
Net foreign currency exchange gains for the three months ended September 30, 2009 were $0.6 million as compared to net foreign currency exchange losses of $6.1 million for the three months ended September 30, 2008.  We routinely transact business in currencies other than the U.S. dollar.  The foreign exchange gains for the three months ended September 30, 2009 were minimal because we held non-U.S. dollar denominated assets and liabilities in approximately equivalent amounts.  The net foreign currency exchange losses in the three months ended September 30, 2008 were the result of holding more non-U.S. dollar denominated assets than non-U.S. dollar denominated liabilities, primarily the Euro and Pound Sterling, as the U.S. dollar declined in value against those currencies.
 
Interest expense for both the three months ended September 30, 2009 and 2008 was $4.8 million and related to our $250.0 million of Series B 7.5% Notes due June 1, 2017.
 
 
- 25 -

 
 
Income tax benefit for the three months ended September 30, 2009 and 2008 was $1.8 million and $5.0 million, respectively.  The income tax benefit in each of these periods arose from net losses generated by our subsidiaries that operate in taxable jurisdictions and income from tax-advantaged municipal bond investment income in Platinum US.  The decrease in income tax benefit was the result of a decline in the net losses generated by subsidiaries in taxable jurisdictions in the three months ended September 30, 2009 as compared to the same period in 2008.
 
 Nine Months Ended September 30, 2009 as Compared with the Nine Months Ended September 30, 2008
 
Net income and diluted earnings per share for the nine months ended September 30, 2009 and 2008 was as follows ($ in thousands, except earnings per share):
                   
   
2009
   
2008
   
Increase (decrease)
 
                   
Net income
  $ 292,520       162,188     $ 130,332  
Average shares outstanding used to calculate diluted earnings per share
    52,547       57,633       (5,086 )
Diluted earnings per share
  $ 5.57       2.81     $ 2.76  
 
The increase in net income in the nine months ended September 30, 2009 as compared with the same period in 2008 was due to an increase in net underwriting income of $82.8 million and an increase in net realized gains on investments of $57.2 million.  The increase in net underwriting income was primarily due to the decrease in underwriting losses arising from major catastrophes in the nine months ended September 30, 2009.
 
The increase in diluted earnings per share for the nine months ended September 30, 2009 as compared with the three months ended September 30, 2008 was primarily due to the increase in net income.  Diluted earnings per share also reflects a decrease in average shares outstanding used to calculate diluted earnings per share as a result of share repurchases from October 1, 2008 to September 30, 2009.  Consequently, as net income increased by 80.4%, diluted earnings per share increased by 98.2%.
 
Underwriting Results
 
Net underwriting income for the nine months ended September 30, 2009 and 2008 was $166.4 million and $83.6 million, respectively.  The increase in net underwriting income for the nine months ended September 30, 2009 as compared with the same period in 2008 was primarily due to the decrease in underwriting losses arising from major catastrophes occurring in the nine months ended September 30, 2009, partially offset by a decrease in net favorable development.  Underwriting losses from catastrophes were $14.2 million and $140.4 million in the nine months ended September 30, 2009 and 2008, respectively.  Catastrophe losses in 2008 were primarily attributable to Hurricanes Gustav and Ike and European Storm Emma.  Net premiums written decreased in the nine months ended September 30, 2009 as compared with the same period in 2008 in both the Property and Marine and Casualty segments.
 
Net favorable development was $65.9 million and $98.3 million in the nine months ended September 30, 2009 and 2008, respectively.  The net favorable development in the nine months ended September 30, 2009 was in the Property and Marine and Casualty segments.
 
Property and Marine
 
The Property and Marine operating segment generated 57.8% and 56.8% of our net premiums written for the nine months ended September 30, 2009 and 2008, respectively.  The following table summarizes underwriting activity and ratios for the Property and Marine segment for the nine months ended September 30, 2009 and 2008 ($ in thousands):
                   
   
2009
   
2008
   
Increase (decrease)
 
                   
Gross premiums written
  $ 424,667       477,599     $ (52,932 )
Ceded premiums written
    22,079       23,058       (979 )
Net premiums written
    402,588       454,541       (51,953 )
                         
Net premiums earned
    394,554       446,869       (52,315 )
Net losses and LAE
    186,565       279,165       (92,600 )
Net acquisition expenses
    47,711       69,119       (21,408 )
Other underwriting expenses
    26,925       29,774       (2,849 )
Property and Marine segment underwriting income
  $ 133,353       68,811     $ 64,542  
                         
Ratios:
                       
Net loss and LAE
    47.3 %     62.5 %  
(15.2) points
 
Net acquisition expense
    12.1 %     15.5 %  
(3.4) points
 
Other underwriting expense
    6.8 %     6.7 %  
0.1 points
 
Combined
    66.2 %     84.7 %  
(18.5) points
 
 
 
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The increase in underwriting income in the nine months ended September 30, 2009 as compared with the same period in 2008 was primarily due to the decrease in underwriting losses arising from major catastrophes, partially offset by a reduction in net favorable development.  We had $14.2 million of underwriting losses from major catastrophes in the nine months ended September 30, 2009 as compared with $140.4 million of underwriting losses in the same period in 2008, primarily attributable to Hurricanes Gustav and Ike and European Storm Emma.  The decrease in underwriting losses arising from major catastrophes was partially offset by a reduction in net favorable development and net premiums earned.  Net favorable development was $18.4 million and $62.7 million in the nine months ended September 30, 2009 and 2008, respectively.
 
Gross premiums written in the nine months ended September 30, 2009 decreased in comparison with the same period in 2008 as we reduced our exposure to catastrophe events, most significantly in the renewal of contracts effective January 1, 2009, and the impact of reinstatement premiums relating to major catastrophes.  Reinstatement premiums relating to major catastrophes were $2.8 million and $23.5 million in the nine months ended September 30, 2009 and 2008, respectively.
 
The decrease in net losses and LAE in the nine months ended September 30, 2009 as compared with the same period in 2008 was primarily due to the decrease in losses arising from major catastrophes in the nine months ended September 30, 2009.  Losses from major catastrophes were $17.0 million and $156.1 million in the nine months ended September 30, 2009 and 2008, respectively.  This decrease was partially offset by the decrease in net favorable loss development.  Net favorable loss development was $9.9 million and $60.2 million in the nine months ended September 30, 2009 and 2008, respectively.  Net favorable loss development in the two periods was primarily attributable to a level of cumulative losses reported by our ceding companies that was lower than expected and that, in our judgment, resulted in sufficient credibility in the loss experience to change our previously selected loss ratios.
 
The following table sets forth the net favorable (unfavorable) development for the nine months ended September 30, 2009 by class of business ($ in thousands):
                         
Class of Business
 
Net Losses and LAE
   
Net Acquisition Expense
   
Net Premiums
   
Net Development
 
                         
Property excess-of-loss per risk
  $ 9,250       (253 )     1,287     $ 10,284  
Catastrophe excess-of-loss (non-major events)
    11,980       1,366       143       13,489  
Major catastrophes
    (2,547 )           629       (1,918 )
Crop
    (8,923 )     5,074             (3,849 )
Marine, aviation and satellite
    (4,259 )     320       320       (3,619 )
Property proportional
    4,405       (426 )           3,979  
Total
  $ 9,906       6,081       2,379     $ 18,366  
 
Net favorable development in the property excess-of-loss per risk class arose primarily from the 2004 through 2008 underwriting years.  Net favorable development in the catastrophe excess-of-loss (non-major events) class arose primarily from the 2008 underwriting year.  Net favorable development in major catastrophes arose primarily from Hurricanes Ike and Gustav, partially offset by unfavorable development from Hurricane Wilma.  Net unfavorable development in the crop class arose primarily in our North American business in the 2008 underwriting year and was partially offset by a decrease in net acquisition expense.  Net unfavorable development in the marine, aviation and satellite class arose primarily from the marine business in the 2004, 2005 and 2007 underwriting years.  Net favorable development in the property proportional class arose primarily from the 2005 through 2007 underwriting years.
 
The following table sets forth the net favorable (unfavorable) development for the nine months ended September 30, 2008 by class of business ($ in thousands):
                         
Class of Business
 
Net Losses and LAE
   
Net Acquisition Expense
   
Net Premiums
   
Net Development
 
                         
Property excess-of-loss per risk
  $ 6,546       941       1,925     $ 9,412  
Catastrophe excess-of-loss (non-major events)
    21,741       (1,276 )     1,327       21,792  
Major catastrophes
    15,601             (1,540 )     14,061  
Crop
    11,335       (2,745 )           8,590  
Marine, aviation and satellite
    (389 )     (2,270 )     5,858       3,199  
Property proportional
    5,405       250             5,655  
Total
  $ 60,239       (5,100 )     7,570     $ 62,709  
 
 
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Net favorable development in the property excess-of-loss per risk class arose primarily from the 2006 and 2007 underwriting years and included improved experience in North American regional business where loss ratios had been increased from initial expected loss ratios in prior periods in response to loss experience.  A change in the expected pattern of reported losses in our North American business resulted in $2.7 million of the favorable development.  Net favorable development in the catastrophe excess-of-loss (non-major events) class arose primarily from international business in the 2007 underwriting year.  Following a study of our historical experience and an updated exposure analysis, we decreased our initial expected loss ratio in response to loss experience of our international business resulting in $2.1 million of the favorable development in the catastrophe excess-of-loss (non-major events) class.  Net favorable development in major catastrophes arose primarily from events occurring in 2005 and 2007, the largest of which were Hurricane Katrina, Windstorm Kyrill and summer floods in the UK.  Net favorable development in the crop class arose primarily from the 2007 underwriting year.  Net favorable development in the marine, aviation and satellite class arose primarily from the marine business in the 2005 through 2007 underwriting years, due to an increase in reinstatement premiums resulting from several years of adverse loss experience.  Net favorable development in the property proportional class arose primarily from the 2003 through 2005 underwriting years, with a change to the expected pattern of reported losses resulting in approximately $2.0 million of favorable development.
 
Net losses from major catastrophes in the nine months ended September 30, 2009 and 2008 were $17.0 million and $156.1 million, respectively.  The net losses from major catastrophes, with related premium adjustments, increased the net loss and LAE ratio by 4.0 points and 33.9 points in the nine months ended September 30, 2009 and 2008, respectively.  Net favorable loss development and related premium adjustments decreased the net loss and LAE ratio by 2.8 and 14.8 points in the nine months ended September 30, 2009 and 2008, respectively.  Exclusive of losses related to major catastrophes, net favorable loss development and related premiums, the net loss and LAE ratio was 46.1% and 43.4% for the nine months ended September 30, 2009 and 2008, respectively.  The increase in the net loss and LAE ratio in the nine months ended September 30, 2009 as compared with the same period in 2008 was due, in part, to an increase in crop premium, which has a higher net loss and LAE ratio than the remainder of the segment.  The net loss and LAE ratios were also affected by other changes in the mix of business.
 
Net acquisition expenses were $47.7 million and $69.1 million for the nine months ended September 30, 2009 and 2008, respectively.  The decrease in the net acquisition expenses was due to the decrease in net premiums earned.  The net acquisition expense ratio was 12.1% and 15.5% for the nine months ended September 30, 2009 and 2008, respectively.  The decrease in the net acquisition expense ratio was due to differences in commission and premium adjustments relating to prior years’ losses.  The decrease in commissions related to prior years’ losses was $6.1 million, which, with related premium adjustments, represented 1.6% of net earned premiums in the nine months ended September 30, 2009 as compared with an increase in commissions related to prior years’ losses of $5.1 million for the same period in 2008 which, with related premium adjustments, represents 0.9% of net premiums earned.  Net acquisition expense ratios were also impacted by changes in our mix of business.
 
Casualty
 
The Casualty operating segment generated 39.3% and 41.9% of our net premiums written for the nine months ended September 30, 2009 and 2008, respectively.  The following table summarizes underwriting activity and ratios for the Casualty segment for the nine months ended September 30, 2009 and 2008 ($ in thousands):
                   
   
2009
   
2008
   
Increase (decrease)
 
                   
Net premiums written
  $ 273,940       335,262     $ (61,322 )
                         
Net premiums earned
    299,712       385,059       (85,347 )
Net losses and LAE
    179,426       252,233       (72,807 )
Net acquisition expenses
    66,020       98,893       (32,873 )
Other underwriting expenses
    18,550       18,734       (184 )
Casualty segment underwriting income
  $ 35,716       15,199     $ 20,517  
                         
Ratios:
                       
Net loss and LAE
    59.9 %     65.5 %  
(5.6) points
 
Net acquisition expense
    22.0 %     25.7 %  
(3.7) points
 
Other underwriting expense
    6.2 %     4.9 %  
1.3 points
 
Combined
    88.1 %     96.1 %  
(8.0) points
 
 
The increase in underwriting income in the nine months ended September 30, 2009 as compared with the same period in 2008 was primarily due to a decrease in losses related to the RVI Contract an increase in net favorable development.  As a result of significantly lower losses reported to us, we decreased underwriting losses related to the RVI Contract by $10.8 million in the nine months ended September 30, 2009.  The underwriting loss on the RVI Contract was $8.9 million for the nine months ended September 30, 2008.  Partially offsetting the difference in underwriting losses related to the RVI contract were losses in the nine months ended September 30, 2009 of $5.3 million on an accident and health contract and losses of $6.3 million related to liability arising from Australian wildfires.  Net favorable development was $49.4 million and $36.4 million in the nine months ended September 30, 2009 and 2008, respectively.
 
 
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The decrease in net premiums written in the nine months ended September 30, 2009 as compared with the same period in 2008 was primarily due to decreases in business written in prior periods in the North American excess-of-loss occurrence classes.  The decreases in business written were the result of fewer opportunities that met our underwriting standards.  The decrease in net premiums earned was the result of the decreases in net premiums written in current and prior periods.  Net premiums written and earned were also affected by changes in the mix of business and the structure of the underlying reinsurance contracts.
 
The decrease in net losses and LAE in the nine months ended September 30, 2009 as compared with the same period in 2008 was primarily due to a decrease in net premiums earned and the losses on the contracts discussed above.  Net favorable loss development was $43.7 million and $40.1 million in the nine months ended September 30, 2009 and 2008, respectively.  Net favorable loss development in the nine months ended September 30, 2009 and 2008 was primarily attributable to a level of cumulative losses reported by our ceding companies that was lower than expected and that, in our judgment, resulted in sufficient credibility in the loss experience to change our previously selected loss ratios.
 
The following table sets forth the net favorable (unfavorable) development for the nine months ended September 30, 2009 by class of business ($ in thousands):
                         
Class of Business
 
Net Losses and LAE
   
Net Acquisition Expense
   
Net Premiums
   
Net Development
 
                         
North American claims made
  $ 22,032       486           $ 22,518  
North American clash
    1,806       52       316       2,174  
North American excess-of-loss occurrence
    10,933       (213 )     84       10,804  
North American umbrella
    16,840       4,669             21,509  
Accident and health
    (6,963 )     848             (6,115 )
Other
    (932 )     (76 )     (440 )     (1,448 )
Total
  $ 43,716       5,766       (40 )   $ 49,442  
 
Net favorable development in the North American claims made class arose primarily from the 2003 and 2005 underwriting years.  Net favorable development in the North American clash class arose primarily from a specific loss resulting from an explosion in 2005.  Net favorable development in the North American excess-of-loss occurrence class arose primarily from the 2003, 2005 and 2007 underwriting years partially offset by unfavorable development in the 2002 and 2008 underwriting years.  The 2007 underwriting year net favorable development in this class resulted from improved loss experience in the current year after adverse experience led us to increase the selected loss ratio from the initial expected loss ratio in prior years.  Net favorable development in the North American umbrella class arose primarily from the 2003 through 2005 underwriting years.  Net unfavorable development in the accident and health class arose primarily from sports disability and health businesses in the 2006 through 2008 underwriting years.
 
The following table sets forth the net favorable (unfavorable) development in the nine months ended September 30, 2008 by class of business ($ in thousands):
                         
Class of Business
 
Net Losses and LAE
   
Net Acquisition Expense
   
Net Premiums
   
Net Development
 
                         
North American excess-of-loss claims made
  $ 30,700       (5,302 )         $ 25,398  
International casualty
    6,022       502       41       6,565  
Financial lines
    3,997       426       529       4,952  
Other
    (595 )     (368 )     412       (551 )
Total
  $ 40,124       (4,742 )     982     $ 36,364  
 
Net favorable development in the North American excess-of-loss claims made class arose primarily from the 2003 through 2007 underwriting years.  During the quarter ended September 30, 2008, an analysis of our medical malpractice business updated internal and external data including rate changes, trend and loss experience.  This resulted in a reduction of the expected loss ratios for the 2004 through 2008 underwriting years and $10.3 million of the favorable development in the North American excess-of-loss claims made class.  Net favorable development in the international casualty class arose primarily from the motor excess of loss and claims made classes in the 2002 and 2003 underwriting years.  Net favorable development in the financial lines class arose primarily from the credit and surety excess-of-loss classes in the 2004 through 2007 underwriting years.
 
Net favorable loss development and related premium adjustments decreased the net loss and LAE ratios by 14.5 and 10.6 points in the nine months ended September 30, 2009 and 2008, respectively.  The net loss and LAE ratios were also affected by changes in the mix of business.
 
 
- 29 -

 
 
Net acquisition expenses were $66.0 million and $98.9 million for the nine months ended September 30, 2009 and 2008, respectively.  The decrease in net acquisition expenses was due to the decrease in net premiums earned.  The net acquisition expense ratio was 22.0% and 25.7% for the nine months ended September 30, 2009 and 2008, respectively.  The decrease in the net acquisition expense ratio was due to the differences in commission and premium adjustments relating to the prior years’ losses.  The decrease in commissions related to prior years’ losses was $5.8 million which, with related premium adjustments, represented 1.9% of net earned premiums in the nine months ended September 30, 2009 as compared with an increase of $4.7 million which, with related premium adjustments, represented 1.0% of net premiums earned for the same period in 2008.  Net acquisition expense ratios were also impacted by changes in our mix of business.
 
Finite Risk
 
The Finite Risk segment generated 2.9% and 1.3% of our net premiums written for the nine months ended September 30, 2009 and 2008, respectively.  The following table summarizes underwriting activity and ratios for the Finite Risk segment for the nine months ended September 30, 2009 and 2008 ($ in thousands):
                   
   
2009
   
2008
   
Increase (decrease)
 
                   
Net premiums written
  $ 20,451       10,437     $ 10,014  
                         
Net premiums earned
    15,486       8,630       6,856  
Net losses and LAE
    2,358       (6,940 )        
Net acquisition expenses
    14,772       14,987          
Net losses, LAE and acquisition expenses
    17,130       8,047       9,083  
Other underwriting expenses
    1,042       961       81  
Finite Risk segment underwriting loss
  $ (2,686 )     (378 )   $ (2,308 )
                         
Ratios:
                       
Net loss and LAE
    15.2 %     (80.4 %)        
Net acquisition expense
    95.4 %     173.7 %        
Net loss, LAE and acquisition expense ratios
    110.6 %     93.3 %  
17.3 points
 
Other underwriting expense
    6.7 %     11.1 %  
(4.4) points
 
Combined
    117.3 %     104.4 %  
12.9 points
 
 
The increases in net premiums written and net premiums earned in the nine months ended September 30, 2009 as compared with the same period in 2008 were attributable to an increase in participation on one contract.   The decrease in underwriting income was due to the increase in the net loss, LAE and acquisition expense ratio in the nine months ended September 30, 2009 as compared with the same period in 2008.
 
The increase in net losses, LAE and acquisition expenses in the nine months ended September 30, 2009 as compared with the same period in 2008 was due to the increase in net premiums earned.  The increase in the net loss, LAE and acquisition expense ratio in the nine months ended September 30, 2009 as compared with the same period in 2008 was due to a premium adjustment with no associated loss that resulted in a decreased loss ratio in the nine months ended September 30, 2008.  Net unfavorable development was $1.9 million and $0.8 million in the nine months ended September 30, 2009 and 2008, respectively.  Net unfavorable development resulted from commission adjustments relating to interest income on profit commissions on funds held by the ceding companies in the period.  Interest income was $3.5 million and $2.2 million in the nine months ended September 30, 2009 and 2008, respectively.  The net unfavorable development increased the net loss, LAE and acquisition expense ratio by 12.1 points and 8.8 points in the nine months ended September 30, 2009 and 2008, respectively.  Exclusive of net favorable development and the premium adjustments, the net loss, LAE and acquisition expense ratio was 98.5% and 98.0% for the nine months ended September 30, 2009 and 2008, respectively.
 
Non-Underwriting Results
 
Net investment income for the nine months ended September 30, 2009 and 2008 was $123.1 million and $144.0 million, respectively.  Net investment income decreased in the more recent period primarily due to decreases in yields on invested assets and cash and cash equivalents.  In the nine months ended September 30, 2009, investment income included net adjustments to decrease net investment income by approximately $4.6 million related to our U.S. Treasury Inflation-Protected Securities (“TIPS”), primarily as a result of changes in the consumer price index.  We did not own any TIPS in the comparable 2008 period.
 
 
- 30 -

 
 
The following table sets forth our net realized gains and losses on investments for the nine months ended September 30, 2009 and 2008 ($ in thousands):
                   
   
2009
   
2008
   
Net change
 
                   
Net gains (losses) on the sale of investments
  $ 47,846       (5,257 )   $ 53,103  
Mark-to-market increase (decrease) in value of trading securities
    6,071       1,990       4,081  
Net realized gains (losses) on investment
  $ 53,917       (3,267 )   $ 57,184  
 
We sold TIPS, U.S. Government agency securities, corporate bonds, RMBS and asset-backed securities, realizing a net gain of $48.4 million, and CMBS, realizing a net loss of $1.3 million, in the nine months ended September 30, 2009.  Losses on the sale of investments in the nine months ended September 30, 2008 resulted from the sale of corporate bonds and other investment instruments issued by financial institutions.
 
Net impairment losses on securities for the nine months ended September 30, 2009 and 2008 were $11.7 million and $13.1 million, respectively.  The net impairment losses recorded during the nine months ended September 30, 2009 included $5.8 million of non-agency RMBS, $2.6 million of CMBS, and $2.1 million of sub-prime asset-backed securities.  We also recorded other-than-temporary impairments of $1.2 million on our holdings of perpetual preferred stocks for the nine months ended September 30, 2009.  The net impairment losses recorded in the nine months ended September 30, 2009 reflect the portion of total other-than-temporary impairments attributed to the credit losses for the applicable securities.  The net impairment losses recorded in the nine months ended September 30, 2008 reflect the entire difference between the amortized cost basis and fair value of the impaired securities at the time of impairment.
 
The net changes in fair value of derivatives for the nine months ended September 30, 2009 and 2008 were $6.8 million and $8.4 million, respectively.  The net change in fair value of derivatives was attributed to the derivative contract with Topiary compared to 2008 which included two other derivative contracts.  Exclusive of the two other derivative contracts the expense of the Topiary contract increased as a result of there being nine months of coverage rather than two in the same period in 2008.
 
Operating expenses for the nine months ended September 30, 2009 and 2008 were $69.0 million and $67.9 million, respectively.  The increase was primarily attributed to a $5.9 million increase in performance based compensation accruals as compared with the same period in 2008, partially offset by a $4.3 million decrease in expenses attributable to entering into the agreement with Topiary in 2008.
 
Net foreign currency exchange gains for the nine months ended September 30, 2009 were $0.2 million as compared to net foreign currency exchange losses of $3.3 million for the nine months ended September 30, 2008.  We routinely transact business in currencies other than the U.S. dollar.  The foreign exchange gains for the nine months ended September 30, 2009 were minimal because we held non-U.S. dollar denominated assets and liabilities in approximately equivalent amounts.  The net foreign currency exchange losses in the nine months ended September 30, 2008 were the result of holding more non-U.S. dollar denominated assets than non-U.S. dollar denominated liabilities, primarily the Euro and Pound Sterling, while the U.S. dollar declined in value against those currencies.
 
Interest expense for both the nine months ended September 30, 2009 and 2008 was $14.3 million and related to our $250.0 million of Series B 7.5% Notes due June 1, 2017.
 
Income tax benefit for the nine months ended September 30, 2009 was $0.1 million compared with an income tax expense of $5.2 million for the nine months ended September 30, 2008.  The income tax benefit for the nine months ended September 30, 2009 was primarily due to the decrease in income generated by our subsidiaries that operate in taxable jurisdictions.  The decrease in income tax expense was also partially attributable to an increase in tax-advantaged municipal bond investment income in Platinum US.
 
 Financial Condition, Liquidity, and Capital Resources
 
The following discussion of financial condition, liquidity and capital resources as of September 30, 2009 focuses only on material changes from December 31, 2008.  See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition, Liquidity and Capital Resources in our 2008 Form 10-K.
 
 Liquidity
 
Our principal cash requirements are the payment of losses and LAE, commissions, brokerage, operating expenses and dividends to our common shareholders, the servicing of debt, capital expenditures, purchase of retrocessional contracts and payment of taxes.  Our liquidity requirements have not changed materially since December 31, 2008.  We expect that our liquidity needs for the next twelve months will be met by our cash and cash equivalents, short-term investments, cash from operations, investment income and proceeds on the sale, redemption or maturity of our investments.
 
Our sources of funds consist primarily of cash from operations, proceeds from sales, redemption and maturity of investments, issuance of securities and cash and cash equivalents held by us.  Net cash flows provided by operations excluding trading security activities for the nine months ended September 30, 2009 were $214.2 million. In addition, we have a $400.0 million credit facility with a syndicate of lenders that consists of a $150.0 million senior unsecured credit facility available for revolving borrowings and letters of credit and a $250.0 million senior secured credit facility available for letters of credit.  As of September 30, 2009, $150.0 million was available for borrowing and letters of credit on an unsecured basis and $76.9 million was available for letters of credit on a secured basis under the credit facility.  As of December 31, 2008, $150.0 million was available for borrowing on letters of credit on an unsecured basis and $68.7 million was available for letters of credit on a secured basis under the credit facility.
 
 
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On a consolidated basis, our aggregate cash and invested assets totaled $4,413.8 million at September 30, 2009 as compared with $4,259.9 million at December 31, 2008.  Additionally, we had net balances due from brokers related to the sale of securities of $201.6 million and $20.3 million at September 30, 2009 and December 31, 2008, respectively, which are included in other assets.  Our investment portfolio consists primarily of diversified, high quality, predominantly publicly traded fixed maturity securities.  The investment portfolio, excluding cash and cash equivalents and short term investments, had a duration of 3.69 years as of September 30, 2009.
 
As of September 30, 2009, the fair value of our available-for-sale securities was $3,665.7 million, with a net unrealized loss of $30.3 million.  The following table sets forth the fair values, net unrealized gains and losses and average credit quality of our fixed maturity securities as of September 30, 2009 ($ in thousands):

   
Fair Value
   
Net Unrealized Gain (Loss)
   
Average Credit Quality
 
                   
Available-for-sale securities:
                 
U.S. Government
  $ 366,364     $ 2,540    
Aaa
 
U.S. Government agencies
    101,087       987    
Aaa
 
Corporate:
                     
Industrial
    466,137       24,438       A2  
Finance
    63,017       (2,618 )     A1  
Utilities
    50,328       1,325       A3  
Insurance
    37,007       1,686       A1  
Preferreds with maturity date
    27,154       (4,967 )  
Baa1
 
Hybrid trust preferreds
    16,035       (1,351 )     A1  
Mortgage-backed and asset-backed securities:
                       
Commercial mortgage-backed securities
    227,796       (34,365 )  
Aa1
 
U.S. Government agency residential mortgage-backed securities
    894,331       19,252    
Aaa
 
Non-agency residential mortgage-backed securities
    92,846       (49,290 )     A2  
Alt-A residential mortgage-backed securities
    8,268       (9,101 )     B1  
Sub-prime asset-backed securities
    9,291       (29,208 )  
Baa3
 
Asset-backed securities
    51,981       1,023    
Aaa
 
Municipal bonds
    702,357       33,377    
Aa3
 
Non-U.S. governments
    548,145       14,300    
Aaa
 
Total fixed maturity available-for-sale securities
    3,662,144       (31,972 )  
Aa2
 
Preferred stocks
    3,534       1,655       B3  
Total available-for-sale securities
    3,665,678       (30,317 )  
Aa2
 
                         
Trading securities:
                       
U.S. Government
    148,647       n/a    
Aaa
 
Insurance-linked securities
    20,215       n/a    
Ba2
 
Corporate bonds
    79       n/a    
Baa2
 
Non-U.S. governments
    119,001       n/a    
Aa1
 
Total trading securities
    287,942       n/a    
Aa1
 
                         
Short-term investments
    47,888       n/a    
Aaa
 
                         
Total investments
  $ 4,001,508     $ (30,317 )  
Aa2
 
 
During the nine months ended September 30, 2009, net unrealized losses on our available-for-sale investment portfolio decreased by approximately $173.7 million.  This decrease was offset by the cumulative effect of applying the new guidance under ASC 320 which requires the portion of the other-than-temporary impairment related to the credit loss be recognized in net income and the portion related to the other factors to be recognized in other comprehensive income.  As a result, an adjustment to the opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive income resulted in an increase in net unrealized losses of $15.1 million.
 
 
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The net unrealized loss position of our portfolio of CMBS was $34.4 million as of September 30, 2009 as compared with $105.5 million as of December 31, 2008.  The change in net unrealized loss was primarily attributable to a significant narrowing of interest rate spreads since December 31, 2008.  We analyze our CMBS on a periodic basis using default loss models based on the performance of the underlying loans.  Performance metrics include delinquencies, defaults, foreclosures, debt-service-coverage ratios and cumulative losses incurred.  The expected losses for a mortgage pool are compared to the current level of subordination, which generally represents the point at which our security would experience losses.  We evaluate projected cash flows as well as other factors in order to determine if a credit impairment has occurred.  Our portfolio consists primarily of senior tranches of CMBS with high credit ratings, strong subordination and low loan-to-value ratios.
 
The net unrealized loss position of our RMBS portfolio was $39.1 million as of September 30, 2009 as compared with $77.6 million as of December 31, 2008.  The change in net unrealized loss was attributable primarily to a narrowing of interest rate spreads on agency RMBS since December 31, 2008.  Approximately 90% of the RMBS in our investment portfolio were issued or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation and are referred to as U.S. Government agency RMBS.  The remaining 10% of our RMBS were issued by non-agency institutions and included securities with underlying Alt-A mortgages.  The net unrealized loss position of our portfolio of sub-prime asset-backed securities was $29.2 million as of September 30, 2009 as compared with $25.9 million as of December 31, 2008.  We analyze our RMBS and sub-prime asset-backed securities on a periodic basis using default loss models based on the performance of the underlying loans.  Performance metrics include, but are not limited to, delinquencies, defaults, foreclosures, prepayment speeds and cumulative losses incurred.  The expected losses for a mortgage pool are compared to the current level of subordination, which generally represents the point at which our security would experience losses.  We evaluate projected cash flows as well as other factors in order to determine if a credit impairment has occurred.
 
Sources of Fair Value
 
We obtain prices for all of our fixed maturity securities, preferred stocks and short-term investments from pricing services, which include index providers, pricing vendors and broker-dealers.  We valued approximately 66% of our investment securities using prices obtained from index providers, 24% using prices obtained from pricing vendors, and 10% using prices obtained from broker-dealers.  The number of prices we obtain per instrument varies based on the type of asset class and particular reporting period.  Prices are generally obtained from multiple sources when a new security is purchased and a pricing source is assigned to the particular security.  A hierarchy is maintained that prioritizes pricing sources based on availability and reliability of information, with preference given to prices provided by independent pricing vendors and index providers.  Pricing providers may be assigned to a particular security based upon the provider’s expertise.  Generally, the initial pricing source selected is consistently used for each reporting period.  We have not adjusted any prices we have obtained from pricing services.  However, if we determine a price appears unreasonable, we investigate and assess whether the price should be adjusted.
 
We periodically receive pricing documentation that describes the methodologies used by various pricing services.  The prices we obtain from pricing providers are validated by: conducting price comparisons against multiple pricing sources for certain securities as may be available; performing an in-depth review of specific securities when evaluating potential other-than-temporary impairments; periodic back-testing of sales to the previously reported fair value; and continuous monitoring of market data including specific data that relates to our investment portfolio.
 
Pricing services determine prices by maximizing the use of observable inputs and we do not believe there are any unobservable inputs significant to the fair value measurement.  The inputs used in index pricing may include, but are not limited to, benchmark yields, transactional data, broker-dealer quotes, security cash flows and structures, credit ratings, prepayment speeds, loss severities, credit risks and default rates.  The inputs used by pricing vendors may include, but are not limited to, benchmark yields, reported trades, broker-dealer quotes, issuer spreads, bids, offers and industry and economic events.  Broker-dealers value securities through trading desks primarily based on observable inputs.  Our derivative instruments, which are included in other liabilities in the consolidated balance sheets, are priced at fair value, primarily using unobservable inputs through the application of our own assumptions and internal valuation pricing models.  Our debt obligations are priced at fair value from independent sources for those or similar securities.
 
 Capital Resources
 
At September 30, 2009, our capital resources of $2.4 billion consisted of $250.0 million of Series B 7.5% Notes and common shareholders’ equity of $2.2 billion.  At December 31, 2008, our capital resources of $2.1 billion consisted of $250.0 million of Series B 7.5% Notes, $167.5 million of preferred share equity, and $1.6 billion of common shareholders’ equity.  The increase in capital during the nine months ended September 30, 2009 was primarily attributable to net income from operations, and the increase in fair value of our investment portfolio, partially offset by share repurchase activity.  On February 17, 2009, our 5,750,000 outstanding 6% Series A Mandatory Convertible Preferred Shares converted into 5,750,000 common shares at a ratio of one-to-one, based on the volume-weighted average price of $29.90 of our common shares from January 14, 2009 through February 11, 2009.
 
Our board of directors has authorized the repurchase of up to $250.0 million of our common shares through a share repurchase program.  Since the program was established, our board of directors has monitored the level of share repurchase activity and periodically restored the repurchase authority under the program to $250.0 million, most recently on July 23, 2009.  During the nine months ended September 30, 2009, we repurchased 3.7 million of our common shares in the open market at an aggregate cost, including commissions, of $101.4 million and a weighted average cost, including commissions, of $27.14 per share.  Our board of directors has also authorized the repurchase of up to $250.0 million of our outstanding Series B 7.5% Notes issued by Platinum Finance, due June 1, 2017, in open market purchases, privately negotiated transactions or otherwise.  The timing and amount of the repurchase transactions under these programs depends on a variety of factors, including market conditions, our liquidity requirements, contractual restrictions, corporate and regulatory considerations and other factors.
 
 
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 Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements, as defined for purposes of the U.S. Securities and Exchange Commission (“SEC”) rules, which are not accounted for or disclosed in our consolidated financial statements as of September 30, 2009.
 
 Contractual Obligations
 
There have been no material changes to our contractual obligations as disclosed under Management’s Discussion and Analysis of Financial Condition – Contractual Obligations in our 2008 Form 10-K.
 
 Recently Issued Accounting Standards
 
See Note 1 to the consolidated financial statements in this Form 10-Q for a discussion of recently issued accounting standards.
 
 Note On Forward-Looking Statements
 
This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).  Forward-looking statements are based on our current plans or expectations that are inherently subject to significant business, economic and competitive uncertainties and contingencies.  These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, us.  In particular, statements using words such as “may,” “should,” “estimate,” “expect,” “anticipate,” “intend,” “believe,” “predict,” “potential,” or words of similar import generally involve forward-looking statements.
 
The inclusion of forward-looking statements in this Form 10-Q should not be considered as a representation by us or any other person that our current plans or expectations will be achieved.  Numerous factors could cause our actual results to differ materially from those in forward-looking statements, including the following:
 
 
severe catastrophic events over which we have no control;
 
 
the effectiveness of our loss limitation methods and pricing models;
 
 
the adequacy of our liability for unpaid losses and loss adjustment expenses;
 
 
our ability to maintain our A.M. Best Company, Inc. (“A.M. Best”) rating;
 
 
the cyclicality of the property and casualty reinsurance business;
 
 
the competitive environment in which we conduct operations;
 
 
our ability to maintain our business relationships with reinsurance brokers;
 
 
the availability of retrocessional reinsurance on acceptable terms;
 
 
market volatility and interest rate and currency exchange rate fluctuation;
 
 
tax, regulatory or legal restrictions or limitations applicable to us or the property and casualty reinsurance business generally;
 
 
general political and economic conditions, including the effects of civil unrest, acts of terrorism, war or a prolonged United States or global economic downturn or recession; and
 
 
changes in our plans, strategies, objectives, expectations or intentions, which may happen at any time at our discretion.
 
As a consequence, our future financial condition and results may differ from those expressed in any forward-looking statements made by or on behalf of us.  The foregoing factors, which are discussed in more detail in Part II, Item 1A, “Risk Factors” in our Form 10-Q for the quarters ended March 31, 2009 and June 30, 2009 and in Part I, Item 1A, “Risk Factors” in our 2008 Form 10-K, should not be construed as exhaustive.  Additionally, forward-looking statements speak only as of the date they are made, and we undertake no obligation to revise or update forward-looking statements to reflect new information or circumstances after the date hereof or to reflect the occurrence of future events.
 
 
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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We believe that we are principally exposed to the following types of market risk: interest rate risk, credit risk, liquidity risk and foreign currency exchange rate risk.
 
 Interest Rate Risk
 
We are exposed to fluctuations in interest rates.  Changes in overall interest rates, generally measured by changes in the yield on risk free investments such as U.S. Treasury securities, will influence the fair value of our fixed maturity securities portfolio.  Rising interest rates generally result in a decrease in the fair value of our fixed maturity securities portfolio.  Conversely, a decline in interest rates will generally result in an increase in the fair value of our fixed maturity securities portfolio.  Interest rate changes can also impact the timing of receipt of principal payments from mortgage-backed securities.
 
The following table shows the aggregate hypothetical impact on the fair value of our fixed maturity securities portfolio as of September 30, 2009, resulting from an immediate parallel shift in the treasury yield curve ($ in thousands):

   
Interest Rate Shift in Basis Points
 
      - 100bp       - 50bp    
Current
      + 50bp       + 100bp  
                                       
Total market value
  $ 4,091,642       4,025,028       3,950,086       3,875,307     $ 3,793,952  
Percent change in market value
    3.6 %     1.9 %           (1.9 %)     (4.0 %)
Resulting net appreciation (depreciation)
  $ 124,093       57,479       (17,463 )     (92,242 )   $ (173,597 )
 
 Credit Risk
 
 Fixed Maturity Securities
 
Our principal invested assets are fixed maturity securities, which are subject to the risk of potential losses from adverse changes in market rates and prices and credit risk resulting from adverse changes in the borrower's ability to meet its debt service obligations.  Credit risk is often measured by interest rate spreads representing the difference between the yield of a debt instrument and that of a U.S. Treasury security of similar maturity.  As the credit worthiness of a debt issuer declines, the interest rate spreads increase, which has the same effect on fair value as an increase in overall interest rates.  An increase or widening of interest rate spreads generally results in a decrease in the fair value of our fixed maturity securities portfolio.
 
We manage credit risk by the selection of securities within our fixed maturity securities portfolio.  Changes in credit spreads directly affect the market value of certain fixed maturity securities, but do not necessarily result in a change in the future expected cash flows associated with holding individual securities.  Other factors, including liquidity, supply and demand, and changing risk preferences of investors, may affect market credit spreads without any change in the underlying credit quality of the security.
 
 Reinsurance Premiums Receivable
 
We have other receivable amounts subject to credit risk.  The most significant of these are reinsurance premiums receivable from ceding companies.  To mitigate credit risk related to reinsurance premiums receivable, we have established standards for ceding companies and, in most cases, have a contractual right of offset, thereby allowing us to settle claims net of any such reinsurance premiums receivable.  We also have reinsurance recoverable amounts from our retrocessionaires.  To mitigate credit risk related to our reinsurance recoverable amounts, we consider the financial strength of our retrocessionaires when determining whether to purchase coverage from them.  Retrocessional coverage is obtained from companies with a financial strength rating of “A-” or better by A.M. Best or from retrocessionaires whose obligations are fully collateralized for exposures where losses become known and are paid in a relatively short period of time.  The financial performance and rating status of all material retrocessionnaires are routinely monitored.
 
 Reinsurance Brokers
 
In accordance with industry practice, we frequently pay amounts in respect of claims under contracts to reinsurance brokers for payment over to the ceding companies.  In the event that a broker fails to make such a payment, depending on the jurisdiction, we may remain liable to the ceding company for the payment.  Conversely, in certain jurisdictions, when ceding companies remit premiums to reinsurance brokers, such premiums are deemed to have been paid to us and the ceding company is no longer liable to us for those amounts whether or not we actually receive the funds.  Consequently, we assume a degree of credit risk associated with our brokers during the premium and loss settlement process.  To mitigate credit risk related to reinsurance brokers, we have established guidelines for brokers and intermediaries.
 
 
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 Liquidity Risk
 
When financial markets experience a reduction in liquidity, our ability to conduct orderly transactions may be limited and may result in declines in fair values of the securities in our investment portfolio.  In addition, if we require significant amounts of cash on short notice in excess of normal cash requirements (which could include claims on a major catastrophic event) in a period of market illiquidity, we may have difficulty selling our investments in a timely manner and may have to dispose of our investments for less than what may otherwise have been possible under other conditions.
 
 Foreign Currency Exchange Rate Risk
 
We operate on a worldwide basis and routinely transact business in various currencies other than the U.S. dollar, our financial reporting currency.  Consequently, our principal exposure to foreign currency exchange rate risk is the transaction of business in foreign currencies.  Changes in foreign currency exchange rates can impact revenues, costs, receivables and liabilities, as measured in the U.S. dollar.  We manage our exposure to large foreign currency risks by holding invested assets denominated in non-U.S. dollar currencies in amounts that generally offset liabilities denominated in the same non-U.S. dollar currencies, thereby reducing our exposure to foreign exchange volatility.  We may, from time to time, hold more or less non-U.S. dollar denominated assets than non-U.S. dollar denominated liabilities.  As of September 30, 2009 and December 31, 2008, 3.4% and 3.7%, respectively, of our total investments and cash and cash equivalents were denominated in currencies other than the U.S. dollar.  Of our business written in the nine months ended September 2009 and 2008, approximately 15.0% for both periods was written in currencies other than the U.S. dollar, respectively.
 
ITEM 4.
CONTROLS AND PROCEDURES
 
 Disclosure Controls and Procedures
 
Our management, including the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.  Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and timely reported as specified in the SEC’s rules and forms.
 
 Changes in Internal Control over Financial Reporting
 
No changes occurred during the three months ended September 30, 2009 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II – OTHER INFORMATION
 
ITEM 6.
EXHIBITS

Exhibit Number
 
Description
     
  10.1  
Excess of Loss Retrocession Agreement by and between Platinum US and Platinum Bermuda dated as of August 5, 2009.
  10.2 *
Amendment, dated October 29, 2009, to Employment Agreement dated July 24, 2008 between the Company and Michael D. Price. (1)
  31.1  
Certification of Michael D. Price, Chief Executive Officer of Platinum Holdings, pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
  31.2  
Certification of James A. Krantz, Chief Financial Officer of Platinum Holdings, pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
  32.1  
Certification of Michael D. Price, Chief Executive Officer of Platinum Holdings, 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 James A. Krantz, Chief Financial Officer of Platinum Holdings, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
 
*
Items denoted with an asterisk represent management contacts or compensatory plans or arrangements
 
(1)
Incorporated by reference from the Company’s current report on Form 8-K filed with the SEC on October 29, 2009
 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
Platinum Underwriters Holdings, Ltd.
   
   
Date: November 6, 2009
/s/  Michael D. Price
 
By: Michael D. Price
 
President and Chief Executive Officer (Principal Executive Officer)

Date: November 6, 2009
/s/  James A. Krantz
 
By: James A. Krantz
 
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
 

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