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Executives

George Kallop - Chief Executive Officer and President

William Shaw – Vice Chairman

William Michaelcheck – Investment Advisor

Thomas Iacopelli - Chief Financial Officer

Analysts

Mahan Kakenya – Unidentified firm

Mark Dwelle – Ferris, Baker Watts, Inc.

Amit Kumar – Fox-Pitt Kelton

Alper Sungur – Sidoti & Co.

Dean Evans - Keefe, Bruyette & Woods

NYMAGIC, Inc. (NYM) Q1 2008 Earnings Call May 6, 2008 9:00 AM ET

Operator

Good morning. At this time, I would like to welcome everyone to the NYMAGIC first-quarter conference call. (Operator Instructions)

Any forward-looking statements concerning the company’s operations, economic performance, and financial provisions contained herein, including statements relating to the outlook of the company’s performance in 2008 and beyond, are made under the Safe Harbor provisions of the Litigation Reform Act of 1995. These statements are based upon a number of assumptions and estimates which inherently are subject to uncertainties and contingencies, many of which are beyond the control of the company. Some of the assumptions may not materialize and unanticipated events may occur which could cause actual results to differ materially from such statements. These include, but are not limited to, the cyclical nature of the insurance and reinsurance industry, premium rates, investment yield, estimation of loss reserves and loss reserve development, net loss retention and the effect of contributions, the ability to collect reinsurance proposals, the ability and cost of reinsurance changes, and the ratings assigned to the company by ratings agencies and other reinsurance uncertainties and included in the company’s filings with the Securities and Exchange Commission. These risks could cause financial results of 2008 year and beyond to differ materially from those expressed in any forward-looking statements made. The company undertakes no obligation to update publicly or revise any forward-looking statements made.

Mr. Kallop, you may begin your conference.

George Kallop

Thank you. Good morning everyone. This is George Kallop. I have with me on the telephone this morning George Trumbull, our Chairman; Skip Shaw, our Vice Chairman; Tom Iacopelli, our Chief Financial Officer; Paul Hart, our General Counsel; and Bill Michaelcheck, Chairman of Mariner Investment Group, our investment advisor.

This morning I would like to make some brief comments on first quarter results. Then I will ask Skip Shaw and Bill Michaelcheck to provide some additional details on our investment portfolio. Afterwards, we will be happy to answer any questions you may have.

In summary, the company’s insurance operations performed quite well during the first quarter of 2008. But the company’s investment portfolio suffered considerably as a result of the recent unsettled financial markets.

As a function of this, the company reported a major loss. The company reported a net loss for the three months ended March 31, 2008, of $29.7 million, or $3.42 per diluted share, compared with net earnings of $7.5 million, or $0.82 per diluted share in 2007. This loss resulted from two principal factors. First, net realized investment losses were $21 million, or $2.41 per share, for the first quarter of 2008, compared with net investment gains of $172,000, or $0.02 per share, in 2007.

Secondly, net investment income, or loss, totaled a loss of ($13) million for the first quarter of 2008, as compared with net investment income of $11.9 million for the same period in 2007. It was, to say the least, a very poor quarter in spite of some good results in insurance operations.

With regard to insurance operations, gross premiums written during the first quarter of 2008 totaled $71.6 million compared with $68.6 million during the first quarter of 2007. This was a 4% increase year over year.

Our Ocean Marine segment decreased by 13%. Within this category, however, Marine Liabilities, our most profitable line, showed increases while decreases were recorded in Hull, Energy and Cargo.

The Inland Marine Fire segment declined marginally by 1%. Decreases in property business were largely offset by increases in surety business.

The Other Liabilities segment increased by 16%. This was largely due to increases in the excess workers’ compensation and casualty lines. Overall, it was quite a good result. We were pleased to record an increase in gross written premium while maintaining our underwriting discipline.

Net premiums written during the first quarter of 2008 totaled $59.9 million compared with $53 million during the first quarter of 2007. This was an increase of 13%.

Ocean Marine net premiums declined only 3%, a decline that was moderated by reduced reinsurance costs and the effects of our 80% quota share treaty covering our reduced energy business.

Inland Marine Fire net premiums declined by 3%, generally in line with declines in gross premiums.

Other Liability net premiums increased by 23%, largely due to the previously mentioned increases in workers’ compensation and casualty business.

Net premiums earned for the first quarter of 2008 totaled $44.9 million compared with $39.7 million for the first quarter of 2007. This was an increase of 13%.

Ocean Marine net premiums earned declined 5%, whereas Inland Marine Fire increased by 24% and Other Liabilities increased by 29% over last year. Overall, it was a very good result.

As I mentioned during our recent calls, we have seen reduced rates in many lines, but we have elected to maintain underwriting discipline in the face of this. We are willing to lose business rather than write unprofitable business. During the first quarter of 2008 our loss ratio totaled 57.9%. This was a small increase over our loss ratio of 55.1% during the first quarter of 2007 but our loss ratio remains well within acceptable limits. This increase largely resulted from two factors.

First, the company benefited from $1 million of favorable loss development during the first quarter of 2008, compared with $1.4 million of favorable development during the same period of 2007.

Secondly, our mix of business has been significantly affected by increases in our workers’ compensation line. While loss ratios tend to be somewhat higher in this line than some others, the payout of losses usually extends over a much longer period of time.

The company’s combined ratio for the first quarter of 2008 was 99.4% versus 97.8% during the first quarter of 2007 with increases in the loss ratio more than offsetting declines in the expense ratio during the first quarter of 2008.

We continue to look for new avenues of premium growth as a means to reduce our expense ratio and enhance profitability. Along these lines, we were pleased to announce the purchase of a book of professional liability business oriented to insurance agents and brokers, as well as the formation of MMO agencies during the first quarter of 2008.

MMO agencies will focus on generating additional premium growth through a network of general agents with binding authority, subject to underwriting criteria established and monitored by our own staff. We are enthusiastic about the future prospects for these lines of business.

Turning to the investment side, it is obvious we had a tough go in the first quarter of 2008, as I said earlier. In a few minutes, I will ask Skip Shaw, our Vice Chairman, and Bill Michaelcheck, Chairman of Mariner Investment Group, our investment advisor, to provide an overview of investment results. Before I do, however, I would like to make several comments.

First, the bulk of our investment losses during the first quarter of 2008 arose from a reduction in the market value of the investments we hold. They did not arise as a result of selling these securities. We continue to believe that these investments are intrinsically solid but we carry these assets at market value and we have done so using realistic market valuations.

Secondly, the company still owns these securities. As a result, if market values recover as financial markets stabilize, the company will benefit from the recovery of these values.

Third, all of our fixed income and preferred stock investments continue to pay principal, interest and the dividends as they become due. These securities are not impaired from a credit point of view.

And lastly, as a result of these write-downs, the effective yield on these assets has risen substantially.

I would now like to ask Skip and Bill to comment on our investments.

William Shaw

Good morning. I think what we would like to do is I will go through the details of the investment portfolio and give you a somewhat complete description of where we stand. And then when I am through, Bill will give an overview of the financial landscape.

To just reiterate what George mentioned, the past year in the financial markets has been influenced by unprecedented developments, really once in a generation dislocation, and came to fore particularly in March where we all sort off looked at the abyss, but with the unprecedented liquidity provisions by the Federal Reserve and a 325 basis point reduction in interest rates, we believe that we have reached the point of impasse, if you will, and have achieved some sense of stability in the financial landscape, albeit tenuous.

The second thing I would like to note is that, as George said, all our securities are mark-to-market very conservatively, and I point that out because we take the gains and losses, the market gains and losses, through our income statement, which is different than most of our competitors, who classify their securities as held to maturity as opposed to trading. And as a result, our quarterly investment results will be much more volatile than most of our competitors. We do this because we believe it’s the most conservative and transparent way to present our investment portfolio.

And then lastly, I would like to mention that despite the substantial mark-to-market losses in March, as of the end of April, the market has recovered quite meaningfully and based on independent dealer marks at the end of April, we have recouped over half the losses we suffered in March. Specifically, we own about $90 million in preferred stocks, all rated AA.

These are in basically financial services companies where, in our opinion, there are no circumstances where credit would be impaired. The institutions are so-called too big to fail. We purchased these preferred stocks at yields, at gross yields, of around 8.5% and because of the special tax treatment that the dividends receive the taxable equivalent yields on these preferreds is about 11.625%.

We have $100 odd million in municipal securities. The average rating on these securities is AA. The purchase yield on these securities is 483, and the taxable equivalent yield on these securities in 7.43%.

In addition, we employed a hedge against the munis when we bought them. We employed this hedge because we didn’t like the absolute level of rates and that hedge has performed quite well in the month of April.

We have $130 million in hedge funds. The hedge funds, with the rest of the financial markets, underperformed in the first quarter. On balance, the hedge funds suffered a loss of 3% during the first quarter. Just as an aside, that compares with a decline of 9.2% in the S&P. However, in April the hedge funds have recovered, as have other financial asset classes, and we are looking at a positive month in April.

We have $90 million of market value in the so-called super senior notes, which are participations in pools of Alt-A mortgages. This is the part of the portfolio which has been most adversely impacted over the past three months, and again, in April this part of the portfolio has recovered most significantly. I should point out that where we have, and to reinforce what George said, that where we have these securities marked on our books, that the yields are in the low- to mid-teens.

In terms of specific recovery amounts in April, the preferred stock portfolio has recovered by $1 million. The municipal portfolio has recovered by over $ 2million. The hedge on the municipal portfolio has gained $2 million. The hedge fund basket, as I mentioned, has improved. It is too early to get precise estimates, but I would guess it is up somewhere between 50-00 basis points in April. And the super seniors have recovered about $10 million, for a total of about a $15 million recovery.

The other components of the portfolio include a $20 million investment in an ETF financial SPDR. It is an exchange traded fund composed of the largest financial institutions. That investment is slightly above its cost. We have a $43 million investment in the Tricadia fund. This is our structured product group. Tricadia has, in turn, a $30 million investment in Tiptree.

Tiptree, as you know, was originally designed to create structure CDO and CLO product. That business, certainly on the CDO side, is dead, if not for good, and the CLO business is certainly on hold for a while. As a result, the capital in Tiptree is 80% in cash. Nonetheless, through opportunistic trading in the last quarter, that’s the September through December quarter, as we mentioned on the last call, Tiptree earned 11% and for the first quarter of this year, December through March, Tiptree will report a return of 12%.

Further, we have about $20 million in the senior bank loans. Where these are on the books, the yield is 11.7%, and we have a $10 million investment in Capmark, which is the General Motors commercial loan business that we purchased in conjunction with Goldman Sachs, KKR and Five Mile Capital.

Lastly, to round out the portfolio, we have $100 million in cash, or $11.50 a share.

So, I guess I would recap by saying despite the unprecedented turmoil, particularly in March, the markets, in our view, have reached some sense of stability, again, albeit tenuous. It is important to note that even though we have recovered half the unrealized loss that we suffered in the first quarter, that’s not to say that another shoe could drop and we could give some, if not all, of that improvement back.

But having said that, our securities are not credit impaired, and there is virtually no possibility that they will become credit impaired. They’re all investment grade, AA- to AAA-rated. And over time with the yields that we have them on the books, the investment portfolio should perform quite well.

But again, I must remind you all that we have taken, in contrast with most of our competitors, a very, very conservative approach to valuation, not only in actual pricing but in running the entire investment portfolio through the earnings statement. And as a consequence, the volatility of our earnings will be meaningfully more volatile than those of our competitors.

Now I would like to turn it over to Billy to give a sort of a 30,000 foot view of the financial landscape.

William Michaelcheck

Good morning. As Skip pointed out as he read through our investment holdings, our strategy for NYMAGIC has been and is to buy what we perceive as the highest quality part of the asset classes that have been troubled. For example, the mortgage-backed securities. We have chosen to buy for the company the super senior pieces of Alt-A mortgages.

Obviously, we bought them too early, but we have chosen to buy them because we believe, and the reason we purchased them was, that their subordination, meaning the amount of support, credit support, that is below these is so substantial that the probability of any principal loss or loss of interest to the maturity of the bonds is low. It certainly could happen, but we think it’s very low.

So we wanted to take advantage of an asset class that was troubled, but to buy the very best piece. We have taken the same strategy in our preferred stocks. We all have seen these big financial institutions, including the government-sponsored agencies, come to market with preferred issues and convertible preferred and so forth. We have chosen to buy a basket of preferreds in the giant so-called, too-big-to-fail. We think that is the case and these are yielding substantial dividends, particularly given the tax benefit that our corporation receives from a dividend.

We have taken the same point of view, the municipal bond market is in turmoil as you all know, somewhat less turmoil than it was a month ago, but because of the failed auctions that have been going on, we saw that as an opportunity to buy municipal bonds for NYMAGIC, which we did.

Those showed losses in March. As Skip said, the losses have largely come back in April. And then we have a diversified basket of hedge funds that are down in line with the hedge fund industry, but because they are indeed hedged, and diversified, they are down less than some outright markets, the equity markets and the mortgage markets and so forth.

So our strategy continues to be to buy the, what we hope, what we expect, to be the best assets, the most conservative assets in the asset classes where there is turmoil and dislocation. We think over time this is going to do well for NYMAGIC.

In terms of the market, we all have seen what happened in March. It was truly a liquidity crisis we have never seen before. April, things have calmed down substantially, although there is still a lot of nervousness and we think we would be the last ones to say that we think it is over. We do think that the risk of insolvency of these big financial institutions has been greatly reduced because of the activities of the Federal Reserve Bank and the Treasury.

We think we are now in a period of more traditional recession credit issues. The kinds of things that we have seen in our careers such as 1990, 1989, 1990, 1991, where you have a lot of dislocation, reorganizations, and so forth, we are hoping that will be an attractive period for our hedge fund portfolio. And we think that our long-only portfolio, the mortgages, the preferred stock, etc., will perform normally during this period.

So after such a quarter I don’t want to say we are optimistic, but we think we have come through this, we like the portfolio we have. We wish we had not bought it so early, but we are now, given the prices where it’s marked in the market, we are comfortable with it.

George, I will turn it back over to you.

George Kallop

Thank you, Bill and Skip.

All right, we are now ready to take questions from anyone who may have them. Before we do, though, I would like to make a couple more comments.

We always appreciate shareholder input. We are always happy to have dialogue, either on these calls or, in fact, feel free to call the management of the company at any time.

During the last call, there was a conversation involving a Mr. Gadd and Mr. Shaw discussing the preferred stock. Quite frankly, it led to a misunderstanding. There was an implication created that perhaps Mr. Gadd had made an incorrect statement. We followed up after that call with Mr. Gadd and with Mr. Shaw to ensure that we did not have a misunderstanding, which we did not.

And I just wanted to extend an apology to Mr. Gadd for any implication that his statement was incorrect. It turned out that both Mr. Gadd and Mr. Shaw were entirely correct, they just happened to be talking about different things. Mr. Shaw was focused on tax-affected yield. Mr. Gadd was discussing effective tax rates. And it so happened the percentages were close enough that it led to a misunderstanding. So our apologies to Mr. Gadd, and at this point I would like to open it up to questions from anyone who is listening in.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Mahan Kakenya.

Mahan Kakenya – Unidentified firm

I have two questions, and I will ask one by one. Now, with quarter one repaired, one could [inaudible] more of those securities which one likes when the price of those securities goes down. I would like to know your thought on using cash to purchase those securities the company still owns as a confidence and belief that they will give excellent after-tax returns like super senior notes and the preferred debt. And I would like to know how much cash is deployed up to the end of the quarter.

George Kallop

I’m not sure I completely understood your question.

Mahan Kakenya – Unidentified firm

The question is that would like to know the cash the company has and if the company believes those super senior and preferreds are still a good value or after-tax return. Does the company have a plan to deploy those cash to buy those securities where the price has gone down?

William Michaelcheck

We still have approximately the same amount of cash that we did at the end of the quarter. I think we find our portfolio very attractive at the current prices, as we said. However, the volatility was larger than we expected and we were surprised by the volatility and because of that I think that we will likely deploy the remainder of the cash in less volatile instruments. I think that this level of volatility was higher than we expected and we’re not planning to deploy the additional cash in instruments that could be so volatile. So I think that we will probably take a more conservative approach, not necessarily holding cash but holding instruments that are likely to have low volatility.

George Kallop

At the end of March we had $111 million in cash and we still have almost that much. We’ve got like $97 million as of this morning. And as Billy said, there are incredibly attractive investment opportunities still existing in the market in many asset classes and with this next $100 million, or over $11.00 a share in cash, we want to deploy it but judiciously and slowly, as we see unique opportunities arise.

Mahan Kakenya – Unidentified firm

You have formed this MMO Agencies, Inc., and given over binding authority to the general agents. Now when the Perfect Financial, a Canadian company, purchases I believe DID, Perfect goes with the DID business, their binding authority was given over to managing agent and DID supported a big loss on those businesses. And finally, Perfect had to close down those divisions. I would like to know your thoughts that how NYMAGIC will be protected from this binding authority?

George Kallop

Let me step back for a minute and explain to you that during the past, I guess, four plus years at this juncture, one of the major drives which is evident in our numbers is the growth in our Other Liability book of business. Much of that book of business was developed by developing business relationships with outside agents and program managers. We do a lot of that in the professional liability area. More recently we have done it in the workers’ compensation area.

We have successfully developed that business by a couple of factors. One, carefully choosing our business partners. Two, motivating those business partners with profit incentives to ensure they develop a profitable book of business. And most importantly, we do not simply hand over the underwriting authority to them.

These groups are given specific limits and criteria for underwriting. They are carefully laid out in a lengthy agreement. They are required to adhere to that. We do periodic audits on them to ensure compliance and our success in doing that is proven with the success we have seen in the Other Liability segment.

In terms of going forward, MMO Agencies, the intent is simply to expand on this business model and, again, careful selection of the agents we deal with. The MMO agency is staffed with some very experienced insurance experts. They have been in the business, I think the combined experiences of the three principal gentlemen is 100 years. They have lengthy experience in the general agent area so we have a great deal of confidence in them. We also intend to lay out carefully, as we have done in the past, careful underwriting criteria that the agents must comply with and to follow that up with audits.

And therefore, I think this is a well-controlled book of business and a prudent growth path. It is clear that in the past others have done things poorly and not done well but that can apply to insurance generally. I think our track record speaks for itself. We have done this successfully. We have shown we can do it successfully and this is simply a continuation and expansion of that.

Operator

Your next question comes from Mark Dwelle with Ferris, Baker Watts.

Mark Dwelle – Ferris, Baker Watts, Inc.

My question is really mainly a numbers question. Within the investment income loss of $13 million, can you quantify what portion of that was mark-to-market-related adjustments as compared to anything else. What I’m trying to get at really is sort of what the run rate of that portfolio might have looked like if you distill out the portion that is mark-to-market?

Thomas Iacopelli

I have some numbers for you, Mark. First of all, we reported a loss on the hedge position that Skip spoke about earlier. That was approximately $4 million in the first quarter. Additionally, the exchange-traded fund, which is an investment in a S&P SPDR, was also down about $2 million in terms of unrealized losses. Additionally, our preferred stock portfolio had unrealized losses of about $3.5 million. Next item would be the middle-market debt. We had unrealized losses of about $1.5 million run through the income statement. And the last item would be our municipal bond portfolio, which is also included in trading and the unrealized losses there were about $3.5 million.

Mark Dwelle – Ferris, Baker Watts, Inc.

And then you commented in the press release that within the realized gains and losses line item you had an other than temporary impairment. Could you break out that portion as compared to, say what would be maybe the regular trading losses or gains realized in the quarter.

Thomas Iacopelli

Yes, we reported about $32 million in realized losses. I would say substantially all of that is attributable to the mark-down on the super senior position. We only had a small position in other securities.

Mark Dwelle – Ferris, Baker Watts, Inc.

Just to clarify then, the other than temporary impairment related to the super senior securities, those were the ones that I guess if you didn’t really sell any or very many of them in the quarter, they were carried at around $130 million at the end of the year. So now they would be roughly $30 million less than that at the March 30 date.

Thomas Iacopelli

Correct. Our super senior position in terms of actual holdings is now marked at about $99.2 million at March 30. And that reflects about a $32 million decrease in market value from the values we reported at December.

Mark Dwelle – Ferris, Baker Watts, Inc

And then just to clarify, as Skip was going through some of those positions and the improvement that some of them had had, as of and through April 30, and appreciating the fact that obviously this will change between now and June, had we closed the books on April 30, those would be the sort of improvements in value that would have run through the income statement had we been reporting as of April 30, is that correct?

Thomas Iacopelli

Yes.

William Michaelcheck

George, I would like to add one comment on this concept of otherwise temporary impaired. From an accounting standpoint, that doesn’t necessarily, I want to stress that doesn’t mean that it’s a credit issue. What it means is a timing issue, and if the CPA believes that it will be longer than some undefined time period before a market value recovers, you have the option of classifying that as other than temporarily impaired. It is not a question of credit issue, it’s a timing issue.

George Kallop

Well, I think to be precise, it is in part timing and it is clearly a factor of market valuation. So we have adopted, as we have said many times on this call already, what we think is a conservative view and a very realistic valuation level for these securities. Probably best left at that.

Operator

Your next question comes from Amit Kumar with Fox-Pitt Kelton.

Amit Kumar – Fox-Pitt Kelton

Just going back, I guess, to the press release, looking at the buyback number, I am just wondering if there was any specific reason why you were not more aggressive, just based on where the stock has been?

George Kallop

Well, the principal factor that we labor under, quite frankly, is a blackout requirement, where we operate under a blackout period that commences at the end of the close of the quarter. And that really precludes the Company exercising discretion about the price that you’re going to buy back stock at.

And so for most of the first quarter we were laboring under a blackout. We did have a plan in place and instructions in place to purchase securities at a certain level and, quite frankly, they didn’t dip below that level so we didn’t buy any until after the blackout period ended.

Amit Kumar – Fox-Pitt Kelton

I’m sorry, did you just say that it did not dip below a certain level in terms of stock price?

George Kallop

In terms of the formula that would have triggered the buyback during the blackout period. There is a technique you can employ, that others have employed, where you can lay out the criteria under which you will purchase stock during a blackout period, but you need to establish that criteria before the commencement of the blackout period, and it extends through the blackout period. I hope I am clear.

Amit Kumar – Fox-Pitt Kelton

Yes. So I guess it would be fair to say that now since those criteria, you know, have been established, you will be more aggressive, or we will see more buybacks going forward, right?

George Kallop

Yes.

Amit Kumar – Fox-Pitt Kelton

Secondly, just going back to the premiums, and I know you talked about, I think, the excess comp book growing. Could you sort of just break out the dollar number as to how much of the premiums came from that?

Thomas Iacopelli

Sure. We had about $24.8 million in excess workers comp premium for the first quarter of 2008. That would compare to about $19.6 million in gross excess workers’ comp premium for the first quarter of 2007.

In terms of net premiums, the first quarter of 2008, we have about $23 million in excess workers’ comp premium. For the first quarter of 2007, we had about $16.5 million in net excess workers’ comp premium.

Amit Kumar – Fox-Pitt Kelton

And in terms of this book, what is the target here? What is the goal here?

Thomas Iacopelli

In terms of, you’re talking about magnitude?

Amit Kumar – Fox-Pitt Kelton

Yes. How much can the book grow or like, what is the size where you say that, okay, if you have grown so much, you know, I think we are okay here?

George Kallop

Well, there is no hard and fast goal, but I suspect that something on the order of magnitude of $50 million’ish is probably about the right number, for now.

Amit Kumar – Fox-Pitt Kelton

So that is $50 million plus $25 million?

George Kallop

No. It would be $50 million including the $25 million.

Amit Kumar – Fox-Pitt Kelton

And then finally just going back to the discussion on the investment income side. I was trying to jot down some of the numbers and perhaps I missed, but I think you mentioned a $15 million recovery number, right? And I am trying to figure out what that $15 million, is that comparable to the investment income loss? What is that number when you are talking about that?

Thomas Iacopelli

I think it’s a combination of the increase in market value on the super seniors, as well as increase in market values on the preferred stocks. It’s exchange traded funds.

And our hedge position also showed improvements in the month of April. So it is really our entire portfolio.

Amit Kumar – Fox-Pitt Kelton

Okay, so you are saying that if I add the $15 million loss and then I add back, I guess the $21 million loss, the $15 million is comparable to the sum of those two numbers, is that right?

Thomas Iacopelli

In terms of losses in the income statement, we have reported $32 million that was primarily attributable to the super seniors. That has rebounded about maybe $9 million or $10 million, as Skip has pointed out.

Of the $13 million that was reported as net investment loss, within that figure about $6 million or so would have been rebounded in the month of April. That would not include the returns on the hedge fund portfolio, which I believe are up, you know, 50 basis points or so in the month of April.

Operator

Your next question comes from Alper Sungur with Sidoti.

Alper Sungur – Sidoti & Co.

What was the investment income stream from Tricadia in the first quarter?

Thomas Iacopelli

We had all in about $300,000 from Tricadia. This would compare to about $2.9 million for the first quarter of last year.

Alper Sungur – Sidoti & Co.

So the hedge fund basket had a loss of $3.3 million.

Thomas Iacopelli

Correct.

Alper Sungur – Sidoti & Co.

And how many total hedge funds were there at the end of the first quarter? The number.

William Shaw

It’s 26 in the insurance subsidiaries. In addition, the holding company has two hedge funds, Voyager and Tricadia. So 28 in total.

Alper Sungur – Sidoti & Co.

And then how many of them would you say are performing according to your investment standards at this point?

William Shaw

I would say roughly two-thirds. If you’ve looked closely, the hedge fund basket has actually been decreasing as a percentage of the overall investment portfolio. And that is due to intended attrition to weed out some of the underperformers and then reevaluate some new prospects.

Alper Sungur – Sidoti & Co.

So two-thirds of that 28 are performers?

William Shaw

Well, performing as we had expected. That doesn’t necessarily mean they were profitable every month.

Alper Sungur – Sidoti & Co.

How many would you say are profitable at the end of first quarter 2008?

William Shaw

I don’t have that in front of me. We can certainly get it for you.

Alper Sungur – Sidoti & Co.

Also, I guess, let me switch to the fourth quarter of 2007 earnings release. You provided guidance for potential write-downs for the first quarter of 2008 of roughly $24 million, on the RMBS, is that correct?

George Kallop

I think that is, roughly that number.

Alper Sungur – Sidoti & Co.

And then between the March 6 earnings release and the March 31, there were another $8 million of write-downs for 32.

George Kallop

It continued to deteriorate during March.

Alper Sungur – Sidoti & Co.

There was no such guidance provided in the second quarter earnings release. What is the rationale behind that?

Thomas Iacopelli

I think you mean the first quarter.

Alper Sungur – Sidoti & Co.

I mean there is no such guidance provided for going forward into the second quarter of 2008.

George Kallop

We went through, and as a part of the year end audit process, we went through an extensive portfolio analysis in terms of finalizing our audited numbers. This was not a process we went through with regard to the numbers that are being talked about today, and quite frankly, I was going add, when this discussion was concluded, there are numbers being bandied about and clearly the markets have improved, but I caution everyone, these have not been as thoroughly gone over with multiple quotes as were the numbers for the year end. And these are based on a market source deemed reliable, but they should be viewed as a general statement and not specific, so many dollars of this and so many dollars of that. And clearly these numbers are going to move around before the end of the second quarter.

Thomas Iacopelli

Also, Alper, we had reported in our 10-K the latest decline in market value on the super seniors. I believe we had reported it was down about $30 million or so at the time we filed our 10-K, which was almost a week after we announced our fourth-quarter press release.

Operator

You have a follow-up question from Mahan Kakenya

Mahan Kakenya – Unidentified firm

I tried many times to contact your Investor Relations department, but it is very difficult to get hold of somebody who can answer the questions. How to contact your Investor Relations department? What is the phone number?

George Kallop

I think your best solution is to call Tom Iacopelli, our Chief Financial Officer, directly. And he would be happy to speak with you.

Operator

There are no further questions at this time.

George Kallop

I want to thank you all for participating in our earnings call this morning. Hopefully, you’ve gotten a good feel for our overall operations, and again I think it is fair to say, in summary, that the insurance side had a very successful first quarter and we are optimistic about the future. I think you also heard that we are comfortable with our investment portfolio. Clearly, we’re all disappointed with the results in the first quarter, but there is a reason for some optimism and some of that reason was evidenced in the April period. I look forward to speaking to you all again with regard to our second quarter results. Thanks.

Operator

This concludes today’s conference call. You may now disconnect.

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Source: NYMAGIC, Inc. Q1 2008 Earnings Call Transcript
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