Segment Reporting Disclosures

The Company operates in three segments of the specialty insurance marketplace: the Excess and Surplus Lines, the Specialty Admitted and the London markets. The Company considers many factors, including the nature of its insurance products, production sources, distribution strategies and regulatory environment in determining how to aggregate operating segments.

All investing activities related to our insurance operations are included in the Investing segment. For purposes of segment reporting, the Other Insurance (Discontinued Lines) segment includes lines of business that have been discontinued in conjunction with acquisitions. The Company’s non-insurance operations primarily consist of controlling interests in various industrial and service businesses. For purposes of segment reporting, the Company’s non-insurance operations are not considered to be a reportable operating segment.

Segment profit or loss for each of the Company’s operating segments is measured by underwriting profit or loss. The property and casualty insurance industry commonly defines underwriting profit or loss as earned premiums net of losses and loss adjustment expenses and underwriting, acquisition and insurance expenses. Underwriting profit or loss does not replace operating income or net income computed in accordance with U.S. GAAP as a measure of profitability. Underwriting profit or loss provides a basis for management to evaluate the Company’s underwriting performance. Segment profit for the Investing segment is measured by net investment income and net realized investment gains or losses.

For management reporting purposes, the Company allocates assets to its underwriting, investing and non-insurance operations. Underwriting assets are all assets not specifically allocated to the Investing segment or to the Company’s non-insurance operations. Underwriting assets are not allocated to the Excess and Surplus Lines, Specialty Admitted, London Insurance Market or Other Insurance (Discontinued Lines) segments since the Company does not manage its assets by operating segment. Invested assets related to our insurance operations are allocated to the Investing segment since these assets are available for payment of losses and expenses for all operating segments. The Company does not allocate capital expenditures for long-lived assets to any of its operating segments for management reporting purposes.


a)	The following tables summarize the Company’s segment disclosures.



	Quarter Ended September 30, 2012
(dollars in thousands)	Excess and Surplus Lines			Specialty Admitted			London Insurance Market			Other Insurance (Discontinued Lines)				Investing		Consolidated
Gross premium volume	$	253,014		$	167,747		$	190,071		$	1			$	—	$	610,833
Net written premiums	211,538			157,894			170,193			(1		)		—		539,624
Earned premiums	195,478			153,009			182,052			(2		)		—		530,537
Losses and loss adjustment expenses:
Current accident year	(134,504		)	(116,044		)	(122,192		)	—				—		(372,740		)
Prior accident years	51,310			11,504			32,744			(26,277		)		—		69,281
Underwriting, acquisition and insurance expenses:
Prospective adoption of ASU 2010-26 ⁽¹⁾	(2,125		)	(2,600		)	(1,809		)	—				—		(6,534		)
All other expenses	(88,093		)	(60,008		)	(76,820		)	(386		)		—		(225,307		)
Underwriting profit (loss)	22,066			(14,139		)	13,975			(26,665		)		—		(4,763		)
Net investment income	—			—			—			—				64,438		64,438
Net realized investment gains	—			—			—			—				5,231		5,231
Other revenues (insurance)	—			11,536			223			—				—		11,759
Other expenses (insurance)	—			(12,181		)	(970		)	—				—		(13,151		)
Segment profit (loss)	$	22,066		$	(14,784	)	$	13,228		$	(26,665	)		$	69,669	$	63,514
Other revenues (non-insurance)																153,810
Other expenses (non-insurance)																(132,188		)
Amortization of intangible assets																(7,959		)
Interest expense																(24,692		)
Income before income taxes																$	52,485
U.S. GAAP combined ratio ⁽²⁾	89		%	109		%	92		%	NM			⁽³⁾			101		%



	Quarter Ended September 30, 2011
(dollars in thousands)	Excess and Surplus Lines			Specialty Admitted			London Insurance Market			Other Insurance (Discontinued Lines)				Investing		Consolidated
Gross premium volume	$	236,639		$	153,753		$	194,210		$	33			$	—	$	584,635
Net written premiums	200,658			147,169			176,829			22				—		524,678
Earned premiums	189,695			136,783			182,710			15				—		509,203
Losses and loss adjustment expenses:
Current accident year	(147,992		)	(112,607		)	(144,976		)	—				—		(405,575		)
Prior accident years	60,475			5,973			34,721			(2,226		)		—		98,943
Underwriting, acquisition and insurance expenses	(81,563		)	(51,695		)	(69,731		)	673				—		(202,316		)
Underwriting profit (loss)	20,615			(21,546		)	2,724			(1,538		)		—		255
Net investment income	—			—			—			—				62,199		62,199
Net realized investment gains	—			—			—			—				12,839		12,839
Other revenues (insurance)	—			10,061			—			—				—		10,061
Other expenses (insurance)	—			(3,046		)	47			—				—		(2,999		)
Segment profit (loss)	$	20,615		$	(14,531	)	$	2,771		$	(1,538	)		$	75,038	$	82,355
Other revenues (non-insurance)																81,786
Other expenses (non-insurance)																(67,303		)
Amortization of intangible assets																(6,023		)
Interest expense																(23,656		)
Income before income taxes																$	67,159
U.S. GAAP combined ratio ⁽²⁾	89		%	116		%	99		%	NM			⁽³⁾			100		%

(1)

Effective January 1, 2012, the Company prospectively adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. At December 31, 2011, deferred policy acquisition costs included approximately $43 million of costs that no longer met the criteria for deferral as of January 1, 2012 and will be recognized into income primarily over the first nine months of 2012, consistent with policy terms. The quarter ended September 30, 2012 included $6.5 million of underwriting, acquisition and insurance expenses that were deferred as of December 31, 2011 and no longer met the criteria for deferral as of January 1, 2012.


(2)	The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of incurred losses, loss adjustment expenses and underwriting, acquisition and insurance expenses to earned premiums.


(3)	NM – Ratio is not meaningful.



	Nine Months Ended September 30, 2012
(dollars in thousands)	Excess and Surplus Lines			Specialty Admitted			London Insurance Market			Other Insurance (Discontinued Lines)				Investing		Consolidated
Gross premium volume	$	705,849		$	496,019		$	704,511		$	(6	)		$	—	$	1,906,373
Net written premiums	597,742			467,722			621,947			(7		)		—		1,687,404
Earned premiums	584,524			431,179			557,493			(7		)		—		1,573,189
Losses and loss adjustment expenses:
Current accident year	(390,254		)	(310,115		)	(372,869		)	—				—		(1,073,238		)
Prior accident years	132,583			27,747			118,994			(19,160		)		—		260,164
Underwriting, acquisition and insurance expenses:
Prospective adoption of ASU 2010-26 ⁽¹⁾	(16,652		)	(12,863		)	(11,578		)	—				—		(41,093		)
All other expenses	(255,295		)	(171,111		)	(226,770		)	(1,053		)		—		(654,229		)
Underwriting profit (loss)	54,906			(35,163		)	65,270			(20,220		)		—		64,793
Net investment income	—			—			—			—				207,834		207,834
Net realized investment gains	—			—			—			—				25,356		25,356
Other revenues (insurance)	—			36,065			4,753			—				—		40,818
Other expenses (insurance)	—			(35,184		)	(2,722		)	—				—		(37,906		)
Segment profit (loss)	$	54,906		$	(34,282	)	$	67,301		$	(20,220	)		$	233,190	$	300,895
Other revenues (non-insurance)																344,960
Other expenses (non-insurance)																(305,556		)
Amortization of intangible assets																(25,078		)
Interest expense																(69,068		)
Income before income taxes																$	246,153
U.S. GAAP combined ratio ⁽²⁾	91		%	108		%	88		%	NM			⁽³⁾			96		%



	Nine Months Ended September 30, 2011
(dollars in thousands)	Excess and Surplus Lines			Specialty Admitted			London Insurance Market			Other Insurance (Discontinued Lines)				Investing		Consolidated
Gross premium volume	$	663,989		$	431,604		$	676,893		$	125			$	—	$	1,772,611
Net written premiums	570,243			410,700			593,440			(5		)		—		1,574,378
Earned premiums	557,958			390,623			513,947			(13		)		—		1,462,515
Losses and loss adjustment expenses:
Current accident year	(413,049		)	(285,401		)	(479,398		)	—				—		(1,177,848		)
Prior accident years	169,916			7,942			69,960			2,387				—		250,205
Underwriting, acquisition and insurance expenses	(250,415		)	(148,957		)	(202,291		)	152				—		(601,511		)
Underwriting profit (loss)	64,410			(35,793		)	(97,782		)	2,526				—		(66,639		)
Net investment income	—			—			—			—				196,551		196,551
Net realized investment gains	—			—			—			—				25,423		25,423
Other revenues (insurance)	—			31,622			—			—				—		31,622
Other expenses (insurance)	—			(27,374		)	—			—				—		(27,374		)
Segment profit (loss)	$	64,410		$	(31,545	)	$	(97,782	)	$	2,526			$	221,974	$	159,583
Other revenues (non-insurance)																228,739
Other expenses (non-insurance)																(190,896		)
Amortization of intangible assets																(17,586		)
Interest expense																(64,516		)
Income before income taxes																$	115,324
U.S. GAAP combined ratio ⁽²⁾	88		%	109		%	119		%	NM			⁽³⁾			105		%

(1)

Effective January 1, 2012, the Company prospectively adopted FASB ASU No. 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. At December 31, 2011, deferred policy acquisition costs included approximately $43 million of costs that no longer met the criteria for deferral as of January 1, 2012 and will be recognized into income primarily over the first nine months of 2012, consistent with policy terms. The nine months ended September 30, 2012 included $41.1 million of underwriting, acquisition and insurance expenses that were deferred as of December 31, 2011 and no longer met the criteria for deferral as of January 1, 2012.


(2)	The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of incurred losses, loss adjustment expenses and underwriting, acquisition and insurance expenses to earned premiums.


(3)	NM – Ratio is not meaningful.


b)	The following table reconciles segment assets to the Company’s consolidated balance sheets.



(dollars in thousands)	September 30, 2012		December 31, 2011
Segment assets:
Investing	$	9,137,910	$	8,692,391
Underwriting	2,391,813		2,209,431
Total segment assets	$	11,529,723	$	10,901,822
Non-insurance operations	853,694		630,281
Total assets	$	12,383,417	$	11,532,103