1355795--2/28/2007--Darwin_Professional_Underwriters

related topics

{loss, insurance, financial}

{financial, litigation, operation}

{condition, economic, financial}

{product, market, service}

{capital, credit, financial}

{stock, price, operating}

{acquisition, growth, future}

{customer, product, revenue}

{regulation, change, law}

{regulation, government, change}

{debt, indebtedness, cash}

{personnel, key, retain}

{system, service, information}

We do not have employment agreements or non-competition agreements with most of our key management personnel, and if we lose key personnel or are unable to recruit qualified personnel, our ability to implement our business strategies could be delayed or hindered. If we are unable to underwrite risks accurately and to charge adequate rates to policyholders, our financial condition and results of operations could be adversely affected. Our actual incurred losses and LAE may be greater than our loss and LAE reserves, which could have a material adverse effect on our financial condition and results of operations. We currently rely on certain Alleghany subsidiaries to write some of the insurance policies that we produce, and a termination of our arrangements with them could have an adverse effect on our business, financial condition and results of operations. If we are not able to renew our existing reinsurance or obtain new reinsurance or if we were to increase our retention levels in premiums written, either our net exposures would increase or we would have to reduce the level of our underwriting commitment, both of which could negatively affect our revenues and results of operations. If our reinsurers do not pay claims made by us in a timely fashion, our business, financial condition and results of operations could be materially adversely affected. If our relationships with certain of our distribution partners, four of which account for a significant part of our business, were terminated, our financial condition and results of operations could be materially adversely affected. We rely on our brokers, agents and program administrators to collect premiums on our behalf, and their failure to remit premiums to us could cause our underwriting profits to decline. If a program administrator were to exceed its underwriting authority or otherwise breach obligations owed to us, we could be materially adversely affected. We rely heavily on our information technology and telecommunication systems, and the failure of these systems could materially and adversely affect our business. If i-bind, our web-based underwriting system, has technical problems, or if it is accepted by the marketplace more slowly than anticipated, we may not be able to grow the small account business that we target as quickly or as cost-effectively as we would like. Our investment results and, therefore, financial condition and results of operations, may be materially adversely impacted by changes in the business, financial condition or operating results of the entities in which we invest, as well as changes in interest rates, government monetary policies, general economic conditions and overall capital market conditions. As a holding company and underwriting manager, we are dependent on the results of operations of our insurance company subsidiaries, and we rely upon the regulatory and financial capacity of our subsidiaries to pay dividends to us. The inability of our subsidiaries to pay dividends to us in sufficient amounts could harm our ability to meet our obligations. If we are unable to raise additional capital in the future, whether on favorable terms or at all, we may not have sufficient funds to implement our operating plans, and our business, financial condition or results of operations could be materially adversely affected. Litigation and legal proceedings against our insurance company subsidiaries could have an adverse effect on our financial condition and results of operations. If we acquire other insurance businesses and are unable to integrate them successfully with our business, our financial condition and results of operations could be materially adversely affected. Our capital adequacy requirements could negatively affect our return on equity for a long time. In addition, if we are unable to grow into our capital base as quickly as we anticipate, our return on equity could be negatively affected. Our insurance company subsidiaries are subject to assessments in the states in which they are licensed, and these assessments could significantly affect our financial condition. Risks Related to Our Industry Our business is cyclical in nature, which may affect our financial performance. Some of our competitors have greater financial resources than we have, or have more market recognition than we do, and, we may not be successful in competing effectively with them. We are subject to extensive regulation, which may adversely affect our ability to achieve our business objectives. In addition, if we fail to comply with regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our results of operations. The effects of emerging claim and coverage issues on our business are uncertain and could materially adversely affect our business, financial condition and results of operations. The passage of tort reform and the subsequent review of such laws by the courts could have a material impact on our operations. Risks Related to Our Corporate Structure We are a majority-owned subsidiary of Alleghany and the ownership of our shares is highly concentrated. A future sale of all or a substantial portion of Alleghany s shares of our common stock, or the possibility of such future sales, could adversely affect the market price of our common stock. Alleghany has significant control over us and may not always exercise its control in a way that benefits the other securityholders. Also, conflicts of interest that may arise between us and Alleghany could be resolved in a manner unfavorable to us.

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1355795--2/28/2007--Darwin_Professional_Underwriters_Inc