Philadelphia Consolidated Holding Corp. reported a 26 percent increase in second-quarter net income Friday afternoon, with an investment gain explaining much of the jump.

Net income was $94.4 million, or $1.27 per share, compared with $74.9 million, or $1.34 per share in last year's second quarter.

Included in net income was a $14.4 million after-tax realized investment gain (19 cents per share) resulting from the liquidation of one of the company's equity security portfolios following a decision by the company to change one investment manager.

Overall, net realized gains were $18.2 million in the quarter, compared with a $1.6 million loss last year.

Operating income, excluding realized gains, was relatively flat at $76.2 million in second-quarter 2007, compared with $76.5 million in second-quarter 2006.

Net investment income (from dividends and interest) grew 31.3 percent to $28.5 million.

The Bala Cynwyd, Pa.-based insurer--which writes mainly commercial package products for niche markets and, to a lesser extent, specialty professional liability policies--also reported that second-quarter earnings got a boost from favorable prior-year reserve development of $13.5 million after taxes. The reserve release added 18 cents per share and took 6.1 points off the second-quarter combined ratio, which came in at 74.2 overall.

In 2006, Philadelphia Consolidated reported an even bigger earnings' contribution from prior-year reserve releases, with $23.2 million of favorable after-tax development adding 32 cents to earnings per share and lowering the combined ratio 12 points to 67.2.

While double-digit growth in second-quarter net income has been a common theme for property-casualty insurers, Philadelphia Consolidated is somewhat unique in reporting double-digit growth in premiums as well. Gross written premiums for the company overall soared 16.7 percent to $398.5 million in the second quarter.

Chief Executive Officer James Maguire Jr. attributed much of the top-line growth to an emphasis on small accounts, adding that both existing and new products fueled growth for the quarter and the year to date.

"We're seeing a lot less competition on smaller accounts which have been the mainstay of our company," he said during a conference call on Friday afternoon. He noted that most of Philadelphia's business (roughly 80 percent) is in commercial package accounts with an average premium size of $12,000. Specialty professional accounts are small-sized accounts also, he said, putting their premium size at roughly $3,000, on average.

With new products launched in late 2006, including a classic car program, a fitness and wellness program, and a program for recreational vehicles and campgrounds adding volume as well, he said the company has also "planted the seeds" for future growth.

"Our proactive marketing strategy is a big differentiator," he said, noting that gross premium per employee is $1.2 million for his company, while $500,000 or $750,000 per employee is more typical for peer companies. "We proactively go out and bring the business into the company. We've identified the niches that are profitable," Mr. Maguire said.

Special Reports /

Philadelphia Consolidated Net Up 26%, Premiums Soar

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