The Company reported net income for the nine months ended September 30, 2009 of $32.3 million, or $3.74 per diluted share, compared with a net loss of $(84.6) million, or $(9.85) per diluted share, for the same period in 2008. The increase in results of operations for the nine months ended September 30, 2009 when compared to the same period of 2008 was primarily attributable to stronger investment results from trading activities and limited partnership income, lower other-than-temporary write-downs, a lower combined ratio derived from lower catastrophe losses and deferred tax valuation allowance decreases resulting from the utilization of capital loss carryforwards.
Shareholders' equity increased to $206.7 million as of September 30, 2009 from $164.1 million as of December 31, 2008. The increase was primarily attributable to net income for the period and increases in unrealized appreciation of fixed maturities held for sale.
Accumulated other comprehensive income (loss) included in shareholders' equity as of September 30, 2009 decreased by $(16.1) million to $(19.0) million from $(2.9) million as of December 31, 2008. This includes $(26.1) million attributable to the reclassification from retained earnings to accumulated other comprehensive income (loss) of non-credit investment impairment losses previously recognized in net income on the Company's RMBS holdings as a result of the adoption of ASC 320 on April 1, 2009. The adoption of ASC 320 had no impact on total shareholders' equity. The change in accumulated other comprehensive income (loss), offsetting the effect of adopting ASC 320, was primarily due to unrealized appreciation in corporate bonds and municipal bonds held as available for sale.
The Company's gross premiums written, net premiums written and net premiums earned decreased by 4%, 6% and 8%, respectively, for the nine months ended September 30, 2009, when compared to the same period of 2008. Premiums for each segment were as follows:
NYMAGIC Gross Premiums Written By Segment

                                   Nine months ended September 30,                     Three months ended September 30,
                                2009               2008          Change             2009               2008           Change
                                       (dollars in thousands)                               (dollars in thousands)
Ocean marine                $      61,414       $   68,933            (11 )%    $     16,814       $     23,375            (28 )%
Inland marine/fire                 15,750           12,685             24 %            4,458              4,146              8 %
Other liability                    90,161           93,035             (3 )%          28,121             27,993              0 %


Subtotal                          167,325          174,653             (4 )%          49,393             55,514            (11 )%
Runoff lines (Aircraft)                78               27             NM                 69                (30 )           NM


Total                       $     167,403       $  174,680             (4 )%    $     49,462       $     55,484            (11 )%

                    NYMAGIC Net Premiums Written By Segment

                                   Nine months ended September 30,                     Three months ended September 30,
                                2009               2008          Change             2009               2008           Change
                                       (dollars in thousands)                               (dollars in thousands)
Ocean marine                $      41,664       $   49,338            (16 )%    $     11,727       $     15,594            (25 )%
Inland marine/fire                  5,181            3,825             35 %            1,405              1,170             20 %
Other liability                    79,210           80,790             (2 )%          24,470             23,080              6 %


Subtotal                          126,055          133,953             (6 )%          37,602             39,844             (6 )%
Runoff lines (Aircraft)               (63 )             18             NM                 86                (77 )           NM


Total                       $     125,992       $  133,971             (6 )%    $     37,688       $     39,767             (5 )%

                     NYMAGIC Net Premiums Earned By Segment

                                   Nine months ended September 30,                     Three months ended September 30,
                                2009               2008          Change             2009               2008           Change
                                       (dollars in thousands)                               (dollars in thousands)
Ocean marine                $      39,689       $   51,433            (23 )%    $     12,264       $     15,300            (20 )%
Inland marine/fire                  4,078            4,590            (11 )%           1,329              1,390             (4 )%
Other liability                    73,973           72,431              2 %           24,827             23,864              4 %


Subtotal                          117,740          128,454             (8 )%          38,420             40,554             (5 )%
Runoff lines (Aircraft)               (63 )             19             NM                 86                (77 )           NM


Total                       $     117,677       $  128,473             (8 )%    $     38,506       $     40,477             (5 )%

Ocean marine gross premiums written for the nine months ended September 30, 2009 decreased by 11% and primarily reflected reduced volume in the cargo class. The first nine months of 2008 included $7.6 million in gross cargo premiums arising from one of the Company's program management agreements, which was terminated at the end of 2007. This compared to $(0.3) million in gross cargo premiums recorded during the same period of 2009. Increases were recorded in other ocean marine classes largely due to additional production in the marine liability class and firmer rates in the energy class that were partially offset by declining production in hull business.
Ocean marine net premiums written and net premiums earned for the nine months ended September 30, 2009 decreased by 16% and 23% respectively, when compared to the same period of 2008. Net written and earned premiums for the nine months ended September 30, 2009 largely reflected the decline in gross cargo premiums written over the past year. There were no reinsurance reinstatement costs arising from catastrophe losses for the nine months ended September 30, 2009. This compares to reinsurance reinstatement costs of $1.7 million resulting from hurricane Ike for the same period of 2008.
Ocean marine gross premiums written for the three months ended September 30, 2009 decreased by 28%, primarily reflecting a decline in gross cargo premiums arising from one of the Company's program management agreements which was terminated at the end of 2007. The third quarter of 2009 reflected $(0.1) million of such gross cargo premiums as compared to $2.9 million for the same period in 2008. Decreased production occurred in the other marine classes largely as a result of declining rates and competitive markets. Net written and earned premiums for three months ended September 30, 2009 decreased by 25% and 20%, respectively, largely reflected the decline in gross cargo premiums written which, was partially offset by reinsurance reinstatement costs of $1.7 million resulting from hurricane Ike.
Effective January 1, 2009, the Company maintained its $5 million per risk net loss retention in the ocean marine line that was in existence during 2008. In addition, the Company's net retention could be as low as $1 million for certain classes within ocean marine. The 80% quota share reinsurance protection for energy business, which commenced in 2006, also remains in effect for 2009 and the net retention from losses arising from energy business is subject to inclusion within the ocean marine reinsurance program.
Inland marine/fire gross premiums written and net premiums written increased by 24% and 35% for the nine months ended September 30, 2009 when compared to the same period of 2008. Net premiums earned for the nine months ended September 30, 2009 decreased by 11%. Gross premiums written in the first nine months of 2009 reflected increases in production largely relating to property risks written on a nationwide basis. Premiums reflected mildly lower market rates when compared to the prior year. The decrease in net premiums earned reflected lower premium production from the prior year.
Inland marine/fire gross premiums written and net premiums written increased by 8% and 20% for the three months ended September 30, 2009 when compared to the same period of 2008. Net premiums earned for the three months ended September 30, 2009 declined 4% when compared to the same period in 2008. Gross premiums written for the three months ended September 30, 2009 reflect increases in production largely relating to surety risks. Partially offsetting this increase were declines in production in inland marine business largely resulting from mild rate decreases. The increase in net premiums written for the three months ended September 30, 2009 resulted from a change in gross premiums mix which resulted in lower premium cessions to reinsurers. Surety premiums are written net of reinsurance. Net premiums earned reflected declines in premium production from the prior year, which was offset mostly by current year increases in production largely relating to property risks written on a nationwide basis.

Other liability gross premiums written and net premiums written decreased 3% and 2%, respectively, for the nine months ended September 30, 2009 when compared to the same period in 2008. Net premiums earned for the nine months ended September 30, 2009 increased by 2% when compared to the same period in 2008. The decrease in premiums written is primarily due to declines in excess workers' compensation, contractors' liability and commercial auto premiums that resulted from lower production largely as a consequence of reduced construction and commercial activities. Partially offsetting the decrease in gross premiums in 2009 were $7.8 million in premiums written from MMO Agencies which was formed in 2008 to write premiums through a network of general agents with binding authority subject to underwriting criteria established and monitored by the Company.
Other liability gross premiums written for the three months ended September 30, 2009 were flat when compared to the same period in 2008. Net premiums written and net premiums earned increased 6% and 4%, respectively, for the three months ended September 30, 2009 when compared to the same period in 2008. The increase in net premiums written is largely attributable to premiums from MMO Agencies that were partially offset by declines in premiums from contractor's liability. Net premiums earned increased largely as a result of a change in mix of gross premiums in the various classes within other liability.
Net losses and loss adjustment expenses incurred as a percentage of net premiums earned (the loss ratio) was 51.5% for the three months ended September 30, 2009 as compared to 69.4% for the same period of 2008. The loss ratio was 49.2% for the nine months ended September 30, 2008 as compared to 70.8% for the same period in 2008. The lower loss ratios in 2009 were partly attributable to lower current accident year loss ratios in the ocean marine and other liability lines of business and partly attributable to larger amounts of favorable loss reserve development. The ocean marine loss ratio benefited in part from lower catastrophe losses reported in 2009 as well as the non-renewal of certain unprofitable hull business. Losses incurred from hurricanes Gustav and Ike amounted to $7.2 million, and added 15.7% and 5.1% to the three and nine months ended September 30, 2008 loss ratios, respectively. The lower other liability loss ratio was due in part to lower loss estimates used for contractors liability business. The inland marine/fire segment loss ratio was lower in the current year due to lower reported catastrophe losses. The larger loss ratio in 2008 in the other liability class was primarily attributable to the resolution of a dispute over reinsurance receivables with a reinsurer as well as a reevaluation of the provision for doubtful reinsurance receivables that resulted in additional losses of $12.4 million, and added 9.6% to nine months ended 2008 overall loss ratio. The decision to resolve a dispute regarding non-core reinsurance receivables and adjust our allowance for other potentially uncollectable non-core reinsurance receivables was related to reinsurance cessions made under a number of reinsurance contracts written from 1978 to 1986. The Company reported favorable development of prior year loss reserves of $13.2 million and $3.9 million during the first nine months and third quarter of 2009, respectively, as a result of favorable reported loss trends arising from the ocean marine and other liability lines of business in 2009, including the favorable resolution of large severity claims and lower than expected emergence of claims. In addition, partially contributing to the favorable loss development in 2009 was approximately $2.3 million and $0.2 million in the nine months and third quarter ended September 30, respectively, in favorable loss development in the aviation line.
The Company reported adverse development of prior year loss reserves of $7.2 million and favorable development of prior year loss reserves of $1.9 million during the first nine months and third quarter of 2008, respectively. The second quarter resolution of a dispute over reinsurance receivables with a reinsurer and the reevaluation of the reserve for doubtful reinsurance receivables in 2008 contributed $12.4 million of adverse development in the first nine months of 2008. Partially offsetting this was favorable development as a result of lower reported loss trends arising from the inland marine and ocean marine lines of business. The aviation line of business contributed $600,000 of adverse loss development in the first nine months of 2008.
Policy acquisition costs as a percentage of net premiums earned (the "acquisition cost ratio") for the three months ended September 30, 2009 and 2008 were 23.6% and 24.8%, respectively. The acquisition cost ratios for the nine months ended September 30, 2009 and 2008 were 22.9% and 22.9%, respectively. The lower acquisition cost ratio for the three months ended September 30, 2009 is due largely to the third quarter of 2008 ocean marine acquisition cost ratio being adversely impacted by the reinstatement premium charges from hurricane Ike. The acquisition cost ratio for the nine months ended September 30, 2009 was flat with the same period of 2008. A change in premium mix in the other liability segment whose underlying classes of business have higher acquisition cost ratios than other lines of business was offset by a lower ocean marine ratio which benefited from lower reinstatement premium charges in 2009. General and administrative expenses increased by 9.7% for the nine months ended September 30, 2009 when compared to the same period of 2008. Larger expenses were incurred in 2009 to service the expansion of the Company's business operations, including increased staffing for MMO Agencies as well as computer system implementation expenditures.

The Company's combined ratio (the loss ratio, the acquisition cost ratio and general and administrative expenses divided by net premiums earned) was 102.1% for the three months ended September 30, 2009 as compared to 118.2% for the same period in 2008. The Company's combined ratio was 98.3% for the nine months ended September 30, 2009 as compared to 115.6% for the same period in 2008. Interest expense of $5.0 million and $1.7 million for the nine and three months ended September 30, 2009 was comparable to the same periods of 2008. Net investment income (loss) for the nine months ended September 30, 2009 was $34.3 million as compared to $(47.5) million for the same period of 2008. Net investment income in 2009 reflected increases in income from trading, limited partnerships and commercial loan portfolios. Trading portfolio income of $4.5 million resulted primarily from the fair value changes in municipal obligations. The net investment (loss) for the nine months ended September 30, 2008 reflected trading portfolio losses and losses from limited partnerships. Trading portfolio losses of $(37.2) million resulted primarily from the fair value changes in municipal obligations $(1.1) million, preferred stocks $(28.3) million, economic hedged positions $(1.1) million and exchange traded funds $(6.7) million. Income from commercial loans of $2.1 million resulted primarily from the tightening of credit spreads in the market for these types of securities during 2009. Limited partnership income for the first nine months of 2009 increased from the same period of the prior year as a result of higher returns amounting to 14.6% as compared to (8.0)% for the same period of 2008. For the first nine months of 2009, fixed income hedge fund returns were mainly derived from G-7 government arbitrage strategies which reported higher returns than the prior year's comparable period. Included in limited partnership income was $7.7 million and $2.9 million for the first nine months of 2009 and 2008, respectively, from our investment in Altrion.
Net investment income for the three months ended September 30, 2009 was $14.6 million as compared to $(39.4) million for the same period of 2008. Net investment income in 2009 reflected increases in income from trading and limited partnerships portfolios. Trading portfolio income of $0.8 million for the three months ended September 30, 2009 resulted primarily from the fair value changes in municipal obligations. The net investment loss for the three months ended September 30, 2008 reflected losses from trading and limited partnerships portfolios. Trading portfolio losses of $(25.8) million resulted primarily from the fair value changes in municipal obligations $(0.8) million, preferred stocks $(23.8) million, economic hedged positions $0.6 million and exchange traded funds $(1.8) million. Limited partnership income (loss) of $11.3 million in the third quarter of 2009 increased from $(14.6) million in the prior year's third quarter as a result of higher returns amounting to 7.0% as compared to (8.4)% for the same period of 2008. For the third quarter of 2009, fixed income hedge fund returns from G-7 government arbitrage strategies reported higher returns than the prior year's comparable period. Income from our investment in Altrion was $4.7 million and $0.3 million for the third quarter of 2009 and 2008, respectively.
Investment income (loss), net of investment fees, from each major category of investments was as follows:

                                           Nine months ended               Three months ended
                                             September 30,                   September 30,
                                          2009            2008            2009            2008
                                                             (in millions)
Fixed maturities held to maturity      $      1.5       $       -      $      0.4       $       -
Fixed maturities available for sale           7.1             5.6             2.4             1.9
Trading securities                            4.5           (37.2 )           0.8           (25.8 )
Commercial loans                              2.1            (0.7 )           0.1            (0.4 )
Equity in earnings of limited
partnerships                                 20.5           (14.0 )          11.3           (14.6 )
Short-term investments                        0.3             2.2             0.1             0.7


Total investment (loss) income               36.0           (44.1 )          15.1           (38.2 )
Investment expenses                          (1.7 )          (3.4 )          (0.6 )          (1.2 )


Net investment (loss) income           $     34.3       $   (47.5 )    $     14.5       $   (39.4 )

As of September 30, 2009 and 2008, investments in limited partnerships amounted to approximately $158.8 million and $159.1 million, respectively. The equity method of accounting is used to account for the Company's limited partnership hedge fund investments. Under the equity method, the Company records all changes in the underlying value of the limited partnership hedge fund to results of operations.
As of September 30, 2009 and September 30, 2008 investments in the trading and commercial loan portfolios collectively amounted to approximately $4.3 million and $55.1 million, respectively. Net investment income (loss) for the nine months ended September 30, 2009 and 2008 reflected approximately $6.6 million and $(37.9) million, respectively, derived from combined trading portfolio and commercial loan activities before investment expenses. These activities primarily include the trading of commercial loans, municipal obligations, preferred stocks and exchange traded funds. The Company's trading and commercial loan portfolios are marked to market with the change recognized in net investment income during the current period. Any realized gains or losses resulting from the sales of trading and commercial loan investments are also recognized in net investment income.
The Company's investment income results may be volatile depending upon the level of limited partnerships, commercial loans and trading portfolio investments held. If the Company continues to increase its percentage of its investment portfolio in limited partnership hedge funds, and/or if the fair value of trading and/or commercial loan investments held varies significantly during different periods, there may also be a greater volatility associated with the Company's investment income.
Commission and other income increased to $3.4 million for the nine months ended September 30, 2009 from $108,000 for the same period in the prior year. The increase was attributable to the Company's receipt of $3.2 million in the third quarter of 2009 as beneficiary of a life insurance policy on a former director. Net realized investment gains were $0.5 million for the three months ended September 30, 2009 as compared to net realized investment losses of $(15.0) million for the same period in the prior year. Net realized investment gains were $2.3 million for the nine months ended September 30, 2009 as compared to net realized investment losses of $(46.3) million for the same period in the prior year. Net realized investment gains in 2009 primarily reflect gains from the sales of municipal bonds and U.S. Treasury securities. Net realized investment losses for the three months and nine months ended September 30, 2008 include OTTI in the fair value of securities amounting to $13.6 million and $46.0 million, respectively. The OTTI in 2008 was primarily attributable to the decline in the fair value of the Company's RMBS portfolio. The decision to write down such securities as of September 30, 2008 was based upon the possibility then that we might not hold such securities until their fair value decline was recovered. . . .