Segment Reporting Disclosures

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

As a result of the acquisition of Alterra, the Company formed a new operating segment, effective May 1, 2013. The Alterra segment is comprised of all of the active property and casualty underwriting operations of the former Alterra companies. The Alterra segment provides specialty insurance and reinsurance products worldwide from offices in the United States, Bermuda, the United Kingdom, Europe and Latin America. Results attributable to Alterra are being separately evaluated by management. The Company is in the process of integrating Alterra with its existing operations, which is not expected to be complete until 2014.

For purposes of segment reporting, the Other Insurance (Discontinued Lines) segment includes lines of business that have been discontinued in conjunction with acquisitions. Prior to its acquisition by the Company, Alterra offered life and annuity reinsurance products. In 2010, Alterra ceased writing life and annuity reinsurance contracts and placed this business into run-off. Results attributable to the run-off of Alterra's life and annuity reinsurance business are included in the Company's Other Insurance (Discontinued Lines) segment.

All investing activities related to our insurance operations are included in the Investing segment.

The Company's non-insurance operations primarily consist of controlling interests in various industrial and service businesses. For purposes of segment reporting, the Company's non-insurance operations are not considered to be a reportable operating segment.

Segment profit for the Investing segment is measured by net investment income and net realized investment gains or losses. Segment profit or loss for the Company's operating segments is primarily measured by underwriting profit or loss. The property and casualty insurance industry commonly defines underwriting profit or loss as earned premiums net of losses and loss adjustment expenses and underwriting, acquisition and insurance expenses. Underwriting profit or loss does not replace operating income or net income computed in accordance with U.S. GAAP as a measure of profitability. Underwriting profit or loss provides a basis for management to evaluate the Company's underwriting performance. Segment profit or loss for the Company's operating segments also includes other revenues and other expenses, primarily related to the run-off of managing general agent operations that were discontinued in conjunction with acquisitions. Other revenues and other expenses in the Other Insurance (Discontinued Lines) segment are comprised of the results attributable to the run-off of Alterra's life and annuity reinsurance business.

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


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



	Quarter Ended September 30, 2013
(dollars in thousands)	Excess and Surplus Lines			Specialty Admitted			London Insurance Market			Alterra			Other Insurance (Discontinued Lines)				Investing		Consolidated
Gross premium volume	$	273,757		$	230,450		$	199,575		$	372,516		$	—			$	—	$	1,076,298
Net written premiums	232,396			219,955			174,203			216,378			(1		)		—		842,931

Earned premiums	218,538			197,372			199,633			304,181			(1		)		—		919,723
Losses and loss adjustment expenses:
Current accident year	(147,204		)	(126,649		)	(135,098		)	(201,732		)	—				—		(610,683		)
Prior accident years	40,799			28,410			40,562			—			(32,460		)		—		77,311
Underwriting, acquisition and insurance expenses:
Transaction costs and other acquisition-related expenses ⁽¹⁾	—			—			—			(8,508		)	—				—		(8,508		)
All other expenses	(85,570		)	(80,023		)	(73,335		)	(104,608		)	(82		)		—		(343,618		)
Underwriting profit (loss)	26,563			19,110			31,762			(10,667		)	(32,543		)		—		34,225
Net investment income	—			—			—			—			—				86,192		86,192
Net realized investment gains	—			—			—			—			—				11,238		11,238
Other revenues (insurance)	—			1,402			311			59			160				—		1,932
Other expenses (insurance)	—			(6,292		)	(1,167		)	—			(8,789		)		—		(16,248		)
Segment profit (loss)	$	26,563		$	14,220		$	30,906		$	(10,608	)	$	(41,172	)		$	97,430	$	117,339
Other revenues (non-insurance)																			172,580
Other expenses (non-insurance)																			(150,318		)
Amortization of intangible assets																			(16,848		)
Interest expense																			(30,619		)
Income before income taxes																			$	92,134
U.S. GAAP combined ratio ⁽²⁾	88		%	90		%	84		%	104		%	NM			⁽³⁾			96		%

⁽¹⁾

In connection with the acquisition of Alterra, the Company incurred acquisition-related costs totaling $8.5 million for the quarter ended September 30, 2013, which included severance costs of $3.5 million, stay bonuses of $3.9 million and other compensation costs of $1.1 million related to the acceleration of certain long-term incentive compensation awards and restricted stock awards that were granted by Alterra prior to the acquisition.


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


⁽³⁾	NM – Ratio is not meaningful.



	Quarter Ended September 30, 2012
(dollars in thousands)	Excess and Surplus Lines			Specialty Admitted			London Insurance Market			Other Insurance (Discontinued Lines)				Investing		Consolidated
Gross premium volume	$	253,014		$	167,747		$	190,071		$	1			$	—	$	610,833
Net written premiums	211,538			157,894			170,193			(1		)		—		539,624

Earned premiums	195,478			153,009			182,052			(2		)		—		530,537
Losses and loss adjustment expenses:
Current accident year	(134,504		)	(116,044		)	(122,192		)	—				—		(372,740		)
Prior accident years	51,310			11,504			32,744			(26,277		)		—		69,281
Underwriting, acquisition and insurance expenses:
Prospective adoption of ASU 2010-26 ⁽¹⁾	(2,125		)	(2,600		)	(1,809		)	—				—		(6,534		)
All other expenses	(88,093		)	(60,008		)	(76,820		)	(386		)		—		(225,307		)
Underwriting profit (loss)	22,066			(14,139		)	13,975			(26,665		)		—		(4,763		)
Net investment income	—			—			—			—				64,438		64,438
Net realized investment gains	—			—			—			—				5,231		5,231
Other revenues (insurance)	—			11,536			223			—				—		11,759
Other expenses (insurance)	—			(12,181		)	(970		)	—				—		(13,151		)
Segment profit (loss)	$	22,066		$	(14,784	)	$	13,228		$	(26,665	)		$	69,669	$	63,514
Other revenues (non-insurance)																153,810
Other expenses (non-insurance)																(132,188		)
Amortization of intangible assets																(7,959		)
Interest expense																(24,692		)
Income before income taxes																$	52,485
U.S. GAAP combined ratio ⁽²⁾	89		%	109		%	92		%	NM			⁽³⁾			101		%

⁽¹⁾

Effective January 1, 2012, the Company prospectively adopted FASB ASU No. 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. At December 31, 2011, deferred policy acquisition costs included $43.1 million of costs that no longer met the criteria for deferral as of January 1, 2012 and were recognized into income during 2012, consistent with policy terms. The quarter ended September 30, 2012 included $6.5 million of underwriting, acquisition and insurance expenses that were deferred as of December 31, 2011 and no longer met the criteria for deferral as of January 1, 2012.


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


⁽³⁾	NM – Ratio is not meaningful.



	Nine Months Ended September 30, 2013
(dollars in thousands)	Excess and Surplus Lines			Specialty Admitted			London Insurance Market			Alterra			Other Insurance (Discontinued Lines)				Investing		Consolidated
Gross premium volume	$	792,877		$	687,669		$	725,153		$	714,844		$	35			$	—	$	2,920,578
Net written premiums	673,741			655,350			634,180			469,894			35				—		2,433,200

Earned premiums	629,288			533,037			577,101			529,668			35				—		2,269,129
Losses and loss adjustment expenses:
Current accident year	(424,398		)	(353,581		)	(386,617		)	(380,513		)	—				—		(1,545,109		)
Prior accident years	165,587			45,863			101,589			—			(31,604		)		—		281,435
Underwriting, acquisition and insurance expenses:
Transaction costs and other acquisition-related expenses ⁽¹⁾	—			—			—			(70,317		)	—				—		(70,317		)
All other expenses	(250,101		)	(229,462		)	(222,469		)	(171,762		)	217				—		(873,577		)
Underwriting profit (loss)	120,376			(4,143		)	69,604			(92,924		)	(31,352		)		—		61,561
Net investment income	—			—			—			—			—				228,788		228,788
Net realized investment gains	—			—			—			—			—				40,701		40,701
Other revenues (insurance)	—			11,945			4,778			1,256			479				—		18,458
Other expenses (insurance)	—			(14,447		)	(3,762		)	—			(13,039		)		—		(31,248		)
Segment profit (loss)	$	120,376		$	(6,645	)	$	70,620		$	(91,668	)	$	(43,912	)		$	269,489	$	318,260
Other revenues (non-insurance)																			486,222
Other expenses (non-insurance)																			(428,394		)
Amortization of intangible assets																			(37,755		)
Interest expense																			(82,754		)
Income before income taxes																			$	255,579
U.S. GAAP combined ratio ⁽²⁾	81		%	101		%	88		%	118		%	NM			⁽³⁾			97		%

⁽¹⁾

In connection with the acquisition of Alterra, the Company incurred transaction costs of $16.0 million for the nine months ended September 30, 2013, which primarily consist of due diligence, legal and investment banking costs. Additionally, the Company incurred severance costs of $31.7 million, stay bonuses of $10.0 million and other compensation costs totaling $12.6 million related to the acceleration of certain long-term incentive compensation awards and restricted stock awards that were granted by Alterra prior to the acquisition.


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


⁽³⁾	NM – Ratio is not meaningful.



	Nine Months Ended September 30, 2012
(dollars in thousands)	Excess and Surplus Lines			Specialty Admitted			London Insurance Market			Other Insurance (Discontinued Lines)				Investing		Consolidated
Gross premium volume	$	705,849		$	496,019		$	704,511		$	(6	)		$	—	$	1,906,373
Net written premiums	597,742			467,722			621,947			(7		)		—		1,687,404

Earned premiums	584,524			431,179			557,493			(7		)		—		1,573,189
Losses and loss adjustment expenses:
Current accident year	(390,254		)	(310,115		)	(372,869		)	—				—		(1,073,238		)
Prior accident years	132,583			27,747			118,994			(19,160		)		—		260,164
Underwriting, acquisition and insurance expenses:
Prospective adoption of ASU 2010-26 ⁽¹⁾	(16,652		)	(12,863		)	(11,578		)	—				—		(41,093		)
All other expenses	(255,295		)	(171,111		)	(226,770		)	(1,053		)		—		(654,229		)
Underwriting profit (loss)	54,906			(35,163		)	65,270			(20,220		)		—		64,793
Net investment income	—			—			—			—				207,834		207,834
Net realized investment gains	—			—			—			—				25,356		25,356
Other revenues (insurance)	—			36,065			4,753			—				—		40,818
Other expenses (insurance)	—			(35,184		)	(2,722		)	—				—		(37,906		)
Segment profit (loss)	$	54,906		$	(34,282	)	$	67,301		$	(20,220	)		$	233,190	$	300,895
Other revenues (non-insurance)																344,960
Other expenses (non-insurance)																(305,556		)
Amortization of intangible assets																(25,078		)
Interest expense																(69,068		)
Income before income taxes																$	246,153
U.S. GAAP combined ratio ⁽²⁾	91		%	108		%	88		%	NM			⁽³⁾			96		%

⁽¹⁾

Effective January 1, 2012, the Company prospectively adopted FASB ASU No. 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. At December 31, 2011, deferred policy acquisition costs included $43.1 million of costs that no longer met the criteria for deferral as of January 1, 2012 and were recognized into income during 2012, consistent with policy terms. The nine months ended September 30, 2012 included $41.1 million of underwriting, acquisition and insurance expenses that were deferred as of December 31, 2011 and no longer met the criteria for deferral as of January 1, 2012.


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


⁽³⁾	NM – Ratio is not meaningful.


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



(dollars in thousands)	September 30, 2013		December 31, 2012
Segment assets:
Investing	$	17,125,848	$	9,277,697
Underwriting	5,778,934		2,387,305
Total segment assets	22,904,782		11,665,002
Non-insurance operations	903,795		891,586
Total assets	$	23,808,577	$	12,556,588