10-Q

UNITED STATES SECURITIES AND

 EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2010

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ________

Commission File Number 001-34204

SeaBright Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware	56-2393241
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

1501 4th Avenue, Suite 2600

Seattle, WA 98101

(Address of principal executive offices, including zip code)

(206) 269-8500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes x    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o    Accelerated filer x     Non-accelerated filer o     Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class	Shares outstanding as of November 8, 2010
Common Stock, $0.01 Par Value	22,026,401

SeaBright Holdings, Inc.

Index to Form 10-Q

		Page
Part I.	Financial Information
Item 1.	Financial Statements (unaudited)	2
	Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009	2
	Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2010 and 2009	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
Part II.	Other Information
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 6.	Exhibits	22
Signatures		23

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SEABRIGHT HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2010		December 31, 2009
	(Unaudited)		(Audited)
	(in thousands, except share and per share amounts)
ASSETS
Fixed income securities available for sale, at fair value (amortized cost $665,724 in 2010 and $608,222 in 2009)	$	695,547	$	626,608
Cash and cash equivalents		25,306		12,896
Premiums receivable, net of allowance		16,547		14,477
Deferred premiums		163,047		182,239
Reinsurance recoverables		49,301		34,339
Federal income tax recoverable		10,113		4,774
Deferred income taxes, net		16,557		21,861
Deferred policy acquisition costs, net		25,211		25,537
Goodwill		2,794		4,321
Other assets		43,976		37,809
Total assets	$	1,048,399	$	964,861
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid loss and loss adjustment expense	$	428,193	$	351,496
Unearned premiums		157,557		175,766
Reinsurance funds withheld and balances payable		5,683		7,312
Premiums payable		9,491		4,786
Accrued expenses and other liabilities		70,825		54,028
Surplus notes		12,000		12,000
Total liabilities		683,749		605,388
Commitments and contingencies
Stockholders’ equity:
Series A preferred stock, $0.01 par value; 750,000 shares authorized; no shares issued and outstanding		−		−
Undesignated preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued and outstanding		–		–
Common stock, $0.01 par value; 75,000,000 shares authorized; issued and outstanding – 22,009,901 shares at September 30, 2010 and 21,675,786 shares at December 31, 2009		220		217
Paid-in capital		208,635		205,079
Accumulated other comprehensive income		20,361		12,927
Retained earnings		135,434		141,250
Total stockholders’ equity		364,650		359,473
Total liabilities and stockholders’ equity	$	1,048,399	$	964,861

See accompanying notes to unaudited condensed consolidated financial statements.

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SEABRIGHT HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010			2009
	(in thousands, except share and earnings per share information)
Revenue:
Premiums earned	$	65,108	$	64,427	$	191,359		$	182,460
Claims service income		238		293		675			782
Other service income		37		36		122			147
Net investment income		5,806		5,888		17,765			17,186
Other-than-temporary impairment losses:
Total other-than-temporary impairment losses		–		–		–			(258	)
Less portion of losses recognized in accumulated other comprehensive income		–		–		–			–
Net impairment losses recognized in earnings		–		–		–			(258	)
Other net realized gains recognized in earnings		3,904		292		14,287			217
Other income		802		1,145		2,528			3,353
		75,895		72,081		226,736			203,887
Losses and expenses:
Loss and loss adjustment expenses		47,967		42,216		170,412			121,992
Underwriting, acquisition and insurance expenses		17,640		18,155		53,456			54,039
Interest expense		136		140		396			466
Goodwill impairment		–		–		1,527			–
Other expenses		2,620		2,688		7,512			7,402
		68,363		63,199		233,303			183,899
Income (loss) before taxes		7,532		8,882		(6,567	)		19,988
Income tax expense (benefit)		2,104		2,217		(4,052	)		5,033
Net income (loss)	$	5,428	$	6,665	$	(2,515	)	$	14,955
Basic earnings (loss) per share	$	0.26	$	0.32	$	(0.12	)	$	0.72
Diluted earnings (loss) per share	$	0.25	$	0.31	$	(0.12	)	$	0.70
Weighted average basic shares outstanding		20,909,738		20,732,801		20,850,428			20,691,250
Weighted average diluted shares outstanding		21,442,157		21,502,272		20,850,428			21,451,959

See accompanying notes to unaudited condensed consolidated financial statements.

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SEABRIGHT HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2010			2009
	(in thousands)
Cash flows from operating activities:
Net (loss) income	$	(2,515	)	$	14,955
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Amortization of deferred policy acquisition costs		35,327			33,736
Policy acquisition costs deferred		(35,001	)		(34,889	)
Provision for depreciation and amortization		4,941			3,856
Compensation cost on restricted shares of common stock		3,402			3,229
Compensation cost on stock options		706			548
Net realized (gain) loss on investments		(14,287	)		42
Deferred income tax benefit (expense)		1,313			(1,896	)
Changes in certain assets and liabilities:
Unpaid loss and loss adjustment expense		76,697			42,617
Reinsurance recoverables, net of reinsurance withheld		(13,676	)		(14,893	)
Unearned premiums, net of deferred premiums and premiums receivable		3,618			7,926
Other assets and other liabilities		(6,502	)		5,296
Net cash provided by operating activities		54,023			60,527
Cash flows from investing activities:
Purchases of investments		(381,474	)		(126,978	)
Sales of investments		304,137			30,225
Maturities and redemption of investments		40,335			39,837
Purchases of property and equipment		(1,862	)		(1,972	)
Net cash used in investing activities		(38,864	)		(58,888	)
Cash flows from financing activities:
Proceeds from exercise of stock options		26			31
Grant of restricted shares of common stock		4			4
Surrender of stock in connection with restricted stock vesting		(579	)		(473	)
Stockholder dividends paid		(2,200	)		–
Net cash used in financing activities		(2,749	)		(438	)
Net increase in cash and cash equivalents		12,410			1,201
Cash and cash equivalents at beginning of period		12,896			22,872
Cash and cash equivalents at end of period	$	25,306		$	24,073
Supplemental disclosures:
Interest paid on surplus notes	$	394		$	488
Federal income taxes paid		–			7,500
Payable for purchases of investments		15,166			8,832
Receivable for sales of investments		5,466			2,039

See accompanying notes to unaudited condensed consolidated financial statements.

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SEABRIGHT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of SeaBright Holdings, Inc. (“SHI” or “SeaBright”) and its wholly owned subsidiaries, SeaBright Insurance Company (“SBIC”), PointSure Insurance Services, Inc. (“PointSure”), Paladin Managed Care Services (“PMCS”) (formerly known as Total HealthCare Management, Inc. or “THM”), and Black/White and Associates, Inc., Black/White and Associates of Nevada and Black/White Rockridge Insurance Services, Inc. (referred to collectively as “BWNV”) (collectively, the “Company,” “we” or “us”). On May 24, 2010, SeaBright announced that it changed its corporate name from SeaBright Insurance Holdings, Inc. to SeaBright Holdings, Inc. On September 7, 2010, THM announced that it had changed its name to Paladin Managed Care Services as a "doing business as" designation. All significant intercompany transactions among these affiliated entities have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The condensed consolidated balance sheet at December 31, 2009 has been derived from the audited financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited fina ncial statements and accompanying notes as of and for the year ended December 31, 2009 included in the Company’s Annual Report on Form 10-K, which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2010.

In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (including normal recurring adjustments) necessary to state fairly the financial information set forth therein. Results of operations for the three month or nine month periods ended September 30, 2010 are not necessarily indicative of the results expected for the full fiscal year or for any future period.

Certain reclassifications have been made to the prior year’s financial statements to conform to classifications used in the current year. The condensed consolidated statements of operations for the three months and nine months ended September 30, 2009 have been revised to correct an immaterial error in the elimination of intercompany revenue and expense. The corrections had no impact on income before taxes, net income or the loss, expense and combined ratios. The following table summarizes the impact of the corrections:

	Three Months Ended September 30, 2009							Nine Months Ended September 30, 2009
	As Reported		Adjustment			As Revised		As Reported		Adjustment			As Revised
	(in thousands)
Other income	$	1,986	$	(841	)	$	1,145	$	6,308	$	(2,955	)	$	3,353
Other expense		3,529		(841	)		2,688		10,357		(2,955	)		7,402

2. Summary of Significant Accounting Policies

a. Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The Company has used significant estimates in determining unpaid loss and loss adjustment expenses, including losses that have occurred but were not reported to us by the financial reporting date; the amount and recoverability of reinsurance recoverable balances; goodwill and other intangibles; retrospective premiums; earned but unbilled premiums; deferred policy acquisition costs; income taxes; an d the valuation and other-than-temporary impairments of investment securities.

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SEABRIGHT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

b. Earnings Per Share

The following table provides the reconciliation of basic and diluted weighted average shares outstanding used in calculating earnings per share for the three month and nine month periods ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
	(in thousands)
Basic weighted average shares outstanding		20,910		20,733		20,850		20,691
Weighted average dilutive shares issuable upon exercise of outstanding stock options and vesting of nonvested restricted stock		532		769		–		761
Diluted weighted average shares outstanding		21,442		21,502		20,850		21,452

The effect of including shares issuable upon the exercise of outstanding stock options and the vesting of non-vested restricted stock was anti-dilutive for the nine month period ended September 30, 2010. Therefore, such shares have been excluded from the calculation of diluted weighted average shares outstanding for that period. The numbers of such shares excluded for the nine month period ended September 30, 2010 was approximately 581,000.

c. Stockholder Dividends

On August 10, 2010, the Company’s Board of Directors declared a quarterly dividend of $0.05 per common share payable on October 15, 2010 to stockholders of record on October 1, 2010. Any future determination to pay cash dividends on the Company’s common stock will be at the discretion of its Board of Directors and will be dependent on the Company’s earnings, financial condition, operating results, capital requirements, any contractual restrictions, regulatory and other restrictions on the payment of dividends by the Company’s subsidiaries, and other factors that the Company’s Board of Directors deems relevant.

d. Comprehensive Income

The following table summarizes the Company’s comprehensive income for the three month and nine month periods ended September 30, 2010 and 2009:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
	(in thousands)
Net income (loss)	$	5,428		$	6,665		$	(2,515	)	$	14,955
Reclassification adjustment for net realized (gains) losses recorded into income		(3,904	)		(292	)		(14,287	)		41
Tax expense (benefit) related to reclassification adjustment gains (losses)		1,366			102			5,000			(14	)
Increase in net unrealized gains on investment securities available for sale		11,944			20,709			25,725			29,702
Tax expense related to unrealized gains		(4,180	)		(7,242	)		(9,004	)		(10,391	)
Tax effect of change in deferred tax asset valuation allowance recorded in comprehensive income		–			1,204			–			2,015
Total comprehensive income	$	10,654		$	21,146		$	4,919		$	36,308

e. Other Significant Accounting Policies

For a more complete discussion of the Company’s significant accounting policies, please see Note 2 to the Company’s consolidated financial statements as of and for the year ended December 31, 2009 in Part II, Item 8 of the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2010.

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SEABRIGHT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Investments

The consolidated cost or amortized cost, gross unrealized gains and losses, and estimated fair value and carrying value of investment securities available-for-sale at September 30, 2010 are as follows:

	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Carrying Value
	(in thousands)
U.S. Treasury securities	$	24,551	$	1,236	$	(1	)	$	25,786	$	25,786
Government sponsored agency securities		23,622		1,444		–			25,066		25,066
Corporate securities		153,564		8,314		(47	)		161,831		161,831
Tax-exempt municipal securities		320,308		13,706		(238	)		333,776		333,776
Mortgage pass-through securities		61,178		2,810		(31	)		63,957		63,957
Collateralized mortgage obligations		22,240		399		(41	)		22,598		22,598
Asset-backed securities		60,261		2,273		(1	)		62,533		62,533
Total investment securities available for sale	$	665,724	$	30,182	$	(359	)	$	695,547	$	695,547

The Company regularly reviews its investment portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of its investments. A number of criteria are considered during this process including, but not limited to:  the current fair value as compared to amortized cost or cost, as appropriate, of the security; the length of time the security’s fair value has been below amortized cost or cost; the likelihood that the Company will be required to sell the security before recovery of its cost basis; objective information supporting recovery in a reasonable period of time; specific credit issues related to the issuer; and current economic conditions. The Company has the ability and intent to hold impaired investments to maturity or for a period of time sufficient for recov ery of their carrying amount. For the three months and nine months ended September 30, 2010, the Company recognized no other-than-temporary impairment losses related to its investment securities.

The following table presents information about investment securities with unrealized losses at September 30, 2010:

	Less Than 12 Months					12 Months or More					Total
Investment Category	Aggregate Fair Value		Aggregate Unrealized Loss			Aggregate Fair Value		Aggregate Unrealized Loss			Aggregate Fair Value		Aggregate Unrealized Loss
						(in thousands)
Fixed Income Securities:
US Treasury securities	$	1,009	$	(1	)	$	–	$	–		$	1,009	$	(1	)
Corporate securities		7,752		(47	)		–		–			7,752		(47	)
Tax-exempt municipal securities		36,503		(238	)		–		–			36,503		(238	)
Mortgage pass-through securities		8,458		(31	)		–		–			8,458		(31	)
Collateralized mortgage obligations		464		(2	)		165		(39	)		629		(41	)
Asset backed securities		1,194		(1	)		–		–			1,194		(1	)
Total	$	55,380	$	(320	)	$	165	$	(39	)	$	55,545	$	(359	)

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SEABRIGHT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company had no direct sub-prime mortgage exposure in its investment portfolio as of September 30, 2010 and approximately $8.1 million of indirect exposure to sub-prime mortgages. The following table provides a breakdown of ratings on the bonds in the Company’s municipal portfolio as of September 30, 2010:

	Insured Bonds				Uninsured Bonds		Total Municipal Portfolio Based On
Rating	Insured Ratings		Underlying Ratings		Ratings		Overall Ratings (1)		Underlying Ratings
	(in thousands)
AAA	$	7,872	$	7,872	$	36,896	$	44,768	$	44,768
AA+		25,564		20,058		59,917		85,481		79,975
AA		28,879		27,646		41,028		69,907		68,674
AA-		40,610		37,688		33,393		74,003		71,081
A+		15,199		23,694		12,154		27,353		35,848
A		8,063		8,063		14,146		22,209		22,209
A-		3,188		3,188		2,791		5,979		5,979
BBB+		–		1,166		3,404		3,404		4,570
BBB		–		–		2,864		2,864		2,864
Pre refunded (2)		7,607		7,607		10,580		18,187		18,187
Total	$	136,982	$	136,982	$	217,173	$	354,155	$	354,155

__________

(1) Represents insured ratings on insured bonds and ratings on uninsured bonds.

(2) These bonds have been pre-refunded by the issuer depositing highly rated government-issued securities into irrevocable trust funds established for payment of principal and interest.

As of September 30, 2010, the Company had no direct investments in any bond insurer, and the following bond insurer insured more than 10% of the municipal bond investments in the Company’s portfolio:

			Insurer Ratings			Average Underlying
Bond Insurer	Fair Value		S&P		Moody’s	Bond Rating
	(Millions)
National Public Finance Guarantee Corporation	$	66.3		A	Baa1	AA-

The Company does not expect a material impact to its investment portfolio or financial position as a result of the problems currently facing monoline bond insurers.

The amortized cost and estimated fair value of fixed income securities available for sale at September 30, 2010, by contractual maturity, are set forth below. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Maturity	Cost or Amortized Cost		Estimated Fair Value
	(in thousands)
Due in one year or less	$	22,587	$	22,888
Due after one year through five years		179,526		188,568
Due after five years through ten years		282,989		296,864
Due after ten years		36,943		38,140
Securities not due at a single maturity date		143,679		149,087
Total fixed income securities	$	665,724	$	695,547

The consolidated amortized cost of investment securities available for sale deposited with various regulatory authorities at September 30, 2010 was $217.2 million.

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SEABRIGHT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Premiums

Direct premiums written totaled $50.7 million and $56.9 million for the three month periods ended September 30, 2010 and 2009, respectively, and $190.2 million and $204.4 million for the nine month periods then ended, respectively.

Premiums receivable consist of the following at September 30, 2010 and December 31, 2009:

	September 30, 2010			December 31, 2009
	(in thousands)
Premiums receivable	$	17,241		$	15,057
Allowance for doubtful accounts		(694	)		(580	)
Premiums receivable, net of allowance	$	16,547		$	14,477

5. Reinsurance

Under reinsurance agreements, the Company cedes various amounts of risk to nonaffiliated insurance companies for the purpose of limiting the maximum potential loss arising from the underlying insurance risks. These reinsurance treaties do not relieve the Company from its obligations to policyholders.

On October 1, 2010, the Company entered into new reinsurance agreements with nonaffiliated reinsurers wherein it retains the first $250,000 of each loss occurrence and the next $250,000 of losses per occurrence are 100% reinsured subject to an annual aggregate deductible. The next $500,000 of losses per occurrence (from $500,000 to $1.0 million per loss occurrence) are 75% reinsured. Losses in excess of $1.0 million per loss occurrence are fully reinsured through the program limit of $100.0 million per loss occurrence, subject to various deductibles and exclusions. The new reinsurance program is effective through September 30, 2011. The Company had different reinsurance programs in place in prior years, as set forth in Note 8 to the Company’s consolidated financial statements as of and for the year ended December 31, 2009 in Part I I, Item 8 of the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2010.

6. Unpaid Loss and Loss Adjustment Expenses

The following table summarizes the activity in unpaid loss and loss adjustment expense for the three month and nine month periods ended September 30, 2010 and 2009:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
	(in thousands)
Beginning balance:
Unpaid loss and loss adjustment expense	$	411,865		$	322,728		$	351,496		$	292,027
Reinsurance recoverables		(44,052	)		(28,032	)		(34,080	)		(18,231	)
Net balance, beginning of period		367,813			294,696			317,416			273,796
Incurred related to:
Current period		47,967			40,783			139,954			116,729
Prior periods		−			1,433			30,458			4,689
Receivable under adverse development cover		−			−			−			574
Total incurred		47,967			42,216			170,412			121,992
Paid related to:
Current period		(15,286	)		(15,588	)		(26,822	)		(31,558	)
Prior periods		(21,412	)		(17,242	)		(81,924	)		(59,574	)
Total paid		(36,698	)		(32,830	)		(108,746	)		(91,132	)
Receivable under adverse development cover		−			−			−			(574	)
Net balance, end of period		379,082			304,082			379,082			304,082
Reinsurance recoverable		49,111			30,562			49,111			30,562
Unpaid loss and loss adjustment expense	$	428,193		$	334,644		$	428,193		$	334,644

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SEABRIGHT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company recorded adverse development of prior years’ loss reserves totaling $30.5 million in the nine months ended September 30, 2010, of which $30.6 million was recorded in the second quarter. No development of prior years’ loss reserves was recorded in the third quarter of 2010. In 2009, the Company recorded adverse development of prior years’ loss reserves totaling $2.1 million and a reinsurance commutation of $0.7 million in the three months ended September 30, 2009, and adverse development of prior years’ loss reserves totaling $5.9 million (excluding the receivable under the adverse development cover) and a reinsurance commutation of $0.7 million in the nine months then ended.

7. Contingencies

a.  SBIC is subject to guaranty fund and other assessments by the states in which it writes business. Guaranty fund assessments are accrued at the time premiums are written. Other assessments are accrued either at the time of assessment or in the case of premium-based assessments, at the time the premiums are written, or in the case of loss-based assessments, at the time the losses are incurred. As of September 30, 2010, SBIC had a liability for guaranty fund and other assessments of $5.8 million and a guaranty fund receivable of $3.5 million. These amounts represent management’s best estimates based on information received from the states in which it writes business and may change due to many factors, including the Company’s share of the ultimate cost of curre nt and future insolvencies. The majority of assessments are paid out in the year following the year in which the premium is written or the losses are paid. Guaranty fund receivables and other surcharge items are generally realized by a charge to new and renewing policyholders in the year following the year in which the related assessments were paid.

b.  The Company is involved in various claims and lawsuits arising in the ordinary course of business. Management believes the outcome of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

8. Share-Based Payment Arrangements

At September 30, 2010, the Company had outstanding stock options and nonvested restricted stock granted according to the terms of two equity incentive plans. The stockholders and Board of Directors approved the 2003 Stock Option Plan (the “2003 Plan”) in September 2003, and amended and restated the 2003 Plan in February 2004 and April 2008, and approved the 2005 Long-Term Equity Incentive Plan (the “2005 Plan” and, together with the 2003 Plan, the “Stock Option Plans”) in December 2004, and amended and restated the 2005 Plan in April 2008 and May 2010.

As of September 30, 2010, the Company reserved 776,458 shares of common stock for issuance under the 2003 Plan, of which options to purchase 479,946 shares had been granted, and 3,065,041 shares for issuance under the 2005 Plan, of which 2,566,214 shares had been granted. In January 2006, the Compensation Committee of the Board of Directors terminated the ability to grant future stock option awards under the 2003 Plan. Therefore, the Company anticipates that all future awards will be made under the 2005 Plan.

a.  Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2010:

	Shares Subject to Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2009		1,225,660		$	11.19		6.2	$	368
Granted		169,613			10.97		–		–
Forfeited		(20,047	)		13.05		–		–
Exercised		(4,000	)		6.54		–		–
Cancelled		(22,159	)		13.67		–		–
Outstanding at September 30, 2010		1,349,067			11.11		5.9		–
Exercisable at September  30, 2010		938,860			10.81		4.8		–

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SEABRIGHT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The aggregate intrinsic values in the table above are before applicable income taxes and are based on the Company’s closing stock price of $8.06 on September 30, 2010. There were no proceeds from the exercise of stock options during the quarter ended September 30, 2010.

b. Restricted Stock

The following table summarizes restricted stock activity for the nine months ended September 30, 2010:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Outstanding at December 31, 2009		936,020		$	13.78
Granted		412,270			11.02
Vested		(228,165	)		17.94
Forfeited		(28,500	)		12.44
Outstanding at September 30, 2010		1,091,625			11.90

As of September 30, 2010, there was $6.2 million of total unrecognized compensation cost related to restricted stock granted under the 2005 Plan. That cost is expected to be recognized over a weighted-average period of approximately 23 months.

c.  Stock-Based Compensation

Total stock-based compensation expense recognized in the unaudited condensed consolidated statements of operations for the three month and nine month periods ended September 30, 2010 and 2009 is shown in the following table. No stock-based compensation cost was capitalized during the periods shown.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
	(in thousands)
Stock-based compensation expense related to:
Nonvested restricted stock	$	1,134	$	1,085	$	3,402	$	3,229
Stock options		268		197		706		548
Total	$	1,402	$	1,282	$	4,108	$	3,777
Total related tax benefit	$	423	$	398	$	1,268	$	1,151

9. Fair Values of Assets and Liabilities

Estimated fair value amounts, defined as the exit price of willing market participants, have been determined using available market information and other appropriate valuation methodologies. However, considerable judgment is required in developing the estimates of fair value. Accordingly, these estimates are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions or estimating methodologies may have an effect on the estimated fair value amounts.

The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments in the accompanying consolidated financial statements and notes:

• Cash and cash equivalents, premiums receivable, accrued expenses, other liabilities and surplus notes: The carrying amounts for these financial instruments as reported in the accompanying condensed consolidated balance sheets approximate their fair values.

• Investment securities:   The Company measures and reports its financial assets and liabilities, including investment securities, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures.” The estimated fair values for available-for-sale securities are generally based on quoted market value prices for securities traded in the public marketplace. The Company also considers the impact of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity. Additional information with respect to fair values of the Company’s investment securities is disclosed in Note 3.

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SEABRIGHT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other financial instruments qualify as insurance-related products and are specifically exempted from fair value disclosure requirements.

The Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

• Level 1 — Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 includes U.S. Treasury securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

• Level 2 — Valuations for assets and liabilities traded in less active dealer or broker markets. Level 2 valuations are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 2 includes government sponsored agency securities, corporate fixed-income securities, municipal bonds, mortgage pass-through securities, collateralized mortgage obligations and asset-backed securities.

• Level 3 — Valuations for assets and liabilities that are derived from other valuation methodologies, including discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. As of September 30, 2010, the Company had no Level 3 financial assets or liabilities.

The table below presents the September 30, 2010 balances of assets and liabilities measured at fair value on a recurring basis.

	Total		Level 1		Level 2		Level 3
	(in thousands)
Securities available for sale	$	695,547	$	25,786	$	669,761	$	–

__________

(1) Consists of the Company’s investments in U.S. Treasury securities.

At September 30, 2010, there were no liabilities measured at fair value on a recurring basis.

Active markets are those in which transactions occur with sufficient frequency and volume to provide reliable pricing information on an ongoing basis. Inactive markets are those in which there are few transactions for the asset, prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. When the market for an investment is judged to be inactive, appropriate adjustments must be made to observable inputs to account for such inactivity. As of September 30, 2010, the Company’s investment portfolio consisted of securities that it considered to be traded in active markets. Therefore, no adjustment for market inactivity or illiquidity was necessary. There were no transfers between levels during the three months and nine months ended September 30, 2010.

The Company obtains fair value inputs for securities in its investment portfolio from independent, nationally recognized pricing services. The pricing services utilize multidimensional pricing models that vary by asset class and incorporate relevant inputs such as available trade, bid and quote market data for identical or similar instruments, model-based valuation techniques for which significant assumptions were observable and other market information to arrive at a fair value price for each security. This process takes into consideration the relevance of observable inputs based on factors such as the level of trading activity and the volume and currency of available prices and includes appropriate adjustments for nonperformance and liquidity risks.

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SEABRIGHT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company also seeks input from independent portfolio managers and financial advisors engaged by the Company to assist in the management and oversight of its investment portfolio. The Company and an independent portfolio manager engaged by the Company review such amounts for reasonableness in relation to the following considerations, among others: recent trades of a particular security; the Company’s independent observations of recent developments affecting the economy in general and certain issuers in particular; and fair values from other sources, such as statements from the Company’s custodial banks.

The Company holds a limited amount ($6.0 million at September 30, 2010) of privately placed corporate bonds and estimates the fair value of these bonds using an internal matrix that is based in part on market information regarding interest rates, credit spreads and liquidity. The pricing matrix begins with current U.S. Treasury rates and uses credit spreads received from third-party sources to estimate fair value. The Company includes the fair value estimates of these corporate bonds in Level 2, since all significant inputs are market observable. As some of these securities are issued by public companies, the Company compares the estimates of fair value to the fair values of these companies’ publicly traded debt to test the validity of the internal pricing matrix.

10. Goodwill

At September 30, 2010, the Company had the following amounts of goodwill related to previous acquisitions:

	SBIC			PMCS		BWNV		Total
	(in thousands)
Balance as of July 1, 2010:
Goodwill	$	1,527		$	1,355	$	1,439	$	4,321
Accumulated impairment losses		(1,527	)		–		–		(1,527	)
		–			1,355		1,439		2,794
Goodwill acquired during the quarter		–			–		–		–
Impairment losses		–			–		–		–
Balance as of September 30, 2010:
Goodwill		1,527			1,355		1,439		4,321
Accumulated impairment losses		(1,527	)		–		–		(1,527	)
	$	–		$	1,355	$	1,439	$	2,794

The Company tests for goodwill impairment in the fourth quarter of each year. At the end of each subsequent quarter, management considers the results of the previous analysis as well as any recent developments that may constitute triggering events requiring the impairment analysis to be updated. During the second quarter of 2010, the Company assessed the impact of a $30.6 million strengthening of the Company’s loss reserves, the continuing negative effect of the economic slowdown on the Company’s gross premiums written, and the observed decline in the Company’s stock price and determined that a triggering event occurred for SBIC. The fair value of the reporting unit was estimated using a discounted cash flow analysis, resulting in the Company recording a $1.5 million impairment charge against the goodwill resulting from the acquisition of SBIC in September 2003. The Company did not identify any triggering events that required the reevaluation of goodwill resulting from the acquisitions of PMCS and BWNV.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement

You should read the following discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included in Item 1 of Part I of this quarterly report. The information contained in this quarterly report is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this quarterly report and in our other reports filed with the U.S. Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010.

The discussion under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009, and similar discussions in our other SEC filings, describe some of the important risk factors that may affect our business, results of operations and financial condition. You should carefully consider those risks, in addition to the other information in this report and in our other filings with the SEC, before deciding to purchase, hold or sell our common stock.

Some of the statements in this Item 2 and elsewhere in this quarterly report may include forward-looking statements that reflect our current views with respect to future events and financial performance. These statements include forward-looking statements both with respect to us specifically and the insurance sector in general, and include statements about our expectations for future periods with respect to payroll levels, rate changes in states where we write business, our adverse development cover with Lumbermens Mutual Casualty Company (“LMC”), stockholder dividends and our capital needs. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “estimate,” “may,” “should,” “anticipate,”  220;will” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise.

All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include but are not limited to the following:

• greater frequency or severity of claims and loss activity, including as a result of catastrophic events, than our underwriting, reserving or investment practices anticipate based on historical experience or industry data;

• changes in the U.S. economy and workforce levels;

• our dependency on a concentrated geographic market;

• changes in the availability, cost or quality of reinsurance and failure of our reinsurers to pay claims timely or at all;

• changes in regulations or laws applicable to us, our subsidiaries, brokers or customers;

• potential downgrades in our rating or changes in rating agency policies or practices;

• ineffectiveness or obsolescence of our business strategy due to changes in current or future market conditions;

• unexpected issues relating to claims or coverage and changes in legal theories of liability under our insurance policies;

• increased competition on the basis of pricing, capacity, coverage terms or other factors;

• developments in financial and capital markets that adversely affect the performance of our investments;

• loss of the services of any of our executive officers or other key personnel;

• our inability to raise capital in the future;

• our status as an insurance holding company with no direct operations, which could adversely affect our ability to pay dividends in the future;

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• our reliance on independent insurance brokers;

• increased assessments or other surcharges by states in which we write policies;

• our potential exposure to losses if LMC were to be placed into receivership;

• the effects of acquisitions that we may undertake;

• failure of our customers to pay additional premium under our retrospectively rated policies;

• the effects of acts of terrorism or war;

• cyclical changes in the insurance industry;

• changes in accounting policies or practices; and

• changes in general economic conditions, including inflation and other factors.

The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this quarterly report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we project. Any forward-looking statements you read in this quarterly report reflect our views as of the date of this quarterly report with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. Before making an investment decision, you should carefully consider all of the factors identified in this quarterly report that could cause actual results to differ.

Additional information concerning these and other factors is contained in our SEC filings, including, but not limited to, our 2009 Annual Report on Form 10-K.

Overview

We are a specialty provider of multi-jurisdictional workers’ compensation insurance and, on a limited basis, commercial general liability insurance. We are domiciled in Illinois, commercially domiciled in California and headquartered in Seattle, Washington. We are licensed in 49 states and the District of Columbia to write workers’ compensation and other lines of insurance. Traditional providers of workers’ compensation insurance provide coverage to employers under one or more state workers’ compensation laws, which prescribe benefits that employers are obligated to provide to their employees who are injured arising out of or in the course of employment. We focus on employers with complex workers’ compensation exposures and provide coverage under multiple state and federal acts, applicable common law or nego tiated agreements. We also provide traditional state act coverage in markets we believe are underserved. Our workers’ compensation policies are issued to employers who also pay the premiums.

Our operations and financial performance may be impacted by changes in the U.S. economy. The significant downturn in the U.S. economy since 2007 led to lower reported payrolls, which has had a negative impact on our gross premiums written and earned premiums. If our customers reduce their workforce levels, the level of workers’ compensation insurance coverage they require and, as a result the premiums that we charge, would be reduced, and if our customers cease operations, they will not renew their policies. It is uncertain if economic conditions will deteriorate further, or when economic conditions will improve. A prolonged recession or weak economic environment could result in continued high unemployment levels or further reduce payrolls, which could have a significant negative impact on our business, financial condition or resul ts of operations. Other negative impacts of the current economic environment include, but are not limited to, increases in claim severity and duration, which tend to drive up medical, indemnity and litigation costs. Additionally, the longer a claim remains open, the more exposed we become to the effects of medical cost inflation. Specifically, in California, increased medical cost trends and the state’s severe economic downturn, which has made it increasingly difficult to return injured works to gainful employment, have led to increased claim durations and higher average severity. As a result of these upward cost trends, we filed a 15.3% average rate increase with the California Department of Insurance on July 26, 2010, which was approved on August 23, 2010 and became effective on September 1, 2010.

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Results of Operations

Three Months and Nine Months Ended September 30, 2010 and 2009

Gross Premiums Written. Gross premiums written consist of direct premiums written and premiums assumed from the National Council on Compensation Insurance (“NCCI”) residual market pools. The number of customers we service, in-force payrolls and in-force premiums represent some of the factors we consider when analyzing gross premiums written.

Gross premiums written for the three months ended September 30, 2010 totaled $51.7 million, a decrease of $7.0 million, or 11.9%, from $58.7 million of gross premiums written in the same period of 2009. Gross premiums written for the nine months ended September 30, 2010 totaled $191.7 million, a decrease of $17.9 million, or 8.5%, from $209.6 million of gross premiums written in the same period of 2009.

Much of the decrease in gross premiums written resulted from payroll declines from our “core” product lines, which include everything other than our “program” business as defined below. Declines from core product lines were primarily due to the economic recession and its impact on the construction industry. Our core product lines contributed $32.5 million, or 62.9%, of the total gross premiums written for the three months ended September 30, 2010, compared to $43.3 million, or 73.8%, in the same period of 2009. For the nine months ended September 30, 2010, our core product lines contributed $136.3 million, or 71.1%, of the total gross premiums, compared to $171.1 million, or 81.6%, in the same period of 2009.

The decrease in our core product lines was partially offset by a net increase in our “program” business of $5.5 million and $20.2 million, respectively, in the three month and nine month periods ended September 30, 2010. Our program business, which includes our alternative markets and small maritime programs, produced $16.8 million of gross written premiums in the three months ended September 30, 2010 and $50.4 million in the nine months then ended.

Excluding work we perform as the servicing carrier for the Washington State USL&H Assigned Risk Plan and excluding business assumed from the NCCI residual market pools, the total number of customers we serviced increased from over 1,400 at September 30, 2009 to over 1,600 at September 30, 2010. The majority of the customer increase related to our program book of business, partially offset by a decrease in the number of core customers. By design, our program business will have a larger number of customers with a smaller average premium size than our core book of business. Our average premium size at September 30, 2010 was approximately $230,000 in our core business and $98,000 in our program business, compared to approximately $232,000 in our core business and $106,000 in our program business one year earlier.

Total in-force payrolls, a factor used in determining premiums charged, increased 2.2% from $7.1 billion at September 30, 2009 to $7.2 billion at September 30, 2010. California continues to be our largest market, accounting for approximately $147.1 million or 49.1% of our in-force premiums at September 30, 2010. This represents an increase of $27.6 million, or 23.1%, from approximately $119.5 million, or 39.9% of total in-force premiums in California at September 30, 2009.

Premiums assumed from the NCCI residual markets for the three months ended September 30, 2010 decreased $1.0 million, or 52.6%, to $0.9 million from $1.9 million for the same period in 2009. For the nine months ended September 30, 2010, assumed premiums decreased $3.8 million, or 73.1%, to $1.4 million from $5.2 million for the same period in 2009.

Net Premiums Written.  Net premiums written totaled $46.8 million for the three months ended September 30, 2010 compared to $52.7 million in the same period in 2009, representing a decrease of $5.9 million, or 11.2%. For the nine months ended September 30, 2010, net premiums written totaled $177.8 million, a decrease of $11.9 million, or 6.3%, from $189.7 million in the same period of 2009. The decrease in net premiums written for the nine months ended September 30, 2010 was primarily attributable to the decrease in gross premiums written discussed above, offset by a decrease in ceded premiums written of $6.1 million primarily resulting from residual market business.

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Net Premiums Earned.  Net premiums earned totaled $65.1 million for the three months ended September 30, 2010, compared to $64.4 million for the same period in 2009, representing an increase of $0.7 million, or 1.1%. For the nine months ended September 30, 2010, net premiums earned totaled $191.4 million, an increase of $8.9 million, or 4.9%, from $182.5 million in the same period of 2009. We record the entire annual policy premium as unearned premium when written and earn the premium over the life of the policy, which is generally twelve months. Consequently, the amount of premiums earned in any given year depends on when during the current or prior year the underlying policies were written and the actual reported payroll of the underlying policies. Our direct premiums e arned increased $1.8 million, or 2.7%, to $69.7 million for the three months ended September 30, 2010 from $67.9 million for the same period in 2009. Our direct premiums earned for the nine months ended September 30, 2010 increased $11.4 million, or 5.9%, to $204.6 million from $193.2 million for the same period in 2009.

The increases in earned premiums in the three month and nine month periods of 2010 were due to increases in total in-force payrolls and rate increases.

The following is a summary of our top five markets based on direct premiums earned:

	Nine Months Ended September 30,
	2010					2009
	Direct Premiums Earned		%			Direct Premiums Earned		%
	($ in thousands)
California	$	95,666		46.8	%	$	77,192		40.0	%
Louisiana		19,726		9.6			19,495		10.1
Alaska		11,186		5.5			11,898		6.2
Texas		10,778		5.3			11,314		5.9
Illinois		10,315		5.0			16,357		8.5
Total	$	147,671		72.2	%	$	136,256		70.7	%

Net premiums earned are also affected by premiums ceded under reinsurance agreements and premiums we involuntarily assumed from the NCCI residual markets. Ceded premiums earned for the three months ended September 30, 2010 totaled $6.0 million compared to $5.5 million for the same period in 2009, representing an increase of $0.5 million, or 9.1%. Ceded premiums earned for the nine months ended September 30, 2010 totaled $16.4 million compared to $15.9 million for the same period in 2009, representing an increase of $0.4 million, or 2.5%. Earned premiums assumed from the NCCI residual markets for the nine months ended September 30, 2010 decreased $2.1 million, or 40.4%, to $3.1 million from $5.2 million for the same period in 2009.

Net Investment Income.  Net investment income was $5.8 million for the three months ended September 30, 2010, compared to $5.9 million for the same period in 2009, representing a decrease of $0.1 million, or 1.4%. Net investment income was $17.8 million for the nine months ended September 30, 2010, compared to $17.2 million for the same period in 2009, representing an increase of $0.6 million, or 3.4%. Average invested assets for the three months ended September 30, 2010 increased $86.9 million, or 14.1%, from $617.0 million in 2009 to $703.9 million in 2010. For the nine months ended September 30, 2010, average invested assets increased $83.0 million, or 13.9%, from $597.2 million in 2009 to $680.2 million in 2010. Our yield on average invested assets for the three month s ended September 30, 2010 was approximately 3.3% compared to approximately 3.8% for the same period in 2009. For the nine months ended September 30, 2010, our yield on average invested assets was 3.5% compared to approximately 3.8% for the same period in 2009.

Net Realized Gains.  Net realized gains totaled $3.9 million for the three months ended September 30, 2010, compared to $0.3 million for the same period in 2009. For the nine months ended September 30, 2010, net realized gains totaled $14.3 million compared to $0.2 million in the same period of 2009. The realized gains in 2010 related primarily to the sale of investment securities to enable us to realize a portion of our tax capital loss carry forwards, which totaled approximately $15.0 million as of December 31, 2009.

Other Income.  Other income totaled $0.8 million for the three months ended September 30, 2010, compared to $1.1 million for the same period in 2009, representing a decrease of $0.3 million, or 30.0%. For the nine months ended September 30, 2010, other income totaled $2.5 million compared to $3.4 million in the same period of 2009, representing a decrease of $0.8 million, or 24.6%. Other income is derived primarily from the operations of PointSure (including BWNV), our wholesale broker and third party administrator, and PMCS, our provider of medical bill review, utilization review, nurse case management and related services.

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Loss and Loss Adjustment Expenses.  Loss and loss adjustment expenses totaled $48.0 million for the three months ended September 30, 2010, compared to $42.2 million for the same period in 2009, representing an increase of $5.8 million, or 13.6%. For the nine months ended September 30, 2010, loss and loss adjustment expenses totaled $170.4 million, compared to $122.0 million for the same period in 2009, representing an increase of $48.4 million, or 39.7%. Our net loss ratio, which is calculated by dividing loss and loss adjustment expenses less claims service income by premiums earned, for the three months ended September 30, 2010 was 73.3% compared to 65.1% for the same period in 2009. Our net loss ratio for the nine months ended September 30, 2010 was 88.7% compared to 6 6.4% for the same period in 2009. The increase in our net loss ratio for the three months ended September 30, 2010 was primarily attributable to a higher current accident year net expected loss and allocated loss adjustment expense (“ALAE”) ratio (the “ELR”) of 64.5% in the third quarter of 2010, compared to 56.7% in the same period of 2009. The increase in our net loss ratio for the nine months ended September 30, 2010 was primarily attributable to $30.5 million of adverse development of prior years’ net loss reserves recorded in the period compared to $5.9 million in the same period of 2009. Our direct loss reserves are net of reinsurance and exclude reserves associated with Kemper Employers Insurance Company (“KEIC’), whom we acquired from LMC in September 2003, and the business that we involuntarily assume from the NCCI.

As discussed under the heading “Critical Accounting Policies, Estimates and Judgments – Unpaid Loss and Loss Adjustment Expenses – Actuarial Loss Reserve Estimation Methods” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2009, we use an expected loss ratio method to establish the loss reserves for the current accident year. Once the accident year is complete and begins to age, the ELR method is blended with the actual paid and incurred losses to determine the revised estimated ultimate losses for the accident year.

Accident year 2010 is incomplete, as only nine months of the year have been earned as of September 30, 2010. For the current accident year, an ELR was established for each jurisdiction and type of loss (indemnity, medical and ALAE) and was multiplied by the booked accident year earned premium to produce the ultimate loss to date. The ELR selections are reviewed quarterly with each internally developed reserve study. Given the short experience period for the current accident year, the ELRs are usually maintained at least through the first 12 months of the accident year and revised as the underlying data matures. However, after reviewing the year-to-date results for the 2010 accident year and considering the adverse development of accident years 2008 and 2009 booked in the second quarter, we increased the ELR for this year from 61.5% to 64 .5% in the second quarter of this year.

Due to the longer tail nature of workers’ compensation claims, movements in an accident year’s ultimate loss estimate can be reasonably expected. During the third quarter of 2010, we recognized no adverse development of prior years’ loss reserve estimates, compared to $2.1 million of adverse development recognized in third quarter 2009.

As of September 30, 2010, we had recorded a receivable of approximately $3.0 million for loss development under the adverse development cover since the date we acquired KEIC from LMC. We do not expect this receivable to have any material adverse effect on our future cash flows if LMC fails to perform its obligations under the adverse development cover. At September 30, 2010, we had access to approximately $3.8 million under a related collateralized reinsurance trust in the event that LMC fails to satisfy its obligations under the adverse development cover.

Underwriting, Acquisition and Insurance Expenses.  Underwriting expenses totaled $17.6 million for the three months ended September 30, 2010, compared to $18.2 million for the same period in 2009, representing a decrease of $0.5 million, or 2.8%. For the nine months ended September 30, 2010, underwriting expenses totaled $53.5 million, a decrease of $0.6 million, or 1.1%, from $54.0 million in the same period of 2009. Our net underwriting expense ratio, which is calculated by dividing underwriting, acquisition and insurance expenses less other service income by premiums earned, for the three months ended September 30, 2010 was 27.0%, compared to 28.1% for the same period in 2009. For the nine months ended September 30, 2010, our net underwriting expense ratio was 27.9%, c ompared to 29.5% in the same period of 2009.

The declines in our expense ratios for the three month and nine month periods ended September 30, 2010 resulted from decreases in our underwriting expenses and increases in our net premiums earned from the same periods of 2009. Underwriting expenses for the three month and nine month periods ended September 30, 2010 included a net reduction of approximately $1.0 million in our accruals to reflect a periodic true-up of our estimates of taxes, licenses, fees and assessments in the states in which we operate. A similar true-up for $0.7 million was recorded in the second quarter of 2009.

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Interest Expense.  Interest expense related to the surplus notes issued by our insurance subsidiary in May 2004 totaled $136,000 for the three months ended September 30, 2010, compared to $140,000 for the same period in 2009, representing a decrease of $4,000 or 2.9%. Interest expense for the nine months ended September 30, 2010 totaled $396,000, compared to $466,000 for the same period in 2009, representing a decrease of $70,000, or 15.0%. The surplus notes interest rate, which is calculated at the beginning of each interest payment period using the 3-month LIBOR plus 400 basis points decreased from 4.4% at September 30, 2009 to 4.3% at September 30, 2010.

Other Expenses.For the three months ended September 30, 2010, other expenses totaled $2.6 million compared to $2.7 million for same period in 2009. For the nine months ended September 30, 2010, other expenses totaled $7.5 million compared to $7.4 million in the same period of 2009. Other expenses result primarily from the operations of PointSure (including BWNV) and PMCS, which together accounted for approximately $2.3 million and $6.6 million of expenses for the three months and nine months ended September 30, 2010, respectively, compared t o $2.5 million and $6.5 million for the same periods in 2009.

Income Tax Expense. The effective tax rate for the three months ended September 30, 2010 was 27.9%, compared to 25.0% for the same period in 2009. For the nine months ended September 30, 2010 our effective tax rate was 61.7% compared to 25.2% in the same period of 2009. Our effective tax rates generally vary from the statutory tax rate of 35.0% primarily as a result of tax exempt interest income. At September 30, 2010, approximately 48.0% of our investment portfolio was invested in tax-exempt municipal bonds, compared to approximately 52.9% at September 30, 2009.

 Net Income (Loss).  Net income was $5.4 million for the three months ended September 30, 2010, compared to $6.7 million for the same period in 2009, representing a decrease of $1.2 million, or 18.6%. Net loss for the nine months ended September 30, 2010 totaled $2.5 million, a decrease of $17.5 million, from net income of $15.0 million in the same period of 2009. The decrease in net income for the three months ended September 30, 2010 resulted primarily from higher loss and loss adjustment expenses during the period, as previously discussed, partially offset by gains realized upon the sale of investment securities. The decrease in net income for the nine months ended September 30, 2010 resulted primarily from $30.5 million of adverse development of prior years’ ; loss reserves, partially offset by increases in premiums earned and gains realized upon the sale of investment securities.

Liquidity and Capital Resources

Our principal sources of funds are underwriting operations, investment income and proceeds from sales and maturities of investments. Our primary uses of funds are to pay claims and operating expenses, to purchase investments and to pay declared common stock dividends.

Our investment portfolio is structured so that investments mature periodically over time in reasonable relation to current expectations of future claim payments. Since we have a limited claims history, we have derived our expected future claim payments from industry and predecessor trends and included a provision for uncertainties. Our investment portfolio as of September 30, 2010 has an effective duration of 5.05 years with individual maturities extending out to 28 years. Currently, we make claim payments from positive cash flow from operations and invest excess cash in securities with appropriate maturity dates to balance against anticipated future claim payments. As these securities mature, we intend to invest any excess funds in investments with appropriate durations to match against expected future claim payments.

At September 30, 2010, our investment portfolio consisted of investment grade fixed income securities with fair values subject to fluctuations in interest rates, as well as other factors such as credit. All of the securities in our investment portfolio are accounted for as “available for sale” securities. While we have structured our investment portfolio to provide an appropriate matching of maturities with anticipated claim payments, if we decide or are required in the future to sell securities in a rising interest rate environment, we would expect to incur losses from such sales.

Our ability to adequately provide funds to pay claims comes from our disciplined underwriting and pricing standards and the purchase of reinsurance to protect us against severe claims and catastrophic events. Effective October 1, 2010, we entered into reinsurance agreements with nonaffiliated reinsurers wherein we retain the first $250,000 of each loss occurrence and the next $250,000 of losses per occurrence are 100% reinsured. The next $500,000 of losses per occurrence (from $500,000 to $1.0 million per loss occurrence) are 75% reinsured. Losses in excess of $1.0 million per loss occurrence are fully reinsured through the program limit of $100.0 million per loss occurrence, subject to various deductibles and exclusions. The new reinsurance program is effective through September 30, 2011. Our reinsurance program that was effective Octob er 1, 2009 to September 30, 2010 provided us with reinsurance protection for each loss occurrence in excess of $500,000, up to $85.0 million, subject to various deductibles and exclusions. Given industry and predecessor trends, we believe we are sufficiently capitalized to cover our retained losses.

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SeaBright is a holding company with minimal unconsolidated revenue. As SeaBright pays stockholder dividends and has other capital needs in the future, we anticipate that it will be necessary for SBIC to pay dividends to SeaBright. In August 2010, SBIC declared and paid its first such dividend to SeaBright in the amount of $5.8 million. SBIC is required by law to maintain a certain minimum level of surplus on a statutory basis. The payment of such dividends will be regulated as described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of our Annual Report on Form 10-K for the year ended December 31, 2009.

Our unaudited condensed consolidated net cash provided by operating activities for the nine months ended September 30, 2010 was $54.0 million, compared to our cash flow from operations of $60.5 million for the same period in 2009. The decrease was mainly attributable to an increase in paid losses (net of reinsurance collected), partially offset by decreases in federal income taxes paid.

Net cash used in investing activities was $38.9 million in the nine months ended September 30, 2010, compared to $58.9 million of net cash used during the same period in 2009. The significant increases in the purchases and sales of investment securities resulted in $14.3 million of net realized gains.

For the nine months ended September 30, 2010, financing activities used a total of $2.7 million due to stockholder dividend payments and the surrender of stock to cover tax withholding obligations associated with the vesting of restricted stock, compared to $0.4 million of cash used in the same period in 2009 due to tax obligations associated with restricted stock vesting.

As of September 30, 2010, SBIC’s statutory surplus totaled $300.3 million (unaudited), compared to $294.9 million (unaudited) as of September 30, 2009.

Contractual Obligations and Commitments

During the nine months ended September 30, 2010, there were no material changes to our contractual obligations and commitments.

Off-Balance Sheet Arrangements

As of September 30, 2010, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies, Estimates and Judgments

It is important to understand our accounting policies in order to understand our financial statements. Management considers some of these policies to be critical to the presentation of our financial results, since they require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the financial reporting date and throughout the period being reported upon. Some of the estimates result from judgments that can be subjective and complex, and consequently, actual results reflected in future periods might differ from these estimates.

The most critical accounting policies involve the reporting of unpaid loss and loss adjustment expenses including losses that have occurred but were not reported to us by the financial reporting date, the amount and recoverability of reinsurance recoverable balances, deferred policy acquisition costs, income taxes, the valuation of goodwill, the impairment of investment securities, earned but unbilled premiums and retrospective premiums. These critical accounting policies are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of our Annual Report on Form 10-K for the year ended December 31, 2009.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Credit Risk

Credit risk is the potential economic loss principally arising from adverse changes in the financial condition of a specific debt issuer. We address this risk by investing primarily in fixed-income securities which are rated “A” or higher by Standard & Poor’s or another major rating agency. We also independently, and through our outside investment manager, monitor the financial condition of all of the issuers of fixed-income securities in the portfolio. To limit our exposure to risk, we employ stringent diversification rules that limit the credit exposure to any single issuer or business sector.

Interest Rate Risk

We had fixed-income investments with a fair value of $695.5 million at September 30, 2010 that are subject to interest rate risk compared with $626.6 million at December 31, 2009. We manage the exposure to interest rate risk through a disciplined asset/liability matching and capital management process. In the management of this risk, the characteristics of duration, credit and variability of cash flows are critical elements. These risks are assessed regularly and balanced within the context of the liability and capital position.

Since December 31, 2009, there have been no material changes in the quantitative or qualitative aspects of our market risk profile. For additional information regarding our exposure to certain market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC on March 16, 2010.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, we have carried out an evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information we are required to disclose in reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms specified by the SEC and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropria te to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our third fiscal quarter of 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1A.  Risk Factors

The disclosure set forth below updates specific risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. Other than as described below, there were no material changes to the risk factors set forth in such report.

Under the heading “Item 1A. Risk Factors – Risks Related to Our Business – If we are unable to obtain or collect on our reinsurance protection, our business, financial condition and results of operations could be materially adversely affected” in our Annual Report on Form 10-K filed with the SEC on March 16, 2010, we included a discussion of our then-current excess of loss reinsurance treaty program covering the business that we write or renew. Effective October 1, 2010, we entered into new reinsurance agreements with nonaffiliated reinsurers wherein we retain the first $250,000 of each loss occurrence and the next $250,000 of losses per occurrence are 100% reinsured subject to an annual aggregate deductible. The next $500,000 of losses per occurrence (from $500,000 to $1.0 million per loss occurrence) are 75% rei nsured. Losses in excess of $1.0 million per loss occurrence are fully reinsured through the program limit of $100.0 million per loss occurrence, subject to various deductibles and exclusions. The new reinsurance program is effective through September 30, 2011.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information in connection with purchases made by, or on behalf of, us or any affiliated purchaser, of shares of our common stock during the three months ended September 30, 2010:

	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Month # 1 (July 1, 2010 through July 31, 2010)		792	$	9.63		–		–
Month # 2 (August 1, 2010 through August 31, 2010)		–		–		–		–
Month # 3 (September 1, 2010 through September 30, 2010)		2,378	$	7.92		–		–

We did not repurchase any of our common stock on the open market as part of a stock repurchase program during the nine months ended September 30, 2010; however, our employees surrendered 53,655 shares of our common stock to satisfy their tax withholding obligations in connection with the vesting of restricted stock awards issued under our 2005 Plan.

Item 6. Exhibits

The list of exhibits in the Exhibit Index to this quarterly report is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SEABRIGHT HOLDINGS, INC.
Date: November 9, 2010
	By:	/s/ John G. Pasqualetto
		John G. Pasqualetto Chairman, President and Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Scott H. Maw
		Scott H. Maw
		Senior Vice President – Chief Financial Officer and Assistant Secretary
		(Principal Financial Officer)

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EXHIBIT INDEX

The list of exhibits in the Exhibit Index to this quarterly report on Form 10-Q is incorporated herein by reference. Exhibits 31.1 and 31.2 are being filed as part of this quarterly report on Form 10-Q. Exhibits 32.1 and 32.2 are being furnished with this quarterly report on Form 10-Q.

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of the Company (incorporated by refence to the Company’s Registration Statement on Form S-8 (file No. 333-123319), filed on March 15, 2005).
3.2	Amendment to the Company’s Amended and Restated Certificate of Incorporation (incorporated by reference to the Company’s Current Report on Form 8-K (file No. 001-34204), filed on May 24, 2010).
31.1	Rule 13a-14(a) Certification (Chief Executive Officer)
31.2	Rule 13a-14(a) Certification (Chief Financial Officer)
32.1	Section 1350 Certification (Chief Executive Officer)
32.2	Section 1350 Certification (Chief Financial Officer)

EX-31.1

Exhibit 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, John G. Pasqualetto, President and Chief Executive Officer of SeaBright Holdings, Inc., certify that:

1.      I have reviewed this quarterly report on Form 10-Q of SeaBright Holdings, Inc.;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.      The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)      Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.      The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 9, 2010
	/s/ John G. Pasqualetto
	John G. Pasqualetto
	Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Scott H. Maw, Senior Vice President – Chief Financial Officer and Assistant Secretary of SeaBright Holdings, Inc., certify that:

1.      I have reviewed this quarterly report on Form 10-Q of SeaBright Holdings, Inc.;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.      The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)      Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.      The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 9, 2010
	/s/ Scott H. Maw
	Scott H. Maw
	Senior Vice President – Chief Financial Officer
	and Assistant Secretary

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of SeaBright Holdings, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, John G. Pasqualetto, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  November 9, 2010
	/s/ John G. Pasqualetto
	John G. Pasqualetto
	Chairman, President and Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to SeaBright Holdings, Inc. and will be retained by SeaBright Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of SeaBright Holdings, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, Scott H. Maw, Senior Vice President, Chief Financial Officer and Assistant Secretary of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  November 9, 2010
	/s/ Scott H. Maw
	Scott H. Maw
	Senior Vice President, Chief Financial Officer
	and Assistant Secretary

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to SeaBright Holdings, Inc. and will be retained by SeaBright Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.