PLATINUM UNDERWRITERS HOLDINGS LTD – 10-Q – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Edgar Online, Inc.

 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 June 30, 2013 (this "Form 10-Q") and the consolidated financial statements and related notes thereto and Item 7, "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, 2012 (the "2012 Form 10-K"). This Form 10-Q contains forward-looking statements that involve risks and uncertainties. Please see Item 1A, "Risk Factors," in our 2012 Form 10-K and the "Note on Forward-Looking Statements" below. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").  Overview  Platinum Underwriters Holdings, Ltd. ("Platinum Holdings") is a holding company domiciled in Bermuda. Through our reinsurance subsidiaries we provide property and marine, casualty and finite risk reinsurance coverages to a diverse clientele of insurers and select reinsurers on a worldwide basis.  Platinum Holdings and its consolidated subsidiaries (collectively, the "Company") include Platinum Holdings, Platinum Underwriters Bermuda, Ltd. ("Platinum Bermuda"), Platinum Underwriters Reinsurance, Inc. ("Platinum US"), Platinum Regency Holdings ("Platinum Regency"), Platinum Underwriters Finance, Inc. ("Platinum Finance") and Platinum Administrative Services, Inc. The terms "we," "us," and "our" refer to the Company, unless the context otherwise indicates.  As of June 30, 2013, our capital resources of $2.0 billion consisted of $1.7 billion of common shareholders' equity and $250.0 million of debt obligations. Our net income was $49.9 million and $136.4 million for the three and six months ended June 30, 2013, respectively, which compares with net income of $67.5 million and $120.8 million for the three and six months ended June 30, 2012, respectively. The decrease in net income for the three months ended June 30, 2013 as compared with the three months ended June 30, 2012 reflected an increase in current year major catastrophe losses and a decrease in our net realized gains on investments and net investment income, partially offset by an increase in net favorable development on prior years' unpaid losses and loss adjustment expenses ("LAE"). The increase in net income for the six months ended June 30, 2013 as compared with the six months ended June 30, 2012 reflected an increase in net favorable development on prior years' unpaid losses and LAE and a decrease in current year major catastrophe losses, partially offset by a decrease in our net realized gains on investments and net investment income.  Our net premiums written were $146.4 million and $281.1 million for the three and six months ended June 30, 2013, respectively, and $141.5 million and $285.1 million for the three and six months ended June 30, 2012, respectively.  

Current Outlook

We anticipate that the remainder of 2013 will be characterized by ample capacity for insurance and reinsurance risk.

  In the Property and Marine segment, the mid-year underwriting period reflected mildly deteriorating conditions for all lines of business except property catastrophe business, where insurance rate decreases in response to an influx of capacity in the market were more pronounced. Absent a major catastrophe event during the remainder of the year, we anticipate continued downward pressure on pricing for catastrophe exposed business. We currently expect that the portfolio of business we write in our Property and Marine segment during 2013 will be similar to our current in-force book of business. We expect that our Property and Marine segment will continue to represent a large proportion of our overall book of business, which could result in significant volatility in our results of operations.  In the Casualty segment, while insurance rate increases are beginning to take hold and keep pace with expected loss cost trends, competition for ceded reinsurance has increased and most new business opportunities and some renewals do not meet our pricing standards. For the time being, it appears that most of the benefits from increasing underlying insurance rates are not flowing through to reinsurers.  While the recent increase in investment yields may be beneficial for the casualty market in the long run, currently many clients and competitors carry excess capital and reserve releases continue to be more common than reserve charges in the liability lines. Unless these conditions change we expect the total return available from the casualty reinsurance business will not improve materially.  We expect that select casualty reinsurance contracts will continue to offer adequate returns and that the portfolio of business we write in our Casualty segment during 2013 will be similar to our current in-force book of business.  

Reflecting a continued lack of demand for finite risk covers, we expect to write a relatively small portfolio of business in our Finite Risk segment in 2013.

  Absent major events in the insurance or capital markets during the remainder of the year, we expect mild deterioration in overall reinsurance rate adequacy. We will continue emphasizing profitability, not market share.  The impact on our investment portfolio from the recent rise in interest rates was mitigated by our prior efforts to manage down our portfolio duration. If treasury yields increase or spreads expand further we may deploy more cash into investment grade securities.  Based on our current reserve position, portfolio of in-force business, asset portfolio, and underwriting prospects for the balance of the year, we believe that we are well capitalized with a comfortable margin above the rating agency targets for a company with our ratings. If our business performs as expected, we anticipate that we may generate excess capital over time. Under those conditions, we would have the financial flexibility to expand our underwriting, hold riskier assets, or repurchase our common shares. Our decision-making will be guided by the risk adjusted pricing prevailing in the reinsurance and financial markets at the time.                                        - 32 - --------------------------------------------------------------------------------

Critical Accounting Estimates

  The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that are inherently subjective in nature that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent liabilities. Actual results may differ materially from these estimates. The critical accounting estimates used in the preparation of our consolidated financial statements include premiums written and earned, unpaid losses and LAE, valuation of investments and income taxes. In addition, estimates are used in our risk transfer analysis for assumed and ceded reinsurance transactions. For a detailed discussion of our critical accounting estimates, please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our 2012 Form 10-K.  

Non-GAAP Financial Measures

  In presenting the Company's results in the Results of Operations below, management has included certain tables containing financial measures that are not calculated under standards or rules that comprise U.S. GAAP. Such measures, including underwriting income or loss and related underwriting ratios, are referred to as non-GAAP measures. These non-GAAP measures may be defined or calculated differently by other companies. Management believes these measures allow for a more complete understanding of the underlying business. These measures are used to monitor our results and should not be viewed as a substitute for those determined in accordance with U.S. GAAP. Underwriting income or loss, including segment underwriting income or loss, is reconciled to the U.S. GAAP measure of income or loss before income taxes in Note 8 to the "Consolidated Financial Statements" in this Form 10-Q in accordance with Regulation G.  Underwriting income or loss measures the performance of the Company's underwriting function and consists of net premiums earned less net losses and LAE and net underwriting expenses. Net underwriting expenses include net acquisition expenses and operating costs related to underwriting. Underwriting income or loss excludes revenues and expenses related to net investment income, net realized gains or losses on investments, net impairment losses on investments, corporate expenses not allocated to underwriting operations, interest expense, net foreign currency exchange gains or losses and other income and expense.  Underwriting ratios are calculated for net losses and LAE, net acquisition expense and net underwriting expense. The ratios are calculated by dividing the related expense by net earned premiums. The combined ratio is the sum of the net losses and LAE, net acquisition expense and net underwriting expense ratios. The Company believes that underwriting income or loss and ratios highlight the profitability of our reinsurance operations.  We conduct our worldwide reinsurance business through three operating segments: Property and Marine, Casualty and Finite Risk. In managing our three operating segments, we use underwriting income and loss and related underwriting ratios as a measure in evaluating segment performance.  

Results of Operations

Three Months Ended June 30, 2013 as Compared with the Three Months Ended June 30, 2012

  Net income and diluted earnings per common share for the three months ended June 30, 2013 and 2012 were as follows ($ and amounts in thousands, except diluted earnings per common share):                                                                     Three Months Ended June 30,                                                                     2013                 2012 Underwriting income                                            $       36,542$       34,412 Net investment income                                                  17,808               26,155 Net realized gains on investments                                      11,686               24,978 Net impairment losses on investments                                   (1,516 )             (1,113 ) Other revenues (expenses)                                             (10,543 )            (11,005 ) Income before income taxes                                             53,977               73,427 Income tax expense                                                     (4,123 )             (5,895 ) Net income                                                     $      

49,854 $ 67,532 Weighted average shares outstanding for diluted earnings per common share

                                                           30,970               34,104 Diluted earnings per common share                              $         1.61       $         1.97    Underwriting Results  Net underwriting income was $36.5 million and $34.4 million for the three months ended June 30, 2013 and 2012, respectively. The change in the net underwriting result was due primarily to an increase in net favorable development offset by an increase in net losses from current year major catastrophes.                                        - 33 - --------------------------------------------------------------------------------   Net favorable or unfavorable development is the development of prior years' unpaid losses and LAE and the related impact of premiums and commissions. Net favorable or unfavorable loss development, the unpaid losses and LAE component of net favorable or unfavorable development, excludes the related impact of premiums and commissions.  

Generally, an event causing more than $1 billion of property losses to the insurance industry or $10 million of property losses to the Company is considered and tracked as a major catastrophe. Net losses from major catastrophes consist of gross losses and LAE, net of any retrocessional recoveries and reinstatement premiums earned.

Net favorable development was $44.1 million and $23.2 million for the three months ended June 30, 2013 and 2012, respectively. Net losses from major catastrophes were $18.6 million and $3.5 million for the three months ended June 30, 2013 and 2012, respectively.

The following discussion and analysis reviews our underwriting results by operating segment.

Property and Marine

  The following table sets forth underwriting results, ratios and the period over period change for the Property and Marine segment for the three months ended June 30, 2013 and 2012 ($ in thousands):                                                           Three Months Ended June 30,                                                                                                Increase                                                           2013                 2012           (decrease)

Gross premiums written                               $       58,841$       61,431$      (2,590 ) Ceded premiums written                                        1,491                 (264 )           1,755 Net premiums written                                         57,350               61,695            (4,345 ) Net premiums earned                                          58,832               62,838            (4,006 ) Net losses and LAE                                           21,292               17,653             3,639 Net acquisition expenses                                      9,698                8,721               977 Other underwriting expenses                                   7,414                7,454               (40 ) 

Property and Marine segment underwriting income $ 20,428 $

29,010 $ (8,582 )

  Underwriting ratios: Net loss and LAE                                               36.2 %               28.1 %      8.1 points Net acquisition expense                                        16.5 %               13.9 %      2.6 points Other underwriting expense                                     12.6 %               11.9 %      0.7 points Combined                                                       65.3 %               53.9 %     11.4 points    The Property and Marine segment underwriting income decreased by $8.6 million for the three months ended June 30, 2013 as compared with the three months ended June 30, 2012 and related to an increase in net losses from current year major catastrophes partially offset by an increase in net favorable development.  Net losses from current year major catastrophes were $18.6 million and $3.5 million for the three months ended June 30, 2013 and 2012, respectively. Net losses from 2013 major catastrophes for the three months ended June 30, 2013 were primarily attributable to floods in central and eastern Europe, primarily in Germany, and tornadoes in the Midwest, primarily in Oklahoma, referred to as Property Claims Services ("PCS") Catastrophe 14. Net losses from 2012 major catastrophes for the three months ended June 30, 2012 were primarily attributable to severe weather, including a tornado and hailstorm event in Missouri, Illinois, Kentucky, Texas and Indiana that occurred in April 2012, referred to as PCS Catastrophe 74, offset by a decrease in estimates of first quarter 2012 net losses from major catastrophes from tornado and hailstorm events in Kentucky and Tennessee that occurred in February and March 2012, referred to as PCS Catastrophes 66 and 67.  

Net favorable development was $22.2 million and $11.3 million for the three months ended June 30, 2013 and 2012, respectively.

Net Premiums Written and Earned

The Property and Marine segment generated 39.2% and 43.6% of our net premiums written for the three months ended June 30, 2013 and 2012, respectively.

  Gross premiums written decreased by $2.6 million for the three months ended June 30, 2013 as compared with the three months ended June 30, 2012 and decreased by $4.0 million excluding reinstatement premiums related to major catastrophes. Gross premiums written included increases of $1.7 million and $1.4 million related to changes in prior years' premium estimates for the three months ended June 30, 2013 and 2012, respectively. Excluding the effect of reinstatement premiums and changes in prior years' premium estimates, gross premiums written decreased by $4.3 million. The decrease in gross premiums written was primarily due to decreases in the crop and ocean marine classes for the three months ended June 30, 2013 as compared with the same period in 2012 and resulted from fewer opportunities that met our underwriting standards.                                        - 34 - --------------------------------------------------------------------------------   Net premiums earned decreased by $4.0 million for the three months ended June 30, 2013 as compared with the three months ended June 30, 2012, primarily as a result of decreases in net premiums written in current and prior periods. Net premiums written and earned were also impacted by changes in the mix of business and the structure of the underlying reinsurance contracts.  

Net Losses and LAE

  Net losses and LAE increased by $3.6 million for the three months ended June 30, 2013 as compared with the three months ended June 30, 2012. The increase in net losses and LAE was primarily due to an increase in net losses from current year major catastrophes partially offset by an increase in net favorable loss development in 2013 as compared with the same period in 2012.  

Current Year Major Catastrophe Losses

Net losses from current year major catastrophes, with related premium adjustments, increased the net loss and LAE ratio by 34.1 points and 5.7 points for the three months ended June 30, 2013 and 2012, respectively.

  The following table sets forth the components of pre-tax net losses from 2013 major catastrophes for the three months ended June 30, 2013 ($ in thousands):                                                                                              Net Losses from                                                      Net Losses        Reinstatement             Major                 Major Catastrophe                      and LAE        Premiums Earned        Catastrophes Floods in central and eastern Europe                 $   (16,182 )   $           1,527     $         (14,655 ) PCS Catastrophe 14                                        (3,922 )                  11                (3,911 ) Total                                                $   (20,104 )   $           1,538     $         (18,566 )    The following table sets forth the components of pre-tax net losses from 2012 major catastrophes for the three months ended June 30, 2012 ($ in thousands):                                                                                                   Net Losses from                                                         Net Losses         Reinstatement              Major                   Major Catastrophe                       and LAE         Premiums Earned         Catastrophes PCS Catastrophe 74                                      $    (9,844 )   $                98     $          (9,746 ) Decrease in First Quarter 2012 Catastrophe Estimates: PCS Catastrophes 66 and 67                                    6,241                       3                 6,244 Total                                                   $    (3,603 )   $               101     $          (3,502 )   

Any development of losses related to 2012 major catastrophes subsequent to December 31, 2012 is included in prior years' loss development in the major catastrophes class of business for the three months ended June 30, 2013.

Prior Years' Loss Development

  Net favorable loss development was $24.5 million and $7.8 million for the three months ended June 30, 2013 and 2012, respectively. Net favorable loss development and related premium adjustments decreased the net loss and LAE ratio by 38.5 points and 14.8 points for the three months ended June 30, 2013 and 2012, respectively. Net favorable loss development for the three months ended June 30, 2013 and 2012 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 by class of business for the three months ended June 30, 2013 ($ in thousands):

                                                  Net Losses      Net 

Acquisition

               Class of Business                   and LAE           Expense          Net Premiums       Net Development Major catastrophes                              $    22,510     $            (8 )   $       (2,403 )   $          20,099 Property per risk                                     2,365                 199               (184 )               2,380 Catastrophe excess-of-loss (non-major events)         1,920                (147 )              (99 )               1,674 Property proportional                                (1,299 )              (193 )                -                (1,492 ) Other                                                (1,005 )               287                264                  (454 ) Total                                           $    24,491     $           138     $       (2,422 )   $          22,207    Net favorable development in the major catastrophes class arose primarily from Hurricane Sandy and the Tohoku earthquake in Japan as well as marine losses arising from Hurricanes Katrina and Ike. Net favorable development in the property per risk class arose primarily from the 2006 and 2012 underwriting years. Net favorable development in the catastrophe excess-of-loss (non-major events) class arose primarily from the 2011 and 2012 underwriting years. Net unfavorable development in the property proportional class arose primarily from one contract in the 2007 underwriting year.                                        - 35 - --------------------------------------------------------------------------------   The following table sets forth the net favorable (unfavorable) development by class of business for the three months ended June 30, 2012 ($ in thousands):                                                  Net Losses      Net Acquisition               Class of Business                   and LAE           Expense         Net Premiums       Net Development Catastrophe excess-of-loss (non-major events)   $     3,131     $            61     $         131     $           3,323 Major catastrophes                                    1,969                  (9 )           1,011                 2,971 Marine, aviation and satellite                          220                (104 )           1,941                 2,057 Property proportional                                 1,835                 (94 )               -                 1,741 Other                                                   631                 135               460                 1,226 Total                                           $     7,786     $           (11 )   $       3,543     $          11,318    Net favorable development in the catastrophe excess-of-loss (non-major events) class arose primarily from the North American business in the 2011 underwriting year. Net favorable development in the major catastrophes class arose primarily from 2008 through 2010 events. Net favorable development in the marine, aviation and satellite class arose primarily from the 2006 through 2011 underwriting years. Net favorable development in the property proportional class arose primarily from the North American business from the 2009 and 2010 underwriting years.  

Calendar Year Losses - Excluding Current Year Major Catastrophes and Prior Years' Loss Development

  Calendar year losses, excluding current year major catastrophes and prior years' loss development, were $25.7 million and $21.8 million for the three months ended June 30, 2013 and 2012, respectively. The calendar year loss ratios, excluding current year major catastrophes and prior years' loss development, were 43.0% and 36.9% for the three months ended June 30, 2013 and 2012, respectively. The loss ratio was impacted by greater loss activity in the property risk class as well as higher attritional losses, predominantly in the U.S., in the property catastrophe class in 2013 as compared with 2012. Calendar year losses and related loss ratios, excluding losses from current year major catastrophes and prior years' loss development, were also impacted by changes in the mix of business.  Net Acquisition Expenses  Net acquisition expenses and related net acquisition expense ratios were $9.7 million and 16.5%, respectively, for the three months ended June 30, 2013 and $8.7 million and 13.9%, respectively, for the three months ended June 30, 2012. The increase in net acquisition expenses and the acquisition expense ratio for the three months ended June 30, 2013 as compared with the same period in 2012 was primarily due to one new contract in the property proportional class that has a higher acquisition expense ratio than the remainder of the segment. Net acquisition expenses and related net acquisition expense ratios were also impacted by other changes in the mix of business.  

Other Underwriting Expenses

Other underwriting expenses were $7.4 million and $7.5 million for the three months ended June 30, 2013 and 2012, respectively.

Casualty

  The following table sets forth underwriting results, ratios and the period over period change for the Casualty segment for the three months ended June 30, 2013 and 2012 ($ in thousands):                                                           Three Months Ended June 30,                                                                                                Increase                                                           2013                 2012           (decrease) Net premiums written                                 $       79,711$       72,678$       7,033 Net premiums earned                                          75,629               75,746              (117 ) Net losses and LAE                                           35,358               45,851           (10,493 ) Net acquisition expenses                                     18,068               18,487              (419 ) Other underwriting expenses                                   5,670                5,625                45 Casualty segment underwriting income                 $       16,533       $ 

5,783 $ 10,750

  Underwriting ratios: Net loss and LAE                                               46.8 %               60.5 %   (13.7) points Net acquisition expense                                        23.9 %               24.4 %    (0.5) points Other underwriting expense                                      7.5 %                7.4 %      0.1 points Combined                                                       78.2 %               92.3 %   (14.1) points                                          - 36 -

--------------------------------------------------------------------------------   The Casualty segment underwriting income increased by $10.8 million for the three months ended June 30, 2013 as compared with the three months ended June 30, 2012, primarily due to an increase in net favorable development. Net favorable development was $22.2 million and $11.7 million for the three months ended June 30, 2013 and 2012, respectively.  

Net Premiums Written and Earned

The Casualty operating segment generated 54.5% and 51.4% of our net premiums written for the three months ended June 30, 2013 and 2012, respectively.

  Net premiums written increased by $7.0 million for the three months ended June 30, 2013 as compared with the three months ended June 30, 2012.  Net premiums written in the three months ended June 30, 2013 and 2012 were impacted by increases to prior years' premium estimates of $13.2 million and $13.0 million, respectively. Excluding the impact of increases to prior years' premium estimates, net premiums written increased by $6.9 million. The increase in net premiums written relates primarily to the accident and health and international casualty classes.  Net premiums earned decreased by $0.1 million for the three months ended June 30, 2013 as compared with the three months ended June 30, 2012. Net premiums earned in the three months ended June 30, 2013 and 2012 were impacted by increases to prior years' premium estimates of $6.7 million and $9.4 million, respectively. Excluding the impact of increases to prior years' premium estimates, net premiums earned increased by $2.5 million. Net premiums written and earned were impacted by changes in the mix of business and the structure of the underlying reinsurance contracts.  

Net Losses and LAE

  Net losses and LAE decreased by $10.5 million for the three months ended June 30, 2013 as compared with the three months ended June 30, 2012, primarily due to an increase in net favorable loss development.  

Prior Years' Loss Development

  Net favorable loss development was $22.0 million and $11.7 million for the three months ended June 30, 2013 and 2012, respectively. Net favorable loss development and related premium adjustments decreased the net loss and LAE ratios by 28.8 points and 16.0 points for the three months ended June 30, 2013 and 2012, respectively. Net favorable loss development for the three months ended June 30, 2013 and 2012 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 net loss and LAE ratios were also impacted by changes in the mix of business.  

The following table sets forth the net favorable (unfavorable) development by class of business for the three months ended June 30, 2013 ($ in thousands):

                                             Net Losses      Net Acquisition            Class of Business                 and LAE           Expense          Net Premiums       Net Development North American claims made                 $    16,068     $          (232 )   $            -     $          15,836 North American umbrella                          6,370                 467                  -                 6,837 International casualty                            (848 )                15               (250 )              (1,083 ) Other                                              366                 223                 17                   606 Total                                      $    21,956     $           473     $         (233 )   $          22,196    Net favorable development in the North American claims made class arose primarily from the 2006 through 2011 underwriting years, partially offset by net unfavorable development from a professional liability claim in the 2003 underwriting year. Net favorable development in the North American umbrella class arose primarily from the 2009 and prior underwriting years. Net unfavorable development in the international casualty class arose primarily from a change in the pattern of loss development from the 2002 underwriting year that resulted in $1.6 million of net unfavorable development.  

The following table sets forth the net favorable (unfavorable) development by class of business for the three months ended June 30, 2012 ($ in thousands):

                                             Net Losses      Net Acquisition            Class of Business                 and LAE           Expense         Net Premiums       Net Development North American claims made                 $     8,088     $          (825 )   $          68     $           7,331 North American umbrella                          4,721                 435                 -                 5,156 North American occurrence                        1,589                 (89 )               -                 1,500 Accident and health                                883                 305                 -                 1,188 International casualty                          (4,294 )                34               149                (4,111 ) Other                                              748                (405 )             322                   665 Total                                      $    11,735     $          (545 )   $         539     $          11,729                                          - 37 -

--------------------------------------------------------------------------------   Net favorable development in the North American claims made class arose primarily from the 2004 through 2008 underwriting years. Net favorable development in the North American umbrella class arose primarily from the 2006 and 2007 underwriting years. Net favorable development in the North American occurrence class arose from most prior underwriting years. Net favorable development in the accident and health class arose primarily from the 2008 through 2010 underwriting years. Net unfavorable development in the international casualty class arose primarily from medical malpractice contracts from the 2005 through 2007 underwriting years and liability claims arising from Australian wildfires in the 2008 underwriting year.  

Calendar Year Losses - Excluding Prior Years' Loss Development

  Calendar year losses, excluding prior years' loss development, were $57.3 million and $57.6 million for the three months ended June 30, 2013 and 2012, respectively. The calendar year loss ratios, excluding prior years' loss development, were 75.6% and 76.6% for the three months ended June 30, 2013 and 2012, respectively. Calendar year losses and related ratios, excluding prior years' loss development, were impacted by changes in the mix of business.  

Net Acquisition Expenses

  Net acquisition expenses and related net acquisition expense ratios were $18.1 million and 23.9%, respectively, for the three months ended June 30, 2013 and $18.5 million and 24.4%, respectively, for the three months ended June 30, 2012. Net acquisition expenses and related net acquisition expense ratios were impacted by changes in the mix of business.  

Other Underwriting Expenses

Other underwriting expenses were $5.7 million and $5.6 million for the three months ended June 30, 2013 and 2012, respectively.

Finite Risk

  The following table sets forth underwriting results, ratios and the period over period change for the Finite Risk segment for the three months ended June 30, 2013 and 2012 ($ in thousands):                                                          Three Months Ended June 30,                                                                                               Increase                                                          2013                2012            (decrease) Net premiums written                                 $       9,309$       7,086$        2,223 Net premiums earned                                          8,472               6,491              1,981 Net losses and LAE                                           6,017               3,613 Net acquisition expenses                                     2,547               2,992 Net losses, LAE and acquisition expenses                     8,564               6,605              1,959 Other underwriting expenses                                    327                 267                 60 

Finite Risk segment underwriting income (loss) $ (419 ) $

      (381 )   $          (38 )  Underwriting ratios: Net loss and LAE                                              71.0 %              55.7 % Net acquisition expense                                       30.1 %              46.1 % Net loss, LAE and acquisition expense                        101.1 %             101.8 %     (0.7) points Other underwriting expense                                     3.9 %               4.1 %     (0.2) points Combined                                                     105.0 %             105.9 %     (0.9) points    During the three months ended June 30, 2013 and 2012, the in-force Finite Risk portfolio consisted of one contract and we expect minor activity in this segment in the foreseeable future due to the relatively low level of demand for finite risk products. 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. Due to the decline in premium volume in recent years, current year ratios may be significantly impacted by relatively small adjustments of prior years' reserves.  

Net Premiums Written and Earned

The Finite Risk segment generated 6.3% and 5.0% of our net premiums written for the three months ended June 30, 2013 and 2012, respectively.

  The increases in net premiums written and net premiums earned for the three months ended June 30, 2013 as compared with the three months ended June 30, 2012 were primarily attributable to increases in the subject premium basis on the single contract currently in-force in 2013 as compared with the same period in 2012.  

Net Losses, LAE and Acquisition Expenses

  Net losses, LAE and acquisition expenses increased by $2.0 million for the three months ended June 30, 2013 as compared with the three months ended June 30, 2012, primarily due to an increase in net premiums earned. Net unfavorable development was $0.3 million and net favorable development was $0.1 million for the three months ended June 30, 2013 and 2012, respectively.                                        - 38 - --------------------------------------------------------------------------------

  Non-Underwriting Results  Net Investment Income  Net investment income was $17.8 million and $26.2 million for the three months ended June 30, 2013 and 2012, respectively. Net investment income decreased during the three months ended June 30, 2013, as compared with the same period in 2012 primarily due to a decrease in the average book yield for the portfolio of total investments and cash and cash equivalents from 2.7% in the second quarter of 2012 to 2.0% in the second quarter of 2013. The decrease in the average book yield reflected the sale of higher yielding investments. We also retained a higher proportion of cash in our portfolio in order to decrease the overall duration and maintain high liquidity. Contributing to the decrease in net investment income was a reduction of approximately $291.1 million in the average book value of our investments and cash and cash equivalents for the three months ended June 30, 2013 as compared with the same period in 2012, primarily due to share repurchases and negative operating cash flows over the last twelve months.  

Net Realized Gains on Investments

  Net realized gains on investments were $11.7 million and $25.0 million for the three months ended June 30, 2013 and 2012, respectively. Sales of investments resulted in net realized gains of $13.0 million for the three months ended June 30, 2013 and included $5.4 million of net realized gains from the sale of corporate bonds, $4.8 million of net realized gains from the sale of municipal bonds and $2.5 million of net realized gains from the sale of commercial mortgage-back securities ("CMBS"). Also included in net realized gains was a net negative impact from fair value adjustments on trading securities of $1.3 million for the three months ended June 30, 2013 related to non-U.S. government securities. Sales of investments resulted in net realized gains of $25.3 million for the three months ended June 30, 2012 and included $21.2 million of net realized gains from the sale of municipal bonds and $3.0 million of net realized gains from the sale of corporate bonds. The net negative impact from fair value adjustments on trading securities of $0.3 million for the three months ended June 30, 2012 was related to non-U.S. government securities.  

Net Impairment Losses on Investments

  Net impairment losses reflect other-than-temporary impairments attributable to credit losses on impaired securities that relate exclusively to investments in securitized mortgages not guaranteed by U.S. government agencies.  Net impairment losses on investments were $1.5 million and $1.1 million for the three months ended June 30, 2013 and 2012, respectively. The net impairment losses recorded for the three months ended June 30, 2013 included $1.1 million related to non-agency residential mortgage-backed securities ("RMBS") and $0.4 million related to sub-prime asset backed securities ("ABS"). The net impairment losses recorded for the three months ended June 30, 2012 related substantially all to non-agency RMBS.  Other Revenues and Expenses 

The following table sets forth other revenues and expenses for the three months ended June 30, 2013 and 2012 ($ in thousands):

                                                    Three Months Ended June 30,                                                     2013                 2012 Other income (expense)                         $         (315 )     $         (191 ) Operating expenses not allocated to segments           (6,307 )             (6,350 ) Net foreign currency exchange (losses) gains              859                  310 Interest expense                                       (4,780 )             (4,774 ) Other expenses                                 $      (10,543 )$      (11,005 )    Operating expenses not allocated to underwriting segments were $6.3 million and $6.4 million for the three months ended June 30, 2013 and 2012, respectively, and related to costs such as compensation and other corporate expenses associated with operating as a publicly-traded company.  

Interest expense was $4.8 million for both the three months ended June 30, 2013 and 2012 and related to our $250.0 million of debt obligations.

Income Taxes

  Income tax expense was $4.1 million and $5.9 million for the three months ended June 30, 2013 and 2012, respectively. Our effective tax rate was 7.6% and 8.0% for the three months ended June 30, 2013 and 2012, respectively.  The income tax expense or benefit is primarily driven by the taxable income or loss generated by our U.S.-based subsidiaries. Our effective tax rate is primarily driven by the portion of taxable income or loss generated by our U.S.-based subsidiaries relative to the income or loss generated by our Bermuda-based operations, which are not subject to corporate income tax. Premiums earned by our U.S. and Bermuda-based subsidiaries generally do not bear a proportionate relationship to their respective pre-tax income for a variety of reasons, including the significant impact on pre-tax income of the different mixes of business underwritten by the particular subsidiary, the presence or absence of underwriting income or loss attributable to such business, and the investment results experienced by the particular subsidiary.                                        - 39 - --------------------------------------------------------------------------------

Pre-tax income was $41.7 million and $12.3 million in our Bermuda and U.S. companies, respectively, for the three months ended June 30, 2013. Pre-tax income was $55.9 million and $17.7 million in our Bermuda and U.S. companies, respectively, for the three months ended June 30, 2012.

Six Months Ended June 30, 2013 as Compared with the Six Months Ended June 30, 2012

  Net income and diluted earnings per common share for the six months ended June 30, 2013 and 2012 were as follows ($ and amounts in thousands, except diluted earnings per common share):                                                                   Six Months Ended June 30,                                                                    2013               2012 Underwriting income                                            $     105,790$   50,709 Net investment income                                                 36,352           54,707 Net realized gains on investments                                     25,004           47,317 Net impairment losses on investments                                  (1,937 )         (2,183 ) Other revenues (expenses)                                            (19,627 )        (21,709 ) Income before income taxes                                           145,582          128,841 Income tax expense                                                    (9,212 )         (8,022 ) Net income                                                     $    

136,370 $ 120,819 Weighted average shares outstanding for diluted earnings per common share

                                                          31,904           34,805 Diluted earnings per common share                              $        4.26$     3.46    Underwriting Results  Net underwriting income was $105.8 million and $50.7 million for the six months ended June 30, 2013 and 2012, respectively. The change in the net underwriting result was due primarily to an increase in net favorable development and a decrease in net losses from current year major catastrophes.  Net favorable development was $98.6 million and $51.0 million for the six months ended June 30, 2013 and 2012, respectively. Net losses from current year major catastrophes were $18.6 million and $29.4 million for the six months ended June 30, 2013 and 2012, respectively.  

The following discussion and analysis reviews our underwriting results by operating segment.

Property and Marine

  The following table sets forth underwriting results, ratios and the period over period change for the Property and Marine segment for the six months ended June 30, 2013 and 2012 ($ in thousands):                                                         Six Months Ended June 30,                                                                                           Increase                                                          2013               2012         (decrease) Gross premiums written                               $     118,318$  129,975$     (11,657 ) Ceded premiums written                                       1,541              127             1,414 Net premiums written                                       116,777          129,848           (13,071 ) Net premiums earned                                        110,684          124,166           (13,482 ) Net losses and LAE                                           7,087           58,590           (51,503 ) Net acquisition expenses                                    17,925           17,956               (31 ) Other underwriting expenses                                 14,746           14,289               457

Property and Marine segment underwriting income $ 70,926 $

 33,331     $      37,595  Underwriting ratios: Net loss and LAE                                               6.4 %           47.2 %   (40.8) points Net acquisition expense                                       16.2 %           14.5 %      1.7 points Other underwriting expense                                    13.3 %           11.5 %      1.8 points Combined                                                      35.9 %           73.2 %   (37.3) points                                          - 40 -

--------------------------------------------------------------------------------   The Property and Marine segment underwriting result improved by $37.6 million for the six months ended June 30, 2013 as compared with the six months ended June 30, 2012, primarily due to an increase in net favorable development and a decrease in net losses from current year major catastrophes.  

Net favorable development was $52.3 million and $22.7 million for the six months ended June 30, 2013 and 2012, respectively.

  Net losses from current year major catastrophes were $18.6 million and $29.4 million for the six months ended June 30, 2013 and 2012, respectively. Net losses from 2013 major catastrophes for the six months ended June 30, 2013 were attributable to floods in central and eastern Europe and PCS Catastrophe 14. Net losses from 2012 major catastrophes for the six months ended June 30, 2012 were attributable to PCS Catastrophes 66 and 67 and PCS Catastrophe 74.  

Net Premiums Written and Earned

The Property and Marine segment generated 41.5% and 45.5% of our net premiums written for the six months ended June 30, 2013 and 2012, respectively.

  Gross premiums written decreased by $11.7 million for the six months ended June 30, 2013 as compared with the six months ended June 30, 2012, and by $10.8 million excluding reinstatement premiums written related to major catastrophes. Gross premiums written included increases of $4.3 million and $1.7 million related to changes in prior years' premium estimates for six months ended June 30, 2013 and 2012, respectively. Excluding the effect of reinstatement premiums and changes in prior years' premium estimates, gross premiums written decreased by $13.3 million. The decrease in gross premiums written was primarily due to decreases in the crop and catastrophe excess-of-loss classes for the six months ended June 30, 2013 as compared with the same period in 2012 and resulted from fewer opportunities that met our underwriting standards.  Net premiums earned decreased by $13.5 million for the six months ended June 30, 2013 as compared with the six months ended June 30, 2012, primarily as a result of decreases in net premiums written in current and prior periods. Net premiums written and earned were also impacted by changes in the mix of business and the structure of the underlying reinsurance contracts.  

Net Losses and LAE

  Net losses and LAE decreased by $51.5 million for the six months ended June 30, 2013 as compared with the six months ended June 30, 2012. The decrease in net losses and LAE was primarily due to an increase in net favorable loss development and a reduction in net losses from current year major catastrophes in 2013 as compared with the same period in 2012.  

Current Year Major Catastrophe Losses

Net losses from current year major catastrophes, with related premium adjustments, increased the net loss and LAE ratio by 18.3 points and 25.1 points for six months ended June 30, 2013 and 2012, respectively.

The following table sets forth the components of pre-tax net losses from 2013 major catastrophes for the six months ended June 30, 2013 ($ in thousands):

                                                                                             Net Losses from                                                      Net Losses        Reinstatement             Major                 Major Catastrophe                      and LAE        Premiums Earned        Catastrophes Floods in central and eastern Europe                 $   (16,182 )   $           1,527     $         (14,655 ) PCS Catastrophe 14                                        (3,922 )                  11                (3,911 ) Total                                                $   (20,104 )   $           1,538     $         (18,566 )   

The following table sets forth the components of pre-tax net losses from 2012 major catastrophes for the six months ended June 30, 2012 ($ in thousands):

                                                                                             Net Losses from                                                      Net Losses        Reinstatement             Major                 Major Catastrophe                      and LAE        Premiums Earned        Catastrophes PCS Catastrophes 66 and 67                           $   (21,802 )   $           2,171     $         (19,631 ) PCS Catastrophe 74                                        (9,844 )                  98                (9,746 ) Total                                                $   (31,646 )   $           2,269     $         (29,377 )    During the course of 2012, the Company decreased its estimate of the pre-tax loss from PCS Catastrophes 66 and 67 and PCS Catastrophe 74. At December 31, 2012, the Company's estimate of the pre-tax net loss was $17.5 million and $8.7 million for PCS Catastrophes 66 and 67 and PCS Catastrophe 74, respectively. Any development of losses related to these major catastrophes subsequent to December 31, 2012 is included in prior years' loss development in the major catastrophes class of business for the six months ended June 30, 2013.  

Prior Years' Loss Development

  Net favorable loss development was $56.1 million and $18.5 million for six months ended June 30, 2013 and 2012, respectively. Net favorable loss development and related premium adjustments decreased the net loss and LAE ratio by 48.7 points and 17.2 points for the six months ended June 30, 2013 and 2012, respectively. Net favorable loss development for the six months ended June 30, 2013 and 2012 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.                                        - 41 - --------------------------------------------------------------------------------

The following table sets forth the net favorable (unfavorable) development by class of business for the six months ended June 30, 2013 ($ in thousands):

                                                  Net Losses      Net 

Acquisition

               Class of Business                   and LAE           Expense          Net Premiums       Net Development Major catastrophes                              $    39,599     $           (31 )   $       (4,083 )   $          35,485 Property per risk                                     8,003                  97                 (4 )               8,096 Catastrophe excess-of-loss (non-major events)         5,291                 125               (158 )               5,258 Crop                                                  1,793                  38                196                 2,027 Marine, aviation and satellite                        1,007                 240                  -                 1,247 Other                                                   391                (184 )                -                   207 Total                                           $    56,084     $           285     $       (4,049 )   $          52,320    Net favorable development in the major catastrophes class arose primarily from Hurricane Sandy and the Tohoku earthquake in Japan, as well as marine losses arising from Hurricanes Katrina and Ike. Net favorable development in the property per risk class arose primarily from the 2011 and 2012 underwriting years. Net favorable development in the catastrophe excess-of-loss (non-major events) class arose primarily from the 2010 through 2012 underwriting years. Net favorable development in the crop class arose primarily from the 2012 underwriting year. Net favorable development in the marine, aviation and satellite class arose primarily from the 2006 through 2008 underwriting years.  

The following table sets forth the net favorable (unfavorable) development by class of business for the six months ended June 30, 2012 ($ in thousands):

                                                  Net Losses      Net 

Acquisition

               Class of Business                   and LAE           Expense         Net Premiums       Net Development Property per risk                               $     6,350     $           (24 )   $       1,336     $           7,662 Catastrophe excess-of-loss (non-major events)         5,780                  (8 )             276                 6,048 Major catastrophes                                    2,290                 (24 )             678                 2,944 Marine, aviation and satellite                          734                (104 )           2,195                 2,825 Property proportional                                 2,851                (153 )               -                 2,698 Other                                                   484                   6                 -                   490 Total                                           $    18,489     $          (307 )   $       4,485     $          22,667    Net favorable development in the property per risk class arose from most prior underwriting years. Net favorable development in the catastrophe excess-of-loss (non-major events) class arose primarily from the North American business in the 2011 underwriting year. Net favorable development in the major catastrophes class arose primarily from 2008 and 2009 events. Net favorable development in the marine, aviation and satellite class arose primarily from the 2006 through 2011 underwriting years. Net favorable development in the property proportional class arose from most prior underwriting years.  

Calendar Year Losses - Excluding Current Year Major Catastrophes and Prior Years' Loss Development

  Calendar year losses, excluding current year major catastrophes and prior years' loss development, were $43.1 million and $45.4 million for the six months ended June 30, 2013 and 2012, respectively. The calendar year loss ratios, excluding current year major catastrophes and prior years' loss development, were 38.0% and 38.7% for the six months ended June 30, 2013 and 2012, respectively. Calendar year losses and related loss ratios, excluding losses from current year major catastrophes and prior years' loss development, were impacted by changes in the mix of business.  

Net Acquisition Expenses

  Net acquisition expenses and related net acquisition expense ratios were $17.9 million and 16.2%, respectively, for the six months ended June 30, 2013 and $18.0 million and 14.5%, respectively, for the six months ended June 30, 2012. The increase in the acquisition expense ratio for the six months ended June 30, 2013 as compared with the same period in 2012 was primarily due to one new contract in the property proportional class that has a higher acquisition expense ratio than the remainder of the segment. Net acquisition expenses and related net acquisition expense ratios were also impacted by changes in the mix of business.                                        - 42 -

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Other Underwriting Expenses

  Other underwriting expenses were $14.7 million and $14.3 million for the six months ended June 30, 2013 and 2012, respectively. The increase was primarily due to higher performance-based compensation accruals in 2013 as compared with the same period in 2012.  Casualty  The following table sets forth underwriting results, ratios and the period over period change for the Casualty segment for the six months ended June 30, 2013 and 2012 ($ in thousands):                                                         Six Months Ended June 30,                                                                                           Increase                                                          2013               2012         (decrease) Net premiums written                                 $     150,555$  147,078$       3,477 Net premiums earned                                        146,424          151,512            (5,088 ) Net losses and LAE                                          65,001           86,887           (21,886 ) Net acquisition expenses                                    34,317           35,862            (1,545 ) Other underwriting expenses                                 11,393           10,661               732 Casualty segment underwriting income                 $      35,713$   18,102$      17,611  Underwriting ratios: Net loss and LAE                                              44.4 %           57.3 %   (12.9) points Net acquisition expense                                       23.4 %           23.7 %    (0.3) points Other underwriting expense                                     7.8 %            7.0 %      0.8 points Combined                                                      75.6 %           88.0 %   (12.4) points    The Casualty segment underwriting income increased by $17.6 million for the six months ended June 30, 2013 as compared with the six months ended June 30, 2012, primarily due to an increase in net favorable development. Net favorable development was $46.6 million and $28.3 million for the six months ended June 30, 2013 and 2012, respectively.  

Net Premiums Written and Earned

The Casualty segment generated 53.6% and 51.6% of our net premiums written for the six months ended June 30, 2013 and 2012, respectively.

  Net premiums written increased by $3.5 million for the six months ended June 30, 2013 as compared with the six months ended June 30, 2012. Net premiums written in the six months ended June 30, 2013 and 2012 were impacted by increases to prior years' premium estimates of $24.0 million and $25.1 million, respectively. Excluding the impact of increases to prior years' premium estimates, net premiums written increased by $4.5 million.  Net premiums earned decreased by $5.1 million for the six months ended June 30, 2013 as compared with the six months ended June 30, 2012. The net premiums earned in the six months ended June 30, 2013 and 2012 were impacted by increases to prior years' premium estimates of $15.0 million and $18.1 million, respectively. Excluding the impact of increases to prior years' premium estimates, net premiums earned decreased by $2.0 million. Net premiums written and earned were impacted by changes in the mix of business and the structure of the underlying reinsurance contracts.  

Net Losses and LAE

  Net losses and LAE decreased by $21.9 million for the six months ended June 30, 2013 as compared with the six months ended June 30, 2012, primarily due to an increase in net favorable loss development.  

Prior Years' Loss Development

  Net favorable loss development was $45.6 million and $27.7 million for the six months ended June 30, 2013 and 2012, respectively. Net favorable loss development and related premium adjustments decreased the net loss and LAE ratios by 31.1 points and 19.1 points for the six months ended June 30, 2013 and 2012, respectively. Net favorable loss development for the six months ended June 30, 2013 and 2012 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 net loss and LAE ratios were also impacted by changes in the mix of business.                                        - 43 - --------------------------------------------------------------------------------

The following table sets forth the net favorable (unfavorable) development by class of business for the six months ended June 30, 2013 ($ in thousands):

                                             Net Losses      Net Acquisition            Class of Business                 and LAE           Expense          Net Premiums       Net Development North American claims made                 $    22,047     $          (106 )   $           61     $          22,002 North American umbrella                         16,887                 463                  -                17,350 Accident and health                              1,698                 435                  -                 2,133 Financial lines                                  2,203                (232 )              (38 )               1,933 North American clash                             1,149                  13                 11                 1,173 North American occurrence                          343                 581                122                 1,046 Other                                            1,241                  (8 )             (265 )                 968 Total                                      $    45,568     $         1,146     $         (109 )   $          46,605    Net favorable development in the North American claims made class arose primarily from the 2004 through 2010 underwriting years, partially offset by net unfavorable development from a professional liability claim in the 2003 underwriting year and a product liability claim in the 2011 underwriting year. Net favorable development in the North American umbrella class arose primarily from the 2003 through 2009 underwriting years. Net favorable development in the accident and health class arose from the 2009 through 2011 underwriting years. Net favorable development in the financial lines class arose primarily from the 2011 and 2012 underwriting years. Net favorable development in the North American clash class arose primarily from the 2008 and prior underwriting years. Net favorable development in the North American occurrence class arose primarily from the 2007 through 2011 underwriting years, partially offset by net unfavorable development from construction defect claims in the 2004 and 2005 underwriting years.  

The following table sets forth the net favorable (unfavorable) development for the six months ended June 30, 2012 by class of business ($ in thousands):

                                             Net Losses      Net Acquisition            Class of Business                 and LAE           Expense         Net Premiums       Net Development North American claims made                 $    20,586$        (1,384 )   $         739     $          19,941 North American umbrella                         10,612                 426                 -                11,038 North American occurrence                        4,421                (144 )              19                 4,296 Accident and health                                917                 420                 -                 1,337 International casualty                          (7,929 )                36               153                (7,740 ) Other                                             (879 )              (314 )             648                  (545 ) Total                                      $    27,728     $          (960 )   $       1,559     $          28,327    Net favorable development in the North American claims made class arose primarily from the 2003 through 2008 underwriting years. Net favorable development in the North American umbrella class arose primarily from the 2003 through 2007 underwriting years. Net favorable development in the North American occurrence class arose primarily from the 2007 underwriting year. Net favorable development in the accident and health class arose primarily from the 2008 through 2010 underwriting years. Net unfavorable development in the international casualty class arose primarily from the 2006, 2008 and 2010 underwriting years. The 2006 underwriting year was impacted by medical malpractice claims. The 2008 underwriting year was impacted by claims related to the credit crisis arising from the financial institutions business and liability arising from Australian wildfires. The 2010 underwriting year was impacted by a claim related to a power plant in Thailand.  

Calendar Year Losses - Excluding Prior Years' Loss Development

  Calendar year losses, excluding prior years' loss development, were $110.6 million and $114.6 million for the six months ended June 30, 2013 and 2012, respectively. The calendar year loss ratios, excluding prior years' loss development, were 75.5% and 76.4% for the six months ended June 30, 2013 and 2012, respectively. Calendar year losses and related ratios, excluding prior years' loss development, were impacted by changes in the mix of business.  

Net Acquisition Expenses

  Net acquisition expenses and related net acquisition expense ratios were $34.3 million and 23.4%, respectively, for the six months ended June 30, 2013 and $35.9 million and 23.7%, respectively, for the six months ended June 30, 2012. Net acquisition expenses and related net acquisition expense ratios were impacted by changes in the mix of business.  

Other Underwriting Expenses

  Other underwriting expenses were $11.4 million and $10.7 million for the six months ended June 30, 2013 and 2012, respectively. The increase was primarily due to higher performance-based compensation accruals in 2013 as compared with the same period in 2012.                                        - 44 -

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Finite Risk

  The following table sets forth underwriting results, ratios and the period over period change for the Finite Risk segment for the six months ended June 30, 2013 and 2012 ($ in thousands):                                                          Six Months Ended June 30,                                                                                              Increase                                                          2013                2012           (decrease) Net premiums written                                 $      13,803$      8,194$        5,609 Net premiums earned                                         12,678              7,609              5,069 Net losses and LAE                                           4,577                836 Net acquisition expenses                                     8,290              7,039 Net losses, LAE and acquisition expenses                    12,867              7,875              4,992 Other underwriting expenses                                    660                458                202 

Finite Risk segment underwriting income (loss) $ (849 ) $

      (724 )   $         (125 )  Underwriting ratios: Net loss and LAE                                              36.1 %             11.0 % Net acquisition expense                                       65.4 %             92.5 % Net loss, LAE and acquisition expense                        101.5 %            103.5 %     (2.0) points Other underwriting expense                                     5.2 %              6.0 %     (0.8) points Combined                                                     106.7 %            109.5 %     (2.8) points    During the six months ended June 30, 2013 and 2012, the in-force Finite Risk portfolio consisted of one contract and we expect minor activity in this segment in the foreseeable future due to the relatively low level of demand for finite risk products. 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. Due to the decline in premium volume in recent years, current year ratios may be significantly impacted by relatively small adjustments of prior years' reserves.  

Net Premiums Written and Earned

The Finite Risk segment generated 4.9% and 2.9% of our net premiums written for the six months ended June 30, 2013 and 2012, respectively.

  The increases in net premiums written and net premiums earned for the six months ended June 30, 2013 as compared with the six months ended June 30, 2012 were primarily attributable to increases in the subject premium basis on the single contract currently in-force in 2013 as compared with the same period in 2012.  

Net Losses, LAE and Acquisition Expenses

  Net losses, LAE and acquisition expenses increased by $5.0 million for the six months ended  as compared with the six months ended June 30, 2012, primarily due to an increase in net premiums earned. Net unfavorable development was $0.3 million for the six months ended June 30, 2013 and net favorable development was less than $0.1 million for the six months ended June 30, 2012.  Non-Underwriting Results  Net Investment Income  Net investment income was $36.4 million and $54.7 million for the six months ended June 30, 2013 and 2012, respectively. Net investment income decreased during the six months ended June 30, 2013, as compared with the same period in 2012 primarily due to a decrease in the average book yield for the portfolio of total investments and cash and cash equivalents from 2.8% in the first six months of 2012 to 2.0% in the first six months of 2013. The decrease in the average book yield reflected the sale of higher yielding investments. We also retained a higher proportion of cash in our portfolio in order to decrease the overall duration and maintain high liquidity. Contributing to the decrease in net investment income was a reduction of approximately $256.6 million in the average book value of our investments and cash and cash equivalents for the six months ended June 30, 2013 as compared with the same period in 2012, primarily due to share repurchases and negative operating cash flows over the last twelve months.  

Net Realized Gains on Investments

  Net realized gains on investments were $25.0 million and $47.3 million for the six months ended June 30, 2013 and 2012, respectively. Sales of investments resulted in net realized gains of $27.2 million for the six months ended June 30, 2013, and included $18.3 million of net realized gains from the sale of municipal bonds, $6.1 million of net realized gains from the sale of corporate bonds and $2.5 million of net realized gains from the sale of CMBS. Also included in net realized gains was a net negative impact from fair value adjustments on trading securities of $2.2 million for the six months ended June 30, 2013 related to non-U.S. government securities. Sales of investments resulted in net realized gains of $47.9 million for the six months ended June 30, 2012 and included $41.3 million of net realized gains from the sale of municipal bonds, $4.6 million of net realized gains from the sale of corporate bonds and $1.0 million of net realized gains from the sale of CMBS. The net negative impact from fair value adjustments on trading securities of $0.6 million for the six months ended June 30, 2012 was related to non-U.S. government securities.                                        - 45 - --------------------------------------------------------------------------------

Net Impairment Losses on Investments

  Net impairment losses reflect other-than-temporary impairments attributable to credit losses on impaired securities that relate exclusively to investments in securitized mortgages not guaranteed by U.S. government agencies.  Net impairment losses on investments were $1.9 million and $2.2 million for the six months ended June 30, 2013 and 2012, respectively. The net impairment losses recorded for the six months ended June 30, 2013 included $1.4 million related to non-agency RMBS and $0.5 million related to sub-prime ABS. The net impairment losses recorded for the six months ended June 30, 2012 related substantially all to non-agency RMBS.  Other Revenues and Expenses 

The following table sets forth other revenues and expenses for the six months ended June 30, 2013 and 2012 ($ in thousands):

                                                   Six Months Ended June 30,                                                    2013               2012 Other income (expense)                         $       1,077$     (670 ) Operating expenses not allocated to segments         (12,224 )        (11,271 ) Net foreign currency exchange (losses) gains           1,079             (222 ) Interest expense                                      (9,559 )         (9,546 ) Other expenses                                 $     (19,627 )$  (21,709 )    Other income (expense) includes changes in the fair value of our reinsurance deposit assets. Income from our reinsurance deposit assets was $1.3 million for the six months ended June 30, 2013. We had no reinsurance deposit assets during the six months ended June 30, 2012.  Operating expenses not allocated to underwriting segments were $12.2 million and $11.3 million for the six months ended June 30, 2013 and 2012, respectively, and related to costs such as compensation and other corporate expenses associated with operating as a publicly-traded company. The increase was primarily due to higher performance-based compensation accruals in 2013 as compared with the same period in 2012.  

Interest expense was $9.6 million and $9.5 million for the six months ended June 30, 2013 and 2012, respectively, and related to our $250.0 million of debt obligations.

Income Taxes

  Income tax expense was $9.2 million and $8.0 million for the six months ended June 30, 2013 and 2012, respectively. Our effective tax rate was 6.3% and 6.2% for the six months ended June 30, 2013 and 2012, respectively.  The income tax expense or benefit is primarily driven by the taxable income or loss generated by our U.S.-based subsidiaries. Our effective tax rate is primarily driven by the portion of taxable income or loss generated by our U.S.-based subsidiaries relative to the income or loss generated by our Bermuda-based operations, which are not subject to corporate income tax. Premiums earned by our U.S. and Bermuda-based subsidiaries generally do not bear a proportionate relationship to their respective pre-tax income for a variety of reasons, including the significant impact on pre-tax income of the different mixes of business underwritten by the particular subsidiary, the presence or absence of underwriting income or loss attributable to such business, and the investment results experienced by the particular subsidiary.  Pre-tax income was $108.6 million and $37.0 million in our Bermuda and U.S. companies, respectively, for the six months ended June 30, 2013. Pre-tax income was $95.5 million and $33.6 in our Bermuda and U.S. companies, respectively, for the six months ended June 30, 2012.  

Financial Condition

  The following discussion of financial condition, liquidity and capital resources as of June 30, 2013 focuses only on material changes from December 31, 2012. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition," in our 2012 Form 10-K.  

Liquidity

Liquidity Requirements

Platinum Holdings is a holding company, the assets of which consist primarily of shares of its subsidiaries. Platinum Holdings' liquidity requirements, and those of Platinum Finance, include the payment of operating expenses, debt service obligations and income taxes. Our reinsurance subsidiaries' principal liquidity requirements are the payment of losses and LAE, commissions, brokerage, operating expenses, income taxes and dividends to Platinum Holdings and Platinum Finance. We consider the impact of dividends and other distributions from our reinsurance subsidiaries on their respective capital levels, which may impact the financial strength rating assigned to our subsidiaries by A.M. Best Company, Inc. ("A.M. Best") and Standard & Poor's Ratings Services ("S&P").                                        - 46 - --------------------------------------------------------------------------------

Collateral Requirements of our Reinsurance Subsidiaries

  Platinum Bermuda is not licensed, approved or accredited as a reinsurer in the United States and, therefore, under the terms of its contracts with U.S. ceding companies, it is required to provide collateral to its ceding companies for unpaid losses and LAE and unearned premiums in a form acceptable to state insurance commissioners. Platinum Bermuda and Platinum US also provide reinsurance coverage in many other international jurisdictions, several of which require us to provide collateral. Typically, this type of collateral takes the form of letters of credit issued by a bank, the establishment of a trust, or funds held by ceding companies. See "Sources of Liquidity - Credit Facilities" below for additional information on our credit facilities and the collateral required by us under these facilities.  Platinum Bermuda and Platinum US also have reinsurance and other contracts that require them to provide collateral to ceding companies when certain levels of assumed liabilities are attained. Should certain events occur, such as a decline in our financial strength rating by A.M. Best or S&P below specified levels or a decline in statutory equity below specified amounts, the amount of collateral required may increase. Some reinsurance contracts also have special termination provisions that permit early termination should certain events occur. Investments of $58.9 million and cash and cash equivalents of $12.1 million were pledged to collateralize obligations under various reinsurance contracts as of June 30, 2013.  Other Liquidity Requirements  Platinum Holdings fully and unconditionally guarantees the outstanding $250.0 million of debt obligations of Platinum Finance. Platinum Finance pays interest at a rate of 7.5% per annum on June 1 and December 1 of each year.  

Platinum Holdings also may require cash to pay for share repurchases. See "Capital Resources - Share and Debt Repurchases" below for additional discussion of share repurchases.

  Sources of Liquidity  Platinum Holdings' and Platinum Finance's sources of liquidity include cash and cash equivalents, liquid investments, borrowings from our syndicated credit facility, the potential issuance of securities, and dividends and other distributions from subsidiaries. Our reinsurance subsidiaries' sources of liquidity consist primarily of cash and cash equivalents, inflows of cash from operations, proceeds from the sale, redemption and maturity of investments and borrowings from our credit facilities.  As of June 30, 2013, we had consolidated cash and cash equivalents of $1.6 billion, including $8.1 million at Platinum Holdings and $146.8 million at Platinum Finance. We expect that Platinum Holdings' and Platinum Finance's liquidity needs for the next twelve months will be met by our cash and cash equivalents and available dividend capacity from our subsidiaries. We expect that our reinsurance subsidiaries' liquidity needs for the next twelve months will be met by our cash and cash equivalents, inflows of cash from operations, investment income and proceeds from the sale, redemption or maturity of investments.  

Cash Flows

  The following table summarizes the cash provided by or used in our operating, investing and financing activities and the effect of foreign currency exchange rate changes on cash and cash equivalents for the six months ended June 30, 2013 and 2012 ($ in thousands):                                                                   Six Months Ended June 30,                                                                     2013             2012 Net cash used in operating activities                          $      (49,113 )$   (59,185 ) Net cash provided by investing activities                             165,450         832,278 Net cash used in financing activities                                (215,010 )       (94,428 ) Effect of foreign currency exchange rate changes on cash              (12,261 )        (5,192 ) Net increase (decrease) in cash and cash equivalents                 (110,934 )       673,473 Cash and cash equivalents at beginning of period                    1,720,395         792,510 Cash and cash equivalents at end of period                     $    1,609,461$ 1,465,983    Operating Activities  Net cash used in operating activities in both 2013 and 2012 was primarily due to the payment of losses and LAE and a reduction in premium volume as compared with prior years. Our reinsurance subsidiaries generally have liquidity from underwriting activities as premiums are received in advance of the time losses are paid. The period of time from the occurrence of a claim through the settlement of the liability may extend many years into the future. However, due to the nature of our reinsurance operations, cash flows are affected by claim payments that can fluctuate from year to year. The amount and timing of actual claim payments can vary based on many factors, including the severity of individual losses, changes in the legal environment, and general market conditions. As a result of a reduction in premium volume and expected loss payments resulting from major catastrophe activity in the last three years, we anticipate that our operating cash flows will be negative for at least the next 12 months.  Investing Activities  Net cash provided by investing activities in both 2013 and 2012 was primarily due to sales and maturities of fixed maturity available-for-sale securities and short-term investments, partially offset by the acquisition of fixed maturity available-for-sale securities and short-term investments. We have increased our cash balance from investing activities to decrease the overall duration of our investable assets and to maintain high liquidity.                                        - 47 - --------------------------------------------------------------------------------

Financing Activities

  Net cash used in financing activities primarily related to repurchases of common shares of $224.2 million and $89.9 million for the six months ended June 30, 2013 and 2012, respectively. In addition, dividends paid to common shareholders were $4.9 million and $5.5 million for the six months ended June 30, 2013 and 2012, respectively.  Investments  As part of our investment strategy, we seek to establish a level of cash and liquid short-term and intermediate-term securities. We believe our expected cash flows from our investment strategy will be adequate to meet our foreseeable liquidity requirements. However, the ultimate amount and timing of claim payments could differ materially from our estimates and create significant variations in cash flows from operations between periods, which may require us to make payments from other sources of liquidity, such as sales of investments, borrowings from credit facilities or proceeds from capital market transactions. If we need to sell investments to meet liquidity requirements, the sale of such investments may be at a material gain or loss.  Our investment portfolio consists primarily of diversified, high quality, predominantly investment grade fixed maturity securities. See Note 3 to the "Consolidated Financial Statements" in this Form 10-Q for additional discussion of fair values. The following table sets forth the fair values, net unrealized gains and losses and credit quality of our investments as of June 30, 2013 ($ in thousands):                                                                       Net Unrealized                                                      Fair Value       Gain (Loss)        Credit Quality Fixed maturity available-for-sale securities: U.S. Government                                      $     4,842     $          245                  Aaa Municipal bonds: State general obligation bonds                           796,390             42,292                  Aa3 Essential service bonds                                  182,376              9,423                  Aa3 Pre-refunded bonds                                        84,378              3,664                  Aa2 State income tax and sales tax bonds                      76,909              6,545                  Aa1 Other municipal bonds                                     76,726              2,742                  Aa2 Subtotal                                               1,216,779             64,666                  Aa2 Non-U.S. governments                                      40,482                513                  Aa1 Corporate bonds: Industrial                                               160,740              1,081                 Baa2 Utilities                                                 55,964              1,017                 Baa1 Insurance                                                 29,034              1,584                 Baa1 Subtotal                                                 245,738              3,682                 Baa1 Commercial mortgage-backed securities                     99,092              5,185                  Aa3 

Residential mortgage-backed securities: U.S. Government agency residential mortgage-backed securities

                                               173,425              1,483                  Aaa Non-agency residential mortgage-backed securities         17,633             (1,259 )               Caa2 Subtotal                                                 191,058                224                  Aa2 Asset-backed securities: Asset-backed securities                                   13,480               (120 )                Aaa Sub-prime asset-backed securities                          4,169              1,443                    C Subtotal                                                  17,649              1,323                   A2 Total fixed maturity available-for-sale securities     1,815,640             75,838                  Aa3 Fixed maturity trading securities: Non-U.S. governments                                     105,070                n/a                  Aaa Total fixed maturity trading securities                  105,070                n/a                  Aaa Short-term investments: Trading                                                   77,636                n/a                  Aaa Total short-term investments                              77,636                n/a                  Aaa Total investments                                    $ 1,998,346$       75,838                  Aa3                                          - 48 -

--------------------------------------------------------------------------------   Our investable assets, which consist of investments, cash and cash equivalents, accrued investment income and net balances due to and from brokers totaled $3.6 billion and $4.0 billion at June 30, 2013 and December 31, 2012, respectively. Our investable assets had a weighted average rating of Aa2 and Aa1 as of June 30, 2013 and December 31, 2012, respectively, primarily measured by Moody's Investor Services ("Moody's"). If a particular security did not have a Moody's rating then a rating generally from S&P was converted to a Moody's equivalent rating. Investable assets had a weighted average duration of 2.4 and 2.6 years as of June 30, 2013 and December 31, 2012, respectively.  

Non-U.S. Governments

Our non-U.S. government bond portfolio, which includes our short-term investments classified as trading, consists of securities issued by governments, provinces, agencies and supranationals.

  The following table provides additional detail on the fair value and amortized cost of our portfolio of non-U.S. government fixed maturity available-for-sale securities, fixed maturity trading securities and short-term investments converted to U.S. dollars as of June 30, 2013 ($ in thousands):                                                             Fair Value                                      Basic           Other                                    Monetary         Non-U.S.                                       Amortized Non-U.S. government portfolio        Unit            Dollar         U.S. Dollar        Total          Cost Germany                           $    43,157     $          -     $           -     $  43,157$   40,799 Netherlands                                 -            1,439                 -         1,439          1,344 Eurozone governments                   43,157            1,439                 -        44,596         42,143 New Zealand                            59,438                -                 -        59,438         59,438 United Kingdom                         51,522                -                 -        51,522         47,925 Sweden                                      -            1,169            30,217        31,386         31,088 Australia                              24,194                -                 -        24,194         23,928 Japan                                       -                -             5,222         5,222          5,000 Norway                                      -                -             5,043         5,043          4,996 Supranational                               -            1,787                 -         1,787          1,638 Other non-U.S. governments            135,154            2,956            

40,482 178,592 174,013 Total non-U.S. governments $ 178,311$ 4,395$ 40,482$ 223,188$ 216,156

We invest in non-U.S. dollar denominated securities for purposes of hedging our non-U.S. dollar denominated reinsurance liabilities.

  In addition to the investments noted above, we held non-U.S. dollar denominated cash and cash equivalents of $96.2 million that are also held for the purpose of hedging our non-U.S. dollar denominated reinsurance liabilities.  

Net Unrealized Gain (Loss)

  The net unrealized gain position of our municipal bond and corporate bond portfolios was $64.7 million and $3.7 million, respectively, as of June 30, 2013 as compared with a net unrealized gain position of our municipal bond and corporate bond portfolios of $129.7 million and $20.9 million, respectively, as of December 31, 2012.  The decreases in the net unrealized gain position in our municipal bond and corporate bond portfolios were the result of increases in treasury yields and a widening of interest rate spreads as well as realized gains from sales activities. We analyze the creditworthiness of our municipal bond and corporate bond portfolios by reviewing various performance metrics of the issuer, including financial condition, credit ratings and other public information.  The net unrealized gain position of our CMBS portfolio was $5.2 million as of June 30, 2013 as compared with $8.4 million as of December 31, 2012. The decrease in the net unrealized gain position in our CMBS portfolio was the result of sales activities. 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 with the current level of credit support, 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 and strong credit support.  The net unrealized gain position of our RMBS portfolio was $0.2 million, with non-agency RMBS representing net unrealized losses of $1.3 million, as of June 30, 2013 as compared with a net unrealized loss position of $0.7 million, with non-agency RMBS representing net unrealized losses of $2.9 million, as of December 31, 2012. Approximately 91% of the RMBS in our investment portfolio were issued or are guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or the Federal Deposit Insurance Corporation and are referred to as U.S. Government agency RMBS. The remaining 9% of our RMBS were issued by non-agency institutions that relate exclusively to investments in securitized mortgages not guaranteed by U.S. government agencies. Securities with underlying sub-prime mortgages as collateral are included in ABS. The net unrealized gain position of our portfolio of sub-prime ABS was $1.4 million as of June 30, 2013 as compared with $0.5 million as of December 31, 2012. We analyze our non-agency RMBS and sub-prime ABS 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 with the current level of credit support, 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.                                        - 49 - --------------------------------------------------------------------------------   We believe that the gross unrealized losses in our fixed maturity available-for-sale portfolio of $11.0 million represent temporary declines in fair value.  We believe that the unrealized losses are 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.  Conversely, economic conditions may improve more than expected and favorably increase the cash flows expected from these impaired securities, which would be earned through net investment income over the remaining life of the security.  Credit Facilities  As of June 30, 2013, we had a $300.0 million credit facility with various financial institutions (the "Syndicated Credit Facility") available for revolving borrowings and letters of credit. In addition, we had other letter of credit ("LOC") facilities available for the issuance of letters of credit to support reinsurance obligations of our reinsurance subsidiaries.  We had no revolving borrowings under the Syndicated Credit Facility during the six months ended June 30, 2013 and the year ended December 31, 2012.  The following table summarizes the outstanding letters of credit and the cash and cash equivalents held in trust to collateralize letters of credit issued as of June 30, 2013 ($ in thousands):                                                           Letters of Credit           Collateral                                                       Committed                     Cash and Cash                                                       Capacity        Issued         Equivalents Syndicated Credit Facility: Secured                                              $   200,000$  80,405$        93,347 Unsecured                                                100,000             -                   - Total Syndicated Credit Facility                         300,000        80,405              93,347 Other LOC Facilities                                     118,122        46,454              67,312 Total                                                $   418,122$ 126,859$       160,659

As of June 30, 2013, we were in compliance with covenants under all credit facilities.

  On July 2, 2013, Platinum Bermuda increased the amount of an uncommitted LOC facility by $50.0 million resulting in total uncommitted LOC capacity of $256.9 million available to our reinsurance subsidiaries. The Company also has the ability to increase the syndicated and other LOC facilities by up to $175.0 million, subject to agreement with the lenders.  

Dividend Restrictions

Platinum Holdings and its subsidiaries are subject to certain legal and regulatory restrictions in their respective jurisdictions of domicile. The legal restrictions generally include the requirement to maintain positive net assets and to be able to pay liabilities as they become due. For more details on our regulations, see Item 1, "Business - Regulation," in our 2012 Form 10-K. Regulatory restrictions on dividends are described below.  

Dividend Restrictions on Platinum Holdings

There are no regulatory restrictions on retained earnings available for the payment of dividends by Platinum Holdings to its shareholders.

Dividend Restrictions on Subsidiaries

  The laws and regulations of Bermuda and the United States include certain restrictions on the amount of statutory capital and surplus that are available for the payment of dividends by Platinum Bermuda and Platinum US to their respective parent companies, Platinum Holdings and Platinum Finance, without the prior approval of the relevant regulatory authorities. The following table summarizes the dividend capacity of our reinsurance subsidiaries for 2013 ($ in thousands):                                                                        For the Six                                                                      Months Ended                                                         2013         June 30, 2013      June 30, 2013                                                       Dividend                                                       Capacity           Paid             Remaining Platinum Bermuda                                     $   318,343$     162,500$       155,843 Platinum US                                               30,779                 -              30,779 Total                                                $   349,122$     162,500$       186,622                                          - 50 -

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Subsequent to June 30, 2013, Platinum Bermuda declared and paid a dividend of $100.0 million to Platinum Holdings.

There are no regulatory restrictions on retained earnings available for the payment of dividends by Platinum Finance to Platinum Regency or by Platinum Regency to Platinum Holdings.

Capital Resources

  At June 30, 2013, our capital resources of $2.0 billion consisted of $1.7 billion of common shareholders' equity and $250.0 million of debt obligations. At December 31, 2012, our capital resources of $2.1 billion consisted of $1.9 billion of common shareholders' equity and $250.0 million of debt obligations. The decrease in capital of $148.0 million during the six months ended June 30, 2013 was primarily attributable to repurchases of common shares of $224.2 million and the decrease in our net unrealized gains of $73.3 million, net of tax, partially offset by net income of $136.4 million.  

Share and Debt Repurchases

  Our Board of Directors has authorized the repurchase of our common shares through a share repurchase program. Since the program was established, our Board of Directors has approved increases in the repurchase program from time to time, most recently on July 24, 2013, to result in authority as of such date to repurchase up to a total of $250.0 million of our common shares.  During the three months ended June 30, 2013, in accordance with the share repurchase program, we repurchased 2,705,797 of our common shares in the open market for an aggregate cost of $155.9 million at a weighted average cost including commissions of $57.62 per share. During the six months ended June 30, 2013, in accordance with the share repurchase program, we repurchased 3,997,661 of our common shares in the open market for an aggregate cost of $224.2 million at a weighted average cost including commissions of $56.09 per share. The shares we repurchased were canceled.  

Our Board of Directors has also authorized the repurchase of up to $250.0 million of our outstanding Series B 7.5% Notes due June 1, 2017, issued by Platinum Finance, in open market purchases, privately negotiated transactions or otherwise. We have not repurchased any of our Series B 7.5% Notes.

  The timing and amount, if any, of repurchase transactions depends on a variety of factors, including prevailing market conditions, our liquidity requirements, contractual restrictions, corporate and regulatory considerations and other factors.  

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 the consolidated financial statements as of June 30, 2013.  Contractual Obligations 

There have been no material changes outside of the ordinary course of business to our contractual obligations as disclosed under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Contractual Obligations," in our 2012 Form 10-K.

Recently Issued Accounting Standards

See Note 1 to the "Consolidated Financial Statements" contained elsewhere 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.                                        - 51 -

--------------------------------------------------------------------------------   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:  

· the occurrence of severe natural or man-made catastrophic events;

· the effectiveness of our loss limitation methods and pricing models;

· the adequacy of our ceding companies' ability to assess the risks they

underwrite;

· the adequacy of our liability for unpaid losses and loss adjustment expenses;

   ·  the effects of emerging claim and coverage issues on our business;   

· our ability to maintain our A.M. Best and S&P financial strength ratings;

· our ability to raise capital on acceptable terms if necessary;

· our exposure to credit loss from counterparties in the normal course of

business;

· our ability to provide reinsurance from Bermuda to insurers domiciled in the

United States;    

· the effect on our business of the cyclicality of the property and casualty

    reinsurance business;    

· the effect on our business of the highly competitive nature of the property

and casualty reinsurance industry, including the effect of new entrants to the

    industry;    

· losses that we could face from terrorism, political unrest and war;

· our dependence on the business provided to us by reinsurance brokers and our

exposure to credit risk associated with our brokers during the premium and

    loss settlement process;    

· the availability of retrocessional reinsurance on acceptable terms;

· foreign currency exchange rate fluctuation;

· our ability to maintain and enhance effective operating procedures and

internal controls over financial reporting;

· our need to make many estimates and judgments in the preparation of our

financial statements;

· the limitations placed on our financial and operational flexibility by the

representations, warranties and covenants in our debt and credit facilities;

· our ability to retain key executives and attract and retain additional

qualified personnel in the future;

· the performance of our investment portfolio;

· the effects of changes in market interest rates on our investment portfolio;

· the concentration of our investment portfolio in any particular industry,

asset class or geographic region;

· the effects that the imposition of U.S. corporate income tax would have on

Platinum Holdings and its non-U.S. subsidiaries;                                          - 52 -

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· the risk that U.S. persons who hold our shares will be subject to adverse U.S.

federal income tax consequences under certain circumstances;

· the risk that U.S. persons who dispose of our shares may be subject to U.S.

   federal income taxation at the rates applicable to dividends on all or a    portion of their gains, if any;   

· the risk that holders of 10% or more of our shares may be subject to U.S.

income taxation under the "controlled foreign corporation" rules;

· the effect of changes in U.S. federal income tax law on an investment in our

    shares;    

· the possibility that we may become subject to taxes in Bermuda;

· the effect on our business of potential changes in the regulatory system under

    which we operate;    

· the impact of regulatory regimes and changes to accounting rules on our

financial results, irrespective of business operations;

· the uncertain impact on our business of the Dodd-Frank Wall Street Reform and

Consumer Protection Act of 2010;

· the dependence of the cash flows of Platinum Holdings on dividends, interest

and other permissible payments from its subsidiaries to meet its obligations;

· the risk that our shareholders may have greater difficulty in protecting their

interests than would shareholders of a U.S. corporation; and

· limitations on the ownership, transfer and voting rights of our common shares.

    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 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. For a detailed discussion of our risk factors, refer to Item 1A, "Risk Factors," in our 2012 Form 10-K. 

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