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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)



|x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2006.

OR



| ̈ | 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
000-51455



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REPUBLIC
COMPANIES GROUP, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 30-0175923                          
|(State or other jurisdiction of Incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|222 Delaware Avenue, Suite 900 Wilmington, Delaware            |  | 19801                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(302) 658-3613

(Registrants telephone number, including area code)

N/A

(Former name, former address, and former fiscal year, if changed since last report)



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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 ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check One):



|                         |  |                    |  |                        
|------------------------ |  | ------------------ |  | -----------------------
|Large accelerated filer ̈ |  | Accelerated filer ̈ |  | Non-accelerated filer x

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

Shares outstanding of the Registrants common stock:



|                              |  |                           
|----------------------------- |  | --------------------------
|Class                         |  | Outstanding at May 1,
2006
|Common Stock, $0.01 par value |  | 14,085,517                



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##### Table of Contents

REPUBLIC COMPANIES GROUP, INC.

Index



|                                                      |  |                                                                                                                |  |     
|----------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | ----
|                                                      |  |                                                                                                                |  | Page
|Part I                                                |  | Financial Information                                                                                          |  |     
|Item 1.                                               |  | Financial Statements                                                                                           |  |     
|                                                      |  | Condensed Consolidated Balance Sheets as of March 31, 2006 (Unaudited) and December 31, 2005                   |  | 1   
|                                                      |  | Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2006 and 2005 (Unaudited)     |  | 2   
|                                                      |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005 (Unaudited) |  | 3   
|                                                      |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                               |  | 4   
|Item 2.                                               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                          |  | 13  
|Item 3.                                               |  | Quantitative and Qualitative Disclosures about Market Risk                                                     |  | 28  
|Item 4.                                               |  | Controls and Procedures                                                                                        |  | 28  
|Part II                                               |  | Other Information                                                                                              |  |     
|Item 1.                                               |  | Legal Proceedings                                                                                              |  | 30  
|Item 1A.                                              |  | Risk Factors                                                                                                   |  | 30  
|Item 2.                                               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                    |  | 32  
|Item 3.                                               |  | Defaults Upon Senior Securities                                                                                |  | 32  
|Item 4.                                               |  | Submission of matters to a Vote of Security Holders                                                            |  | 32  
|Item 5.                                               |  | Other Information                                                                                              |  | 32  
|Item 6.                                               |  | Exhibits                                                                                                       |  | 33  
|                                                      |  | Signature                                                                                                      |  | 35  
|Certification of CEO Pursuant to Section 302          |  |                                                                                                               
|Certification of CFO Pursuant to Section 302          |  |                                                                                                               
|Certifications of CEO and CFO Pursuant to Section 906 |  |                                                                                                               



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##### Table of Contents

PART I - FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

REPUBLIC COMPANIES GROUP, INC.

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share amounts)



|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                         |  | March 31,2006 |         |   | December 31,2005 |  
|                                                                                                                                                                         |  | (Unaudited)   |         |   |                  |  
|Assets                                                                                                                                                                   |  |               |         |   |                  |   |         |  
|Investments:                                                                                                                                                             |  |               |         |   |                  |   |         |  
|Fixed maturities available for sale, at fair value (amortized cost $312,048 in 2006 and $303,157 in 2005)                                                                |  | $             | 303,428 |   |                  | $ | 298,169 |  
|Equity securities available for sale, at fair value (cost $1,110 in 2006 and 2005)                                                                                       |  |               | 1,156   |   |                  |   | 1,139   |  
|Investment in unconsolidated foreign insurance company (cost $27,855 in 2006 and 2005)                                                                                   |  |               | 36,490  |   |                  |   | 35,890  |  
|Other invested assets                                                                                                                                                    |  |               | 991     |   |                  |   | 991     |  
|Short-term investments, at cost (which approximates market)                                                                                                              |  |               | 28,867  |   |                  |   | 63,901  |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total investments                                                                                                                                                        |  |               | 370,932 |   |                  |   | 400,090 |  
|Cash and cash equivalents                                                                                                                                                |  |               | 4,510   |   |                  |   | 4,621   |  
|Accrued interest and dividends receivable                                                                                                                                |  |               | 2,529   |   |                  |   | 2,778   |  
|Premiums receivable from agents and insureds (net of allowance of $833 in 2006 and 2005)                                                                                 |  |               | 67,320  |   |                  |   | 60,654  |  
|Balances due from reinsurance companies (net of allowance of $330 in 2006 and 2005)                                                                                      |  |               | 190,139 |   |                  |   | 217,150 |  
|Prepaid reinsurance premiums                                                                                                                                             |  |               | 102,128 |   |                  |   | 102,165 |  
|Deferred policy acquisition costs                                                                                                                                        |  |               | 29,176  |   |                  |   | 29,003  |  
|Net deferred tax asset                                                                                                                                                   |  |               | 17,066  |   |                  |   | 16,231  |  
|Federal income tax recoverable                                                                                                                                           |  |               |        |   |                  |   | 1,707   |  
|Other assets (less accumulated depreciation of $1,596 in 2006 and $1,242 in 2005)                                                                                        |  |               | 17,558  |   |                  |   | 17,310  |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                                             |  | $             | 801,358 |   |                  | $ | 851,709 |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Liabilities and Stockholders Equity                                                                                                                                     |  |               |         |   |                  |   |         |  
|Liabilities:                                                                                                                                                             |  |               |         |   |                  |   |         |  
|Losses and loss adjustment expenses                                                                                                                                      |  | $             | 294,467 |   |                  | $ | 315,216 |  
|Unearned premiums                                                                                                                                                        |  |               | 236,100 |   |                  |   | 235,646 |  
|Senior debt (including accrued interest of $250 in 2006 and $257 in 2005)                                                                                                |  |               | 20,250  |   |                  |   | 20,257  |  
|Subordinated notes payable (including accrued interest of $263 in 2006 and 2005)                                                                                         |  |               | 31,192  |   |                  |   | 31,192  |  
|Accrued expenses and other liabilities                                                                                                                                   |  |               | 42,412  |   |                  |   | 57,653  |  
|Cash overdraft                                                                                                                                                           |  |               | 9,601   |   |                  |   | 27,277  |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                        |  | $             | 634,022 |   |                  | $ | 687,241 |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Minority interest in consolidated subsidiary, net of tax                                                                                                                 |  |               | 56      |   |                  |   | 13      |  
|Stockholders equity:                                                                                                                                                    |  |               |         |   |                  |   |         |  
|Common stock, $0.01 par value: Authorized 200,000,000 shares; issued 14,092,117 and outstanding 14,085,517 in 2006; issued 14,022,422 and
outstanding 14,020,222 in 2005 |  |               | 141     |   |                  |   | 140     |  
|Additional paid-in capital                                                                                                                                               |  |               | 116,367 |   |                  |   | 115,968 |  
|Accumulated other comprehensive loss, net of taxes                                                                                                                       |  |               | (8,334  | ) |                  |   | (5,532  | )
|Retained earnings                                                                                                                                                        |  |               | 59,106  |   |                  |   | 53,879  |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                               |  |               | 167,280 |   |                  |   | 164,455 |  
|Commitments and contingencies (notes 3, 8 and 10)                                                                                                                        |  |               |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                               |  | $             | 801,358 |   |                  | $ | 851,709 |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  

See accompanying notes to condensed consolidated financial statements.



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##### Table of Contents

REPUBLIC COMPANIES GROUP, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Dollars in thousands, except share
amounts)

(Unaudited)



|                                                                                                                                            |  |                             |        |   |      |   |       
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------
|                                                                                                                                            |  | Three Months EndedMarch 31,
|                                                                                                                                            |  | 2006                        |        |   | 2005
|Revenues:                                                                                                                                   |  |                             |        |   |      |   |       
|Net insurance premiums earned                                                                                                               |  | $                           | 63,237 |   |      | $ | 57,174
|Net investment income                                                                                                                       |  |                             | 3,512  |   |      |   | 2,322 
|Net realized (losses) gains                                                                                                                 |  |                             | (57    | ) |      |   | 1     
|Other income                                                                                                                                |  |                             | 1,681  |   |      |   | 1,568 
|                                                                                                                                            |  |                             |        |   |      |   |       
|                                                                                                                                            |  |                             | 68,373 |   |      |   | 61,065
|Expenses:                                                                                                                                   |  |                             |        |   |      |   |       
|Net losses and loss adjustment expenses incurred                                                                                            |  |                             | 33,253 |   |      |   | 29,681
|Underwriting, acquisition and operating expenses                                                                                            |  |                             | 25,493 |   |      |   | 20,268
|Interest expense                                                                                                                            |  |                             | 935    |   |      |   | 735   
|                                                                                                                                            |  |                             |        |   |      |   |       
|                                                                                                                                            |  |                             | 59,681 |   |      |   | 50,684
|Income from continuing operations before income taxes, minority interest and equity in earnings of unconsolidated foreign insurance
company |  |                             | 8,692  |   |      |   | 10,381
|Income tax expense                                                                                                                          |  |                             | 3,029  |   |      |   | 3,633 
|Minority interest in earnings of consolidated subsidiary, net of tax                                                                        |  |                             | (43    | ) |      |   |      
|Equity in earnings of unconsolidated foreign insurance company                                                                              |  |                             | 1,298  |   |      |   | 703   
|                                                                                                                                            |  |                             |        |   |      |   |       
|Net income                                                                                                                                  |  | $                           | 6,918  |   |      | $ | 7,451 
|                                                                                                                                            |  |                             |        |   |      |   |       
|Net income available to common stockholders                                                                                                 |  | $                           | 6,918  |   |      | $ | 3,885 
|                                                                                                                                            |  |                             |        |   |      |   |       
|Earnings per common share:                                                                                                                  |  |                             |        |   |      |   |       
|Basic                                                                                                                                       |  | $                           | 0.50   |   |      | $ | 0.78  
|                                                                                                                                            |  |                             |        |   |      |   |       
|Diluted                                                                                                                                     |  | $                           | 0.50   |   |      | $ | 0.78  
|                                                                                                                                            |  |                             |        |   |      |   |       
|Cash dividends declared per common share                                                                                                    |  | $                           | 0.12   |   |      | $ |      
|                                                                                                                                            |  |                             |        |   |      |   |       

See accompanying notes to condensed consolidated financial statements.



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REPUBLIC COMPANIES GROUP, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)



|                                                                                            |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                            |  | Three Months EndedMarch 31, |        
|                                                                                            |  | 2006                        |         |   | 2005 |  
|Cash flows from operating activities:                                                       |  |                             |         |   |      |   |         |  
|Net income from operations                                                                  |  | $                           | 6,918   |   |      | $ | 7,451   |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                             |         |   |      |   |         |  
|Amortization and depreciation                                                               |  |                             | 358     |   |      |   | 226     |  
|Equity in earnings of unconsolidated foreign insurance company                              |  |                             | (1,298  | ) |      |   | (703    | )
|Net accretion of bond discount                                                              |  |                             | 304     |   |      |   | 644     |  
|Net loss (gain) on sale of fixed maturities                                                 |  |                             | 57      |   |      |   | (1      | )
|Deferred federal income tax expense                                                         |  |                             | 675     |   |      |   | 1,386   |  
|Share-based compensation                                                                    |  |                             | 460     |   |      |   | 255     |  
|Change in:                                                                                  |  |                             |         |   |      |   |         |  
|Premiums receivable from agents and insureds                                                |  |                             | (6,666  | ) |      |   | (1,378  | )
|Accrued interest and dividends receivable                                                   |  |                             | 249     |   |      |   | 336     |  
|Prepaid reinsurance premiums                                                                |  |                             | 37      |   |      |   | 5,932   |  
|Deferred policy acquisition costs                                                           |  |                             | (173    | ) |      |   | (895    | )
|Balances due from reinsurance companies, net                                                |  |                             | 27,011  |   |      |   | (9,852  | )
|Losses and loss adjustment expenses                                                         |  |                             | (20,749 | ) |      |   | 12,080  |  
|Unearned premiums                                                                           |  |                             | 454     |   |      |   | (4,304  | )
|Accrued expenses and other liabilities                                                      |  |                             | (15,241 | ) |      |   | 1,903   |  
|Other, net                                                                                  |  |                             | 2,251   |   |      |   | 797     |  
|                                                                                            |  |                             |         |   |      |   |         |  
|Net cash (used in) provided by operating activities                                         |  |                             | (5,353  | ) |      |   | 13,877  |  
|Cash flows from investing activities:                                                       |  |                             |         |   |      |   |         |  
|Purchase of fixed assets                                                                    |  |                             | (1,227  | ) |      |   | (5,414  | )
|Sale of fixed maturities, available for sale                                                |  |                             | 58,659  |   |      |   | 46,215  |  
|Purchase of fixed maturities, available for sale                                            |  |                             | (67,909 | ) |      |   | (58,507 | )
|Net change in other short-term assets                                                       |  |                             | 35,034  |   |      |   | 6,597   |  
|                                                                                            |  |                             |         |   |      |   |         |  
|Net cash provided by (used in) investing activities                                         |  |                             | 24,557  |   |      |   | (11,109 | )
|Cash flows from financing activities:                                                       |  |                             |         |   |      |   |         |  
|Redemption of preferred shares                                                              |  |                             |        |   |      |   | (98     | )
|Preferred dividends paid                                                                    |  |                             |        |   |      |   | (20,018 | )
|Minority interest                                                                           |  |                             | 43      |   |      |   |        |  
|Common dividends paid                                                                       |  |                             | (1,682  | ) |      |   |        |  
|Proceeds from senior debt                                                                   |  |                             |        |   |      |   | 20,000  |  
|Net change in cash overdraft                                                                |  |                             | (17,676 | ) |      |   | (5,552  | )
|                                                                                            |  |                             |         |   |      |   |         |  
|Net cash used in financing activities                                                       |  |                             | (19,315 | ) |      |   | (5,668  | )
|Net decrease in cash and cash equivalents                                                   |  |                             | (111    | ) |      |   | (2,900  | )
|Cash and cash equivalents, at beginning of period                                           |  |                             | 4,621   |   |      |   | 2,900   |  
|                                                                                            |  |                             |         |   |      |   |         |  
|Cash and cash equivalents, at end of period                                                 |  | $                           | 4,510   |   |      | $ |        |  
|                                                                                            |  |                             |         |   |      |   |         |  
|Supplemental disclosures of cash flow information:                                          |  |                             |         |   |      |   |         |  
|Interest paid                                                                               |  | $                           | 942     |   |      | $ | 638     |  
|                                                                                            |  |                             |         |   |      |   |         |  
|Income taxes paid                                                                           |  | $                           |        |   |      | $ |        |  
|                                                                                            |  |                             |         |   |      |   |         |  
|Dividends declared, not paid                                                                |  | $                           | 1,690   |   |      | $ |        |  
|                                                                                            |  |                             |         |   |      |   |         |  

See accompanying notes to condensed consolidated financial statements.



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REPUBLIC COMPANIES GROUP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(1) Basis of Presentation and Nature of Operations

The consolidated
financial statements include the accounts of Republic Companies Group, Inc., an insurance holding company, and its wholly-owned subsidiaries and certain affiliated companies (Company). The Company markets and underwrites personal and
commercial property and casualty risks located primarily in the southwestern United States.

The Company has prepared the condensed consolidated financial
statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these estimates. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant
to such rules and regulations. However, in the opinion of management, the condensed consolidated financial statements include all normal adjustments necessary to present the financial information in accordance with GAAP. All significant intercompany
balances and transactions have been eliminated in consolidation. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

Certain amounts in prior periods have been reclassified to conform to the presentation adopted in the current year. Such reclassification did not affect net income or total stockholders equity.

Adoption of New Accounting Pronouncements

Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No.123 (revised), Share-Based Payment, (SFAS No. 123R) which revised SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123R requires companies to adopt the fair value method of accounting for share-based employee compensation plans. The fair value method of accounting for share-based employee compensation plans as defined in SFAS
No. 123R is similar in most respects to the fair value method defined in SFAS No. 123. The Company incorporated a forfeiture rate assumption and reclassified Unearned compensation from restricted stock awards to
Additional paid in capital as a result of the adoption of SFAS No. 123R. Since the Company had previously adopted the fair value method of accounting for share-based employee compensation plans, the adoption of SFAS No. 123R
did not have a significant effect on the Companys financial position or results of operations.

Effective January 1, 2006, the Company adopted
Financial Accounting Standards Board Staff Position (FSP) Nos. 115-1 and 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The FSP addresses the determination as to when an
investment is considered impaired, whether that impairment is other-than-temporary and the measurement of an impairment loss. The FSP clarifies that an investor shall recognize an impairment loss when the impairment is deemed to be
other-than-temporary even if a decision to sell the impaired security has not been made. The FSP nullifies certain requirements and carries forward other requirements of Emerging Issues Task Force Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments. The implementation of the guidance in the FSP did not have a significant effect on the Companys financial position or results of operations.



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##### Table of Contents

REPUBLIC COMPANIES GROUP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)



(2) Unconsolidated Investment

The investment in unconsolidated foreign insurance company represents the Companys 30% interest in Seguros Atlas, S.A., a Mexican insurance company (Atlas). The Company records its equity in the
earnings of Atlas on the basis of estimated GAAP income for the three-month period ended February 28, 2006, as that is the most recently available financial information. Summarized financial information for Atlas as of and for the three months
ended February 28, 2006 and 2005 is presented below (amounts in thousands):



|            |  |           |  |        
|----------- |  | --------- |  | -------
|            |  | 2006     
|            |  | Pesos     |  | Dollars
|Assets      |  | 4,845,164 |  | 444,788
|Liabilities |  | 3,526,295 |  | 323,715
|Equity      |  | 1,318,869 |  | 121,073
|Net Income  |  | 45,668    |  | 4,328  
|            | 
|            |  | 2005     
|            |  | Pesos     |  | Dollars
|Assets      |  | 4,000,800 |  | 358,273
|Liabilities |  | 2,646,410 |  | 236,987
|Equity      |  | 1,354,390 |  | 121,286
|Net Income  |  | 26,167    |  | 2,343  

The exchange rates used to convert the balance sheet information as of March 31, 2006 and 2005 were 10.8932
pesos and 11.1669 pesos, respectively, to one dollar. For 2006, net income was converted using an average exchange rate of 10.5510 pesos to one dollar. For 2005, net income was converted using an average exchange rate of 11.1670 pesos to one dollar.
The Company recorded $1,298,000 and $703,000 as equity in the earnings of Atlas for the three months ended March 31, 2006 and 2005, respectively. This represents an estimate of the Companys share of Atlas earnings adjusted for
estimated differences between Mexican statutory accounting requirements and GAAP.

The Company has not recognized a deferred tax liability for the excess
of the carrying value over the tax basis of its investment in Atlas. The unrecognized deferred tax liability is treated as a permanent difference as prescribed by SFAS No. 109, Accounting for Income Taxes, which is consistent with the
criteria of indefinite reversal described in Accounting Principles Board Opinion (APB) No. 23, Accounting for Income TaxesSpecial Areas. Hence, a deferred tax liability has not been recognized in the accompanying
condensed consolidated financial statements. Should the Company no longer meet the indefinite reversal criterion, a deferred tax expense of approximately $2.8 million at March 31, 2006 would need to be established.

As of March 31, 2006, retained earnings included $8.0 million related to the undistributed earnings of the Companys unconsolidated foreign insurance company.



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##### Table of Contents

REPUBLIC COMPANIES GROUP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)



(3) Reinsurance

The Companys insurance subsidiaries and affiliates assume reinsurance from and cede reinsurance to other insurance companies, primarily under treaty reinsurance agreements. Reinsurance does not discharge or diminish the primary
liability to insureds of the Companys insurance subsidiaries and affiliates as direct insurers. However, it does permit those companies to recover losses from the reinsurer. To the extent that reinsuring companies are unable to meet
obligations arising under reinsuring agreements, the Company would remain liable. The effect of reinsurance on premiums written and earned is as follows (dollars in thousands):



|                            |  |                                   |         |   |                                   |   |         |                                    |  |   |                 |   |  |                |         |   |                                    |   |         |   |  |   |         |  
|--------------------------- |  | --------------------------------- | ------- | - | --------------------------------- | - | ------- | ---------------------------------- |  | - | --------------- | - |  | -------------- | ------- | - | ---------------------------------- | - | ------- | - |  | - | ------- | -
|                            |  | Three Months Ended March 31, 2006 |         |   | Three Months Ended March 31, 2005 |  
|                            |  | Written Premium                   |         |   | Earned Premium                    |   |         | Losses and Loss Adjustment Expense |  |   | Written Premium |   |  | Earned Premium |         |   | Losses and Loss Adjustment Expense |  
|Direct business             |  | $                                 | 126,260 |   |                                   | $ | 125,806 |                                    |  | $ | 61,495          |   |  | $              | 110,683 |   |                                    | $ | 109,346 |   |  | $ | 66,630  |  
|Reinsurance assumed         |  |                                   | 39      |   |                                   |   | 39      |                                    |  |   | 1,043           |   |  |                | 2       |   |                                    |   | 1,792   |   |  |   | (92     | )
|Reinsurance ceded           |  |                                   | (62,571 | ) |                                   |   | (62,608 | )                                  |  |   | (29,285         | ) |  |                | (51,882 | ) |                                    |   | (53,964 | ) |  |   | (36,857 | )
|                            |  |                                   |         |   |                                   |   |         |                                    |  |   |                 |   |  |                |         |   |                                    |   |         |   |  |   |         |  
|Net amounts                 |  | $                                 | 63,728  |   |                                   | $ | 63,237  |                                    |  | $ | 33,253          |   |  | $              | 58,803  |   |                                    | $ | 57,174  |   |  | $ | 29,681  |  
|                            |  |                                   |         |   |                                   |   |         |                                    |  |   |                 |   |  |                |         |   |                                    |   |         |   |  |   |         |  
|% of assumed written to net |  |                                   | 0.1     | % |                                   |   |         |                                    |  |   |                 |   |  |                | 0.0     | % |                                    |   |         |   |  |   |         |  
|                            |  |                                   |         |   |                                   |   |         |                                    |  |   |                 |   |  |                |         |   |                                    |   |         |   |  |   |         |  

Ceding commissions, which are netted with acquisition costs in the condensed consolidated statements of income,
were $13,196,000 and $12,222,000 for the three months ended March 31, 2006 and 2005, respectively.

The table below shows the components of balances
due from reinsurance companies as of March 31, 2006 and December 31, 2005 (dollars in thousands):



|                                                            |  |      |         |   |      |   |         |  
|----------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                            |  | 2006 |         |   | 2005 |  
|Reinsurance recoverable on paid losses                      |  | $    | 8,808   |   |      | $ | 13,997  |  
|Reinsurance recoverable on outstanding losses               |  |      | 108,068 |   |      |   | 113,486 |  
|Reinsurance recoverable on incurred but not reported losses |  |      | 73,593  |   |      |   | 89,997  |  
|Reserve for uncollectible reinsurance                       |  |      | (330    | ) |      |   | (330    | )
|                                                            |  |      |         |   |      |   |         |  
|                                                            |  | $    | 190,139 |   |      | $ | 217,150 |  
|                                                            |  |      |         |   |      |   |         |  

(4) Earnings per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding for each period, including all vested restricted shares issued under the Companys share
compensation plans (See Note 6). Diluted earnings per share includes the potential dilution that could occur if outstanding contracts to issue common stock were exercised and converted to common stock using the treasury stock method prescribed by
SFAS No. 128,Earnings per Share, and SFAS No.123R.



6



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##### Table of Contents

REPUBLIC COMPANIES GROUP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)



Following are the basic and diluted per share calculations for the three months ended March 31, 2006 and 2005
(dollars in thousands except per share data):



|                                                        |  |                              |            |      |   |           |  
|------------------------------------------------------- |  | ---------------------------- | ---------- | ---- | - | --------- | -
|                                                        |  | Three Months Ended March 31, |           
|                                                        |  | 2006                         |            | 2005 |  
|Basic and fully diluted earnings per share computation: |  |                              |            |      |   |           |  
|Net income from continuing operations                   |  | $                            | 6,918      |      | $ | 7,451     |  
|Less: Preferred stock dividends accrued                 |  |                              |           |      |   | (3,566    | )
|                                                        |  |                              |            |      |   |           |  
|Net income available to common stockholders             |  | $                            | 6,918      |      | $ | 3,885     |  
|                                                        |  |                              |            |      |   |           |  
|                                                        |  |                             
|Weighted average common shares outstanding:             |  |                              |            |      |   |           |  
|Basic                                                   |  |                              | 13,828,788 |      |   | 4,969,591 |  
|                                                        |  |                              |            |      |   |           |  
|Diluted                                                 |  |                              | 13,850,672 |      |   | 4,976,523 |  
|                                                        |  |                              |            |      |   |           |  
|                                                        |  |                             
|Earnings per share:                                     |  |                              |            |      |   |           |  
|Basic                                                   |  | $                            | 0.50       |      | $ | 0.78      |  
|                                                        |  |                              |            |      |   |           |  
|Diluted                                                 |  | $                            | 0.50       |      | $ | 0.78      |  
|                                                        |  |                              |            |      |   |           |  

(5) Comprehensive Income

Comprehensive income consists of two components: net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses that under GAAP are recorded as an element of
stockholders equity but are excluded from net income. The Companys other comprehensive income consists of unrealized investment gains/losses and foreign currency translation adjustments related to the Companys investment in
unconsolidated foreign insurance company. The following are the components of other comprehensive income (loss), net of income taxes, for the three months ended March 31, 2006 and 2005 (dollars in thousands):



|                                                 |  |                              |        |   |      |   |        |  
|------------------------------------------------ |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                                 |  | Three Months Ended March 31, |       
|                                                 |  | 2006                         |        |   | 2005 |  
|Net income                                       |  | $                            | 6,918  |   |      | $ | 7,451  |  
|Other comprehensive income:                      |  |                              |        |   |      |   |        |  
|Net change in unrealized investment gains/losses |  |                              | (2,348 | ) |      |   | (3,234 | )
|Change in foreign currency translation           |  |                              | (454   | ) |      |   | (52    | )
|                                                 |  |                              |        |   |      |   |        |  
|Total comprehensive income                       |  | $                            | 4,116  |   |      | $ | 4,165  |  
|                                                 |  |                              |        |   |      |   |        |  

(6) Share-Based Compensation Plans

The Company has share-based compensation plans that allow discretion by the Board of Directors and management in creating employee equity incentives. These incentives include incentive stock options and restricted
stock awards. The stock options vest ratably on the anniversary of the grant date over periods of three to five years and expire ten years from the grant date. Restricted stock awards also generally vest ratably on the anniversary date over periods
of three to five years.



7



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##### Table of Contents

REPUBLIC COMPANIES GROUP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)



Additionally, the Company has an Employee Stock Purchase Plan (ESPP) that allows employees to purchase
shares of common stock at 85% of the fair market value at the lesser of either the fair value on the first day or the last day of a six-month plan period.

As of March 31, 2006, a total of 1.2 million shares were reserved for future award under the plans.

In 2004 the Company adopted the
measurement and expense recognitions of SFAS No. 123 and has recognized share-based compensation expense over award vesting periods based on the fair value at the date the awards were granted. On January 1, 2006, the Company adopted SFAS
No. 123R using the modified prospective approach.

The total share-based compensation expense that was charged against income for the plans was
$460,000 and $255,000 for the periods ended March 31, 2006 and 2005, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $161,000 and $89,000 for the three months ended
March 31, 2006 and 2005, respectively. As of March 31, 2006, there was approximately $3.1 million of total unrecognized compensation related to the Companys share-based compensation plans.

(a) Share-Based Compensation Plans

The Companys
stockholders approved share-based compensation plans in 2005 and 2004. The Company has issued restricted stock and stock options under the 2005 and 2004 plans. Non-vested restricted shares represent shares of the Companys stock awarded to the
employee that cannot currently be sold because the employee to whom the shares were awarded has not yet satisfied the vesting requirements necessary to earn the right to the shares. A summary of the Companys total shares granted and related
changes under the plans during the quarter ended March 31, 2006, along with the portion of these shares that are nonvested are presented below:



|                                                         |  |                      |   |  |                                          |       |                                    |         |  
|-------------------------------------------------------- |  | -------------------- | - |  | ---------------------------------------- | ----- | ---------------------------------- | ------- | -
|                                                         |  | Total Shares Granted |   |  | Weighted- Grant-Date Exercise Fair-Value |       | Total Non-vested Restricted Shares |        
|Outstanding as of January 1, 2006                        |  | 448,250              |   |  | $                                        | 8.37  |                                    | 236,280 |  
|Granted after January 1, 2006 but before April 1, 2006   |  | 69,695               |   |  |                                          | 15.24 |                                    | 66,043  |  
|Forfeited after January 1, 2006 but before April 1, 2006 |  | (4,400               | ) |  |                                          | 8.37  |                                    | (4,400  | )
|                                                         |  |                      |   |  |                                          |       |                                    |         |  
|Outstanding as of March 31, 2006                         |  | 513,545              |   |  | $                                        | 9.30  |                                    | 297,923 |  
|                                                         |  |                      |   |  |                                          |       |                                    |         |  

As of March 31, 2006, there was approximately $1.4 million of total unrecognized compensation from the
Companys restricted stock awards granted the plans. The cost is expected to be recognized over a weighted-average period of four years. No shares of restricted stock vested during the periods ended March 31, 2006 and 2005.



8



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##### Table of Contents

REPUBLIC COMPANIES GROUP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)



The Company uses the Black-Scholes model to determine fair value of stock options under SFAS Nos. 123 and 123R. The
model values stock options based on the stock price at the grant date, the expected life of the stock option, the estimated volatility of the underlying stock, the expected dividend payments and the risk-free interest rate over the expected life of
the stock option. The Company estimates the risk-free rate by using the U.S. Treasury Bond rate that most closely matches the expected life of the stock option granted. Expected volatility of common stock is estimated based on a study of the
Companys peers. The dividend yield is calculated using the historical dividend rate, since the Companys initial public offering, divided by the stock price at the date of grant. The assumptions used in the Black-Scholes model for stock
options granted are:



|                                    |  |                                       |   |  |                                       |   |  |                                       |  
|----------------------------------- |  | ------------------------------------- | - |  | ------------------------------------- | - |  | ------------------------------------- | -
|                                    |  | Options with Exercise Price of $10.00 |   |  | Options with Exercise Price of $14.13 |   |  | Options with Exercise Price of $15.25 |  
|Risk-free interest rate             |  | 4.42%-4.54                            | % |  | 4.42                                  | % |  | 4.60                                  | %
|Expected volatility of common stock |  | 0%-40                                 | % |  | 40                                    | % |  | 35                                    | %
|Dividend yield                      |  | 0%-3.40                               | % |  | 3.40                                  | % |  | 3.15                                  | %
|Expected life of options            |  | 10 years                              |   |  | 10 years                              |   |  | 6.0-6.5 years                         |  

A summary of option activity and changes during the period ended March 31, 2006 is presented below:



|                               |  |         |  |                                  |       |                                              |      |                           |   |        
|------------------------------ |  | ------- |  | -------------------------------- | ----- | -------------------------------------------- | ---- | ------------------------- | - | -------
|                               |  | Shares  |  | Weighted- Average Exercise Price |       | Weighted- Average Remaining Contractual Term |      | Aggregate Intrinsic Value
|Outstanding at January 1, 2006 |  | 102,096 |  | $                                | 11.72 |                                              | 9.35 |                           |   |        
|Granted                        |  | 162,419 |  |                                  | 15.25 |                                              | 9.83 |                           |   |        
|                               |  |         |  |                                  |       |                                              |      |                           |   |        
|Outstanding at March 31, 2006  |  | 264,515 |  |                                  | 13.89 |                                              | 9.55 |                           | $ | 917,867
|                               |  |         |  |                                  |       |                                              |      |                           |   |        
|Exercisable at March 31, 2006  |  | 17,175  |  | $                                | 10.00 |                                              | 8.92 |                           | $ | 126,408
|                               |  |         |  |                                  |       |                                              |      |                           |   |        

The weighted-average grant-date fair value of options granted during the periods ended March 31, 2006 and
2005 was $4.60 and $3.59, respectively. As of March 31, 2006, there was unrecognized compensation cost of $1.0 million associated with stock options. No options were exercised during the three month periods ended March 31, 2006 and 2005.

The Company recognized $388,000 and $255,000 of expense associated with share-based compensation plans in the three month periods ended March 31,
2006 and 2005.

(b) Incentive Bonus Plan

The
Company adopted the Incentive Bonus Plan effective as of January 1, 2005 (Bonus Plan) for the benefit of employees of its subsidiary, Republic Underwriters Insurance Company. The Bonus Plan provides that 25% of bonus awards may be
paid in restricted common stock which vests ratably over three years. Any shares issued under the Bonus Plan are issued from shares reserved under the 2005 Equity Compensation Plan. In the event 25% of a bonus is paid in the form of a restricted
stock award, the bonus recipient will also receive a supplemental stock award equal to 33 1/3% of the restricted stock component of the bonus. No awards of restricted stock were granted in 2005. Under the Bonus Plan 66,043 shares of restricted
common stock were granted in the first quarter of 2006. The Company recognized $48,000 in expense associated with the Bonus Plan in the quarter ended March 31, 2006. As of March 31, 2006, there was unrecognized compensation cost of $0.7
million associated with the Bonus Plan.

(c) Employee Stock Purchase Plan

The Companys stockholders approved the Employee Stock Purchase Plan (ESPP) in May 2005. More than 50% of the eligible employees have elected to participate in the first option period, which started
on January 1, 2006 and concludes on June 30, 2006. No shares had been purchased under this plan as of March 31, 2006. The total estimated cost of the first ESPP offering period ending June 30, 2006 is $49,000. As of
March 31, 2006, the Company has expensed $24,000 of the estimated cost leaving $25,000 of unrecognized compensation cost related to the ESPP. The Company received cash of $104,000 from ESPP participants for the period ended March 31, 2006
and accounts for the ESPP as a liability award plan.



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REPUBLIC COMPANIES GROUP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)



(7) Pension Plans

The Company sponsors a qualified defined benefit plan for employees of the Company and certain affiliates that were frozen with benefits accrued through December 31, 2003. Pension costs for this pension plan are as follows (dollars in
thousands):



|                                                   |  |                              |      |   |      |   |      |  
|-------------------------------------------------- |  | ---------------------------- | ---- | - | ---- | - | ---- | -
|                                                   |  | Three Months Ended March 31, |     
|                                                   |  | 2006                         |      |   | 2005 |  
|Service cost                                       |  | $                            |     |   |      | $ |     |  
|Interest cost                                      |  |                              | 683  |   |      |   | 663  |  
|Amortization of unrecognized transition obligation |  |                              |     |   |      |   |     |  
|Recognized net actuarial loss                      |  |                              |     |   |      |   |     |  
|Expected return on plan assets                     |  |                              | (891 | ) |      |   | (840 | )
|Curtailment                                        |  |                              |     |   |      |   |     |  
|Prior service cost                                 |  |                              |     |   |      |   |     |  
|                                                   |  |                              |      |   |      |   |      |  
|Net periodic pension cost                          |  | $                            | (208 | ) |      | $ | (177 | )
|                                                   |  |                              |      |   |      |   |      |  

The Company sponsors a noncontributory nonqualified defined benefit pension restoration plan for a select group of
management employees of the Company and its subsidiaries that were frozen with benefits accrued through December 31, 2003. This plan restores the benefit lost by these employees due to cap limits of the qualified plan. Pension costs for this
pension plan are as follows (dollars in thousands):



|                                                   |  |                              |    |      |   |   
|-------------------------------------------------- |  | ---------------------------- | -- | ---- | - | --
|                                                   |  | Three Months Ended March 31,
|                                                   |  | 2006                         |    | 2005
|Service cost                                       |  | $                            |   |      | $ |  
|Interest cost                                      |  |                              | 31 |      |   | 31
|Amortization of unrecognized transition obligation |  |                              |   |      |   |  
|Recognized net actuarial loss                      |  |                              | 5  |      |   | 3 
|Expected return on plan assets                     |  |                              |   |      |   |  
|Curtailment                                        |  |                              |   |      |   |  
|Prior service cost                                 |  |                              |   |      |   |  
|                                                   |  |                              |    |      |   |   
|Net periodic pension cost                          |  | $                            | 36 |      | $ | 34
|                                                   |  |                              |    |      |   |   

(8) Contingent Liabilities and Commitments

The Company is subject to claims and lawsuits that arise in the ordinary course of business. On the basis of information presently available in connection with claims and lawsuits presently pending, it is the opinion
of the Companys management that the disposition or ultimate determination of such claims and lawsuits will not have a material adverse effect on the financial position or results of operations of the Company.

The Company is subject to assessments from state FAIR Plans and windpools. Plans such as the Louisiana Citizens Property Insurance Corporation and Texas Windstorm
Insurance Association have levied assessments against several of the Companys insurance subsidiaries following Hurricanes Katrina and Rita and additional assessments may follow. These assessments are expected to be recoverable from the
Companys catastrophe reinsurers. Such assessments may also be recoverable through surcharges to policyholders, wherein any recoveries would be reimbursed to the reinsurers or paid directly to the applicable windpool association.



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##### Table of Contents

REPUBLIC COMPANIES GROUP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)



(9) Segment Information

The Company classifies its business into the following segments: Independent Agents  Personal Lines (Personal Lines), Independent Agents  Commercial Lines (Commercial Lines), Program Management, and
Insurance Services and Corporate (Insurance Services). Segments are designated based on the respective similarities in distribution systems, internal processing and management reporting systems and organizational management structure.

Income (loss) from continuing operations before income taxes by segment consists of revenues, including allocated investment income, less expenses, plus
realized gains and losses related to the respective segments operations. Taxes are allocated to each segment at the Companys effective tax rate. Segment results for the three-month periods ended March 31, 2006 and 2005 are as
follows (dollars in thousands):

Three months ended March 31, 2006



|                   |  |                        |         |                                             |   |                      |  |       |       |       |   |       |           |   |        |  |   |       |  |   |      
|------------------ |  | ---------------------- | ------- | ------------------------------------------- | - | -------------------- |  | ----- | ----- | ----- | - | ----- | --------- | - | ------ |  | - | ----- |  | - | -----
|                   |  | Total Revenues         |         | Income from ContinuingOperationsBeforeTaxes |   |                     
|                   |  | GrossWrittenPremium    |         | NetInsurancePremiumEarned                   |   | NetInvestmentResults |  | Other |       | Total |   |       | NetIncome
|                   |  | (Dollars in thousands)
|Personal Lines     |  | $                      | 32,655  |                                             | $ | 31,096               |  | $     | 1,192 |       | $ | 409   |           | $ | 32,697 |  | $ | 4,337 |  | $ | 2,783
|Commercial Lines   |  |                        | 21,702  |                                             |   | 17,361               |  |       | 1,175 |       |   | 47    |           |   | 18,583 |  |   | 1,435 |  |   | 935  
|Program Management |  |                        | 33,448  |                                             |   | 14,780               |  |       | 970   |       |   | 500   |           |   | 16,250 |  |   | 2,856 |  |   | 1,861
|Insurance Services |  |                        | 38,494  |                                             |   |                     |  |       | 118   |       |   | 725   |           |   | 843    |  |   | 64    |  |   | 1,339
|                   |  |                        |         |                                             |   |                      |  |       |       |       |   |       |           |   |        |  |   |       |  |   |      
|Consolidated       |  | $                      | 126,299 |                                             | $ | 63,237               |  | $     | 3,455 |       | $ | 1,681 |           | $ | 68,373 |  | $ | 8,692 |  | $ | 6,918
|                   |  |                        |         |                                             |   |                      |  |       |       |       |   |       |           |   |        |  |   |       |  |   |      

Three months ended March 31, 2005



|                   |  |                        |         |                                                    |   |                      |  |       |       |       |   |       |                 |   |        |  |   |        |   |  |   |       |  
|------------------ |  | ---------------------- | ------- | -------------------------------------------------- | - | -------------------- |  | ----- | ----- | ----- | - | ----- | --------------- | - | ------ |  | - | ------ | - |  | - | ----- | -
|                   |  | Total Revenues         |         | Income (Loss)from ContinuingOperationsBefore Taxes |   |                      |  |      
|                   |  | GrossWrittenPremium    |         | NetInsurancePremiumEarned                          |   | NetInvestmentResults |  | Other |       | Total |   |       | NetIncome(Loss) |  
|                   |  | (Dollars in thousands) |        
|Personal Lines     |  | $                      | 31,711  |                                                    | $ | 32,301               |  | $     | 962   |       | $ | 414   |                 | $ | 33,677 |  | $ | 9,917  |   |  | $ | 6,446 |  
|Commercial Lines   |  |                        | 19,850  |                                                    |   | 16,397               |  |       | 688   |       |   | 46    |                 |   | 17,131 |  |   | (136   | ) |  |   | (88   | )
|Program Management |  |                        | 28,172  |                                                    |   | 8,476                |  |       | 524   |       |   | 569   |                 |   | 9,569  |  |   | 642    |   |  |   | 417   |  
|Insurance Services |  |                        | 30,952  |                                                    |   |                     |  |       | 149   |       |   | 539   |                 |   | 688    |  |   | (42    | ) |  |   | 676   |  
|                   |  |                        |         |                                                    |   |                      |  |       |       |       |   |       |                 |   |        |  |   |        |   |  |   |       |  
|Consolidated       |  | $                      | 110,685 |                                                    | $ | 57,174               |  | $     | 2,323 |       | $ | 1,568 |                 | $ | 61,065 |  | $ | 10,381 |   |  | $ | 7,451 |  
|                   |  |                        |         |                                                    |   |                      |  |       |       |       |   |       |                 |   |        |  |   |        |   |  |   |       |  



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##### Table of Contents

REPUBLIC COMPANIES GROUP, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)



Identifiable assets by segment are those assets used in or allocated to the operation of each segment. Identifiable
assets by segment are as follows (dollars in thousands):



|                   |  |                             |         |      |   |        
|------------------ |  | --------------------------- | ------- | ---- | - | -------
|                   |  | Three Months EndedMarch 31,
|                   |  | 2006                        |         | 2005
|Personal Lines     |  | $                           | 229,600 |      | $ | 213,942
|Commercial Lines   |  |                             | 163,267 |      |   | 159,703
|Program Management |  |                             | 227,897 |      |   | 195,716
|Insurance Services |  |                             | 180,594 |      |   | 170,783
|                   |  |                             |         |      |   |        
|Consolidated       |  | $                           | 801,358 |      | $ | 740,144
|                   |  |                             |         |      |   |        

(10) Subsequent Events

One of the Companys subsidiaries is currently defending a statewide putative class action lawsuit pending in the District Court of the Parish of Orleans, Louisiana filed in the aftermath of Hurricane Katrina on April 12, 2006.
The plaintiffs generally allege that Republic Fire and Casualty Insurance Company and other unaffiliated insurer defendants breached their policies by failing to pay the face value of policies to insureds who sustained a total loss of their homes
and improvements in part as a result of a non-covered loss from Hurricane Katrina. Plaintiffs seek to recover face value of the policies regardless of the anti-concurrence provisions of the Companys policies or the fact the Company timely paid
covered losses in accordance with the policies provisions. This lawsuit seeks declaratory relief and unspecified monetary damages, statutory penalties and attorneys fees. This matter is in the early stages of development, and the Company
is defending it vigorously. No class has been certified in this matter. The Company cannot at this time predict the outcome of this matter, is unable to estimate a range of possible loss, if any, and cannot predict whether or not the outcome will
have a material adverse effect on the Companys business, financial position or results of operations.



12



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Forward Looking Statements

A number of the statements in this Quarterly Report on Form 10-Q are forward-looking
statements, as that term is defined in the Private Securities Litigation Reform Act of 1995 (PSLRA), that reflect our current views with respect to future events and financial performance. These forward-looking statements, which may
apply to us specifically or the insurance industry in general, are subject to risks and uncertainties, as described in our Annual Report on Form 10-K under the caption Risk Factors and elsewhere in this report, and made pursuant to the
safe harbor provisions of the PSLRA and include estimates and assumptions related to economic, competitive, regulatory, judicial, legislative and other developments. Statements that include the words expect, intend,
plan, believe, project, estimate, may, should, anticipate, will and similar statements of a future or forward-looking nature identify forward-looking
statements for purposes of the federal securities laws or otherwise.

Overview

In addition to the information discussed below, you should read the Companys consolidated and combined financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2005
filed with the Security and Exchange Commission (SEC). The Annual Report includes information regarding the Company not discussed in this Quarterly Report on Form 10-Q, such as an overview of our organizational structure and businesses,
a summary of our principal revenue and expense items, a summary of our key financial measures (which includes information about insurance industry recognized metrics in addition to traditional GAAP measures) and a summary of our critical accounting
policies. You should also read the Risk Factors described in Part II, Item 1A. of this Quarterly Report on Form 10-Q and in Part I, Item 1A. of our Annual Report on Form 10-K in conjunction with this Managements Discussion and
Analysis of Financial Condition and Results of Operations.

We are a provider of personal and commercial property and casualty insurance products to
individuals and small to medium-size businesses primarily in Texas, Louisiana, Oklahoma and New Mexico. We have written insurance in Texas consistently throughout our entire 102-year history while many of our competitors have moved in and out of the
state. Our long-standing presence and deep market knowledge have allowed us to develop a loyal network of independent agents and a select group of managing general agents (MGAs) who provide us access to what we believe are among the most
profitable markets  underserved niches primarily in rural and small to medium-size metropolitan markets.

We target underserved markets that require
underwriting expertise that many larger carriers have been unwilling to develop given the relatively small volume of premiums produced by local agents. Within these markets, we capitalize on our superior local knowledge to identify profitable
underwriting opportunities. We apply a high level of selectivity in the risks we underwrite and use a risk-adjusted return approach to capital allocation, which we believe allows us to allocate our capital to the business segments that we believe
will generate consistent underwriting profits. We believe that we distinguish ourselves from our competitors by delivering tailored product solutions, providing a high level of customer service and responding quickly to the needs of our agents and
policyholders.

Our business is conducted through four segments organized primarily by distribution channel:



| |  |  | Independent Agents  Personal Lines (Personal Lines)
| | - |  | ------------------------------------------------------



| |  |  | Independent Agents  Commercial Lines (Commercial Lines)
| | - |  | ----------------------------------------------------------



| |  |  | Program Management
| | - |  | ------------------



| |  |  | Insurance Services and Corporate (Insurance Services)
| | - |  | -------------------------------------------------------

Our
Personal Lines and Commercial Lines segments operate through our network of independent agents, our two affiliated MGAs and one unaffiliated MGA. Our Program Management segment includes products distributed through unaffiliated MGAs that bind and
underwrite insurance policies in conformity with our underwriting guidelines on our behalf within designated programs. Our Insurance Services segment is primarily comprised of fee-based fronting business, interest expense on our long-term debt and
the equity earnings of our unconsolidated foreign insurance company.



13



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##### Table of Contents

We experience seasonality in our underwriting results related to large weather events that generally occur in the second
and third quarters, although weather-related losses (including hail, high winds, tornadoes or hurricanes) can occur in any calendar quarter. Weather-related catastrophe losses vary from year to year in severity and frequency depending upon
variations in weather patterns. In evaluating our independent agency loss experience, we classify weather events with losses aggregating at least $400,000 as catastrophe losses. We use historical average loss severities and exposure maps, industry
and proprietary models and industry loss estimates to estimate the ultimate cost of catastrophic weather events, and we record liabilities for unpaid losses and loss adjustment expenses in the period when an event occurs. The frequency and severity
of catastrophe losses in any year cannot be predicted and may be material to our results of operations and financial position. Accordingly, we have implemented prudent and conservative measures to help mitigate the potential impact of catastrophe
weather events including, among other items, monitoring geographic property risk concentrations, monitoring business mix, contractually sharing risks with policyholders and maintaining catastrophe reinsurance protections. We purchase reinsurance to
reduce our exposure to liability on individual risks and claims to protect against catastrophic losses. Due to the heavy industry losses from major hurricanes in 2005, our catastrophe reinsurance costs are higher in 2006.

Results of Operations

Highlights



| |  |  | Total revenues increased 12.0% to $68.4 million in the first quarter of 2006 compared with $61.1 million in the prior year quarter;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | net income of $6.9 million for the first quarter of 2006 was 7.2% lower than the net income of $7.5 million for the first quarter of 2005;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | quarterly combined ratio of 92.9%;
| | - |  | ----------------------------------



| |  |  | quarterly gross and net written premiums grew 14.1% and 8.4% compared to the first quarter of 2005, respectively;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | net investment income increased 51.2% to $3.5 million over the prior year first quarter; and
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | annualized return on average equity of 16.1%.
| | - |  | ---------------------------------------------



14



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##### Table of Contents

We evaluate the performance of our business and our segments by monitoring key measures of growth and profitability. The
table below summarizes our results of operations on a consolidated basis for the three month periods ended March 31, 2006 and 2005 and illustrates certain operating results and key measures we use in monitoring and evaluating our operations.
The information is intended to summarize and supplement information contained in our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and to assist the reader in gaining a better understanding of
our results of operations.



|                                                                                                                                          |  |                             |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                          |  | Three Months EndedMarch 31, |        
|Results of OperationsConsolidated                                                                                                        |  | 2006                        |         |   | 2005 |  
|                                                                                                                                          |  | (Dollars in thousands)      |        
|Net insurance premiums earned                                                                                                             |  | $                           | 63,237  |   |      | $ | 57,174  |  
|Net investment income                                                                                                                     |  |                             | 3,512   |   |      |   | 2,322   |  
|Net realized (losses) gains                                                                                                               |  |                             | (57     | ) |      |   | 1       |  
|Other income                                                                                                                              |  |                             | 1,681   |   |      |   | 1,568   |  
|                                                                                                                                          |  |                             |         |   |      |   |         |  
|Total revenues                                                                                                                            |  |                             | 68,373  |   |      |   | 61,065  |  
|                                                                                                                                          |  |                             |         |   |      |   |         |  
|Net losses and loss adjustment expenses incurred                                                                                          |  |                             | 33,253  |   |      |   | 29,681  |  
|Underwriting, acquisition and operating expenses:                                                                                         |  |                             |         |   |      |   |         |  
|Commissions                                                                                                                               |  |                             | 12,056  |   |      |   | 10,326  |  
|Other underwriting, acquisition and operating expenses                                                                                    |  |                             | 13,437  |   |      |   | 9,942   |  
|                                                                                                                                          |  |                             |         |   |      |   |         |  
|Total underwriting, acquisition and operating expenses                                                                                    |  |                             | 25,493  |   |      |   | 20,268  |  
|Interest expense                                                                                                                          |  |                             | 935     |   |      |   | 735     |  
|                                                                                                                                          |  |                             |         |   |      |   |         |  
|Total expense                                                                                                                             |  |                             | 59,681  |   |      |   | 50,684  |  
|                                                                                                                                          |  |                             |         |   |      |   |         |  
|Income from continuing operations before income taxes, minority interest and equity in earnings of consolidated foreign insurance
company |  |                             | 8,692   |   |      |   | 10,381  |  
|Income tax expense                                                                                                                        |  |                             | 3,029   |   |      |   | 3,633   |  
|Minority interest                                                                                                                         |  |                             | (43     | ) |      |   |        |  
|Equity in earnings of unconsolidated foreign insurance company                                                                            |  |                             | 1,298   |   |      |   | 703     |  
|                                                                                                                                          |  |                             |         |   |      |   |         |  
|Net income                                                                                                                                |  | $                           | 6,918   |   |      | $ | 7,451   |  
|                                                                                                                                          |  |                             |         |   |      |   |         |  
|Net income available to common stockholders                                                                                               |  | $                           | 6,918   |   |      | $ | 3,885   |  
|                                                                                                                                          |  |                             |         |   |      |   |         |  
|Earnings per common share:                                                                                                                |  |                             |         |   |      |   |         |  
|Basic                                                                                                                                     |  | $                           | 0.50    |   |      | $ | 0.78    |  
|                                                                                                                                          |  |                             |         |   |      |   |         |  
|Diluted                                                                                                                                   |  | $                           | 0.50    |   |      | $ | 0.78    |  
|                                                                                                                                          |  |                             |         |   |      |   |         |  
|Key Measures:                                                                                                                             |  |                             |         |   |      |   |         |  
|Gross written premiums                                                                                                                    |  |                             | 126,299 |   |      |   | 110,685 |  
|Net written premiums                                                                                                                      |  |                             | 63,728  |   |      |   | 58,803  |  
|GAAP Ratios:                                                                                                                              |  |                             |         |   |      |   |         |  
|Net ex-catastrophe loss ratio                                                                                                             |  |                             | 50.6    | % |      |   | 50.3    | %
|Net catastrophe loss ratio                                                                                                                |  |                             | 2.0     | % |      |   | 1.6     | %
|Net expense ratio                                                                                                                         |  |                             | 40.3    | % |      |   | 35.4    | %
|                                                                                                                                          |  |                             |         |   |      |   |         |  
|Net combined ratio                                                                                                                        |  |                             | 92.9    | % |      |   | 87.3    | %
|                                                                                                                                          |  |                             |         |   |      |   |         |  
|Total assets                                                                                                                              |  |                             | 801,358 |   |      |   | 740,144 |  
|Statutory surplus                                                                                                                         |  |                             | 176,160 |   |      |   | 160,968 |  
|Net underwriting leverage                                                                                                                 |  |                             | 1.4     | x |      |   | 1.5     | x



15



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##### Table of Contents

Underwriting income

Gross written premiums  Consolidated gross written premiums for the first quarter of 2006 were $126.3 million compared to $110.7 million for the same period in 2005 for an increase of 14.1%. The growth was primarily
driven by a:



| |  |  | 24.4% growth in the Insurance Services segment driven by increases in the premium volume on programs fronted by us for large, national carriers where we do not retain any of the
underwriting risk;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 18.7% increase in the Program Management segment primarily due to growth in our new non-subscriber program and the commercial auto/small casualty program of our largest MGA;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 9.3% increase in total Commercial Lines, including a 22.1% increase in other commercial liability; and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | 3% increase in total Personal Lines, including a 20.9% increase in personal property premiums, primarily from our low-value dwelling initiative that included $2.9 million of new
written premiums, which offset a 15.9% decrease in personal auto premiums.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We recorded gross written premium growth in all segments in the
first quarter. Partially offsetting growth is a continued decline in nonstandard and standard personal auto premiums. This was not entirely unexpected as the margins in this market continue to be compressed through increasing competition, and we
have purposefully determined not to compete heavily for this low-margin business. Therefore, our personal auto premiums declined by 15.9% in the first quarter of 2006 as compared to the first quarter of 2005.

We also recently received approval from regulatory authorities in Texas and Louisiana for rate increases for personal property business to offset the increased costs of
reinsurance. The increases are effective in the second quarter and will significantly affect net insurance premiums earned starting in the third quarter of 2006.

Consolidated net written premiums in the first quarter of 2006 were $63.7 million compared to $58.8 million in the same period in 2005, or an increase of 8.4%. Consolidated net insurance premiums earned in the first quarter of 2006 were
$63.2 million compared to $57.2 million in the same period in 2005, or an increase of 10.6%. The difference in the gross and net is influenced by higher reinsurance costs following the heavy catastrophe losses from Hurricanes Katrina and Rita. The
estimated additional cost for catastrophe and excess per risk reinsurance in the first quarter of 2006 was approximately $1 million. For the 2006 year, Republic substantially replicated its 2005 catastrophe reinsurance covers but increased the
reinsurance protection to $100 million. These higher reinsurance costs were incurred beginning January 1, while the offsetting benefits from rate increases on the Companys policies in Texas and Louisiana will not begin to be earned until
later in 2006. Net written and earned premiums also increased significantly in our Program Management segment due to our increased retention in the business produced by our largest unaffiliated MGA. There are no net written or earned premiums for
the Insurance Services segment since this business is 100% ceded pursuant to fronting arrangements with unaffiliated national or regional carriers.

Net losses and loss adjustment expenses incurred The consolidated net loss ratio excluding catastrophes for the first quarter of 2006 was 50.6% compared to 50.3% for the same period in 2005. Our net catastrophe loss
ratio was 2.0% in 2006 compared to 1.6% for 2005, which is consistent with weather patterns normally anticipated in the first quarter for our operating area. The comparability of the first quarter loss ratios suggests that the core underwriting
fundamentals of the operating strategy implemented in 2003 continue to produce consistent results from period to period. The net loss ratio for the Personal Lines segment was significantly higher than the first quarter 2005 primarily from personal
auto losses and from an increase in personal property average severities on Texas and Louisiana exposures which, while not directly resulting from the major 2005 hurricane activity may have been caused by anomalies associated with the catastrophe
events, although the results were only modestly higher than our plan. The higher demand for materials and contractors from hurricane claims has impacted the cost of subsequent non-catastrophe reflected losses. The Commercial Lines net loss ratio was
significantly better than the prior year primarily due to the benefits of the prior year reunderwriting initiatives and are essentially in line with our plan.

We continued to process the few pending claims remaining from Hurricanes Katrina and Rita. Our previously reported estimated ultimate loss and loss adjustment expenses from Hurricanes Katrina and Rita of $45.3 million and $47.2 million,



16



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##### Table of Contents

respectively, have proved to be adequate since these estimates included the effects of contingencies such as a surge in demand for products and services. The
financial effects of these storms remain well within the protections provided by our catastrophe reinsurance treaties as previously reported. Further, the support of our reinsurance partners continues to be exemplary and we have not experienced any
collectibility issues regarding reinsurance recoverables. Our net reinsurance recoverable asset has now returned to pre-hurricane levels.

Underwriting, acquisition and operating expense The consolidated net expense ratio for the first quarter of 2006 was 40.3% compared to 35.4% for the same period in 2005. Of the 4.9 point increase, approximately one
point is attributable to increased commissions associated with the higher commission low-value dwelling program plus higher commissions associated with the Program Management segment where commissions fluctuate inversely with the loss ratio. Another
1.1 points of the expense ratio involves the compliance costs associated with the implementation of the Sarbanes-Oxley Act of 2002 (SOX). Incremental public company expenses, including higher audit and legal fees, added another 0.6
points. Additional expense increases occurred from higher costs from technology initiatives. The ongoing cost of SOX compliance should be substantially lower after the Company has completed its initial implementation.

Underwriting income The total net combined ratio for the first quarter of 2006 was 92.9% compared to 87.3% in the same period in 2005. Approximately
1.5 points of the increase from 2005 to 2006 was due to the higher cost of reinsurance in 2006. This, in addition to the higher personal auto losses and increased personal property severities, the costs of being a public company (particularly the
cost of compliance with SOX) combined with other operating expense increases were the primary drivers in the a 5.6 point increase in our combined ratio. Nevertheless, all of our segments produced an underwriting profit in the first quarter of 2006.
We believe the balance in profit among our segments is important to our ability to manage fluctuations in market conditions, product underwriting cycles and weather conditions over the long run.

Net investment income

Consolidated net investment income of
$3.5 million for the first quarter of 2006 was 51.2% higher than for the same period in 2005. The increase primarily resulted from the higher invested asset base and increases in short-term interest rates. The annualized net investment yield on
average invested assets, excluding our investment in Atlas, was 4.0% for the first quarter of 2006 compared to 2.9% for the same period in 2005.

Other income

Other income of $1.7 million for the first quarter of 2006 was 7.2% higher than in the same period in 2005. Other
income from the Program Management segment declined 12.1% during the quarter primarily due to a change in the contractual basis for determining the fronting fee received from our largest MGA program, while other income from the Insurance Services
segment increased 34.5% in part due to increased premium volume for fronting programs related to several large national carriers. Other income also includes installment billing fee income, which was largely unchanged from the prior year, as well as
minor amounts of miscellaneous income or net write-offs.

Interest expense

Interest expense increased 27.2% in the first quarter 2006 over the same period in 2005 due to the acquisition of the $20.0 million senior credit facility in late February 2005. Interest expense in the first quarter
2006 included the expense for the full quarter for the senior debt. Rising interest rates also contributed to the increase in interest expense.

Income from continuing operations before income taxes and income tax expense

Net income from continuing operations before income
taxes was $8.7 million in the first quarter of 2006 compared to $10.4 million for the same period in 2005. The decrease was due primarily to increased reinsurance costs, higher personal auto losses, increased costs associated with being a public
company, including compliance with SOX and other operating expense increases outpacing the increase in premiums and investment income.



17



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##### Table of Contents

We pay tax at a 35% effective rate. Income tax expense does not include any expense resulting from the equity in the
earnings of our unconsolidated foreign insurance company or expense for the excess of the carrying value over the tax basis of our investment in the unconsolidated foreign insurance company as described in the next section.

Equity in earnings of unconsolidated foreign insurance company

The equity in earnings of our unconsolidated foreign insurance company was $1.3 million in the first quarter of 2006 compared to $0.7 million for the same period in 2005. The increase from 2005 to 2006 was driven primarily by Atlas
improved investment results combined with a weaker U.S. dollar. Although Atlas investment performance has resulted in a higher equity share of their income over the prior year, we believe that the Mexican insurance industry is becoming
increasingly competitive and that underwriting margins will be pressured in 2006.

We do not recognize a deferred tax liability for the excess of the
carrying value over the tax basis of our investment in Atlas, since the difference is treated as a permanent difference under GAAP as prescribed by SFAS No. 109, Accounting for Income Taxes, and APB No. 23, Accounting for Income
TaxesSpecial Areas. Hence, a deferred tax liability has not been recognized in the accompanying condensed consolidated financial statements. Should the Company no longer meet the indefinite reversal criterion, a deferred tax expense of
approximately $2.8 million at March 31, 2006 would need to be established.

Minority interest

Minority interest is related to our 80% owned MGA that manages our low-value dwelling program, Republic Home Protectors, Inc. The remaining 20% is owned by the president
of the MGA.

Income from continuing operations

Our consolidated return on average equity for the first quarter of 2006 was an annualized 16.1% compared to 17.5% for the same period in 2005. The return on average equity in 2006 was lower than the prior year in part due to lower net
income and in part due to a lower average stockholders equity in 2005 following the payment of $20.0 million in accrued preferred dividends in February 2005.

Earnings per share

Basic and fully diluted earnings per share were $0.50 for the first quarter of 2006. Reported basic and fully
diluted earnings per share for the first quarter 2005 were $0.78. Reported earnings per share comparisons between the first quarters of 2006 and 2005 are distorted for comparative purposes by the effects of the preferred stock that was outstanding
prior to our August 2005 initial public offering (IPO) and the additional shares issued in the IPO to retire this preferred stock. Since all IPO net proceeds were used to redeem the existing preferred stock, we believe a meaningful
supplemental comparison of the first quarter 2005 earnings per share can be computed using the pro forma 13.7 million basic and diluted weighted average shares that would have been outstanding during the first quarter 2005 if the IPO had
occurred on January 1, 2005. On this pro forma basis, the first quarter 2005 basic and diluted earnings per share would have been $0.54.

A
reconciliation of the reported first quarter 2005 net income per common share of $0.78 (Basic and Diluted) to the pro forma net income per common share of $0.54 (Basic and Diluted) is as follows:



| |  |  | Reported first quarter 2005 net income available to common shareholders of $3.9 million is increased by the accrued preferred stock dividends of $3.6 million to equal consolidated
net income of $7.5 million.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reported first quarter 2005 weighted average common shares outstanding of 5.0 million (Basic and Diluted) are increased by 8.7 million of additional common shares issued
in the IPO for total pro forma weighted average common shares outstanding of 13.7 million.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated net income of $7.5 million is then divided by pro forma weighted average common shares outstanding of 13.7 million to obtain the pro forma first quarter 2005 net
income per share of $0.54 (Basic and Diluted).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe this presentation provides useful supplemental information in evaluating the
operating results of our business; however, these disclosures should not be viewed as a substitute for net earnings per share determined in accordance with GAAP.



18



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##### Table of Contents

The 2006 quarterly net earnings per share after taxes was impacted by approximately $0.05 per share for higher
reinsurance costs and approximately $0.03 per share for higher expenses associated with the implementation of the provisions of SOX and $0.02 per share for the other additional costs of being a public company that were not incurred in the first
quarter of 2005. The higher reinsurance costs should be recoverable when the earned impact of approved premium rate increases begins to flow into earnings later in the year.

We have an Employee Stock Purchase Plan (ESPP) that enables substantially all employees to purchase shares of common stock on a semi-annual basis at the lower of 85% of the fair market value on the first
day of the plan period or on the last day of the plan period. The issuance of shares under the ESPP may have a dilutive impact on our earnings per share.

Stockholders Equity

Stockholders equity as of March 31, 2006 was $167.3 million compared to $164.5 million at
December 31, 2005, or an increase of $2.8 million. The principal elements of this increase were: $6.9 million of income partially offset by an increase in net-of-tax unrealized losses of $2.3 million from the investment portfolio as a result of
rising interest rates; and common stock dividends of $1.7 million.

Comprehensive Income

Total comprehensive income for the first quarter of 2006 was $4.1 million compared to $4.2 million for the same period in 2005. Total comprehensive income in 2006
included net income of $6.9 million, a net after tax unrealized investment loss of $2.3 million and a foreign currency translation loss of $0.5 million related to a change in the value of the Mexican peso relative to the U.S. dollar associated with
our investment in unconsolidated foreign insurance company.

Balances due from reinsurance companies

Amounts due from reinsurers decreased $27.0 million from $217.1 million at December 31, 2005 to $190.1 million at March 31, 2006, primarily due to the
collection of amounts associated with Hurricanes Katrina and Rita.

Liabilities for losses and loss adjustment expenses

Liabilities and loss adjustment expenses decreased $20.7 million from December 31, 2005 to March 31, 2006 primarily due to the settlement of claims liabilities
related to the 2005 hurricanes. On a net basis, after reinsurance, the liability for losses and loss adjustment expenses was $112.8 million at March 31, 2006 compared to $111.7 million at December 31, 2005. The increase of $1.1 million was
primarily attributable to normal growth and actuarial adjustments.

Share-Based Compensation

We adopted the provisions of SFAS No. 123R effective January 1, 2006. Since we have recognized stock compensation expense using a fair-value approach under SFAS
No. 123 following the approval of our share-based compensation plans, there was no material impact to our financial position or results of operations from the adoption of SFAS No. 123R.



19



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##### Table of Contents

Segment Results of Operations

Independent Agents  Personal Lines

The Personal Lines segment accounted for 25.9% and 28.6% of our gross written premiums in
the quarters ended March 31, 2006 and 2005, respectively. This segment also accounted for 49.2% and 56.5% of our net insurance premiums earned in the first quarter of 2006 and 2005, respectively. In 2006, the Personal Lines segment also
accounted for $2.8 million of our $6.9 million of consolidated net income. The table below summarizes our historical results for the Personal Lines segment and illustrates certain operating results and key measures we use in monitoring and
evaluating our operations. The information is intended to summarize and supplement information contained in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and to assist the reader in gaining
a better understanding of our results of operations.



|                                                                            |      |                             |         |      |  |   |         |  
|--------------------------------------------------------------------------- | ---- | --------------------------- | ------- | ---- |  | - | ------- | -
|Results of OperationsIndependent AgentsPersonal
Lines                     |      | Three Months EndedMarch 31, |        
|                                                                            | 2006 |                             |         | 2005 | 
|                                                                            |      | (Dollars in thousands)      |        
|Net insurance premiums earned                                               |      | $                           | 31,096  |      |  | $ | 32,301  |  
|Net investment income                                                       |      |                             | 1,212   |      |  |   | 962     |  
|Net realized losses                                                         |      |                             | (20     | )    |  |   |        |  
|Other income                                                                |      |                             | 409     |      |  |   | 414     |  
|                                                                            |      |                             |         |      |  |   |         |  
|Total revenues                                                              |      |                             | 32,697  |      |  |   | 33,677  |  
|                                                                            |      |                             |         |      |  |   |         |  
|Net losses and loss adjustment expenses incurred                            |      |                             | 16,498  |      |  |   | 13,173  |  
|Underwriting, acquisition and operating expenses:                           |      |                             |         |      |  |   |         |  
|Commissions                                                                 |      |                             | 5,678   |      |  |   | 5,563   |  
|Other underwriting, acquisition and operating expenses                      |      |                             | 6,184   |      |  |   | 5,024   |  
|                                                                            |      |                             |         |      |  |   |         |  
|Total underwriting, acquisition and operating expenses                      |      |                             | 11,862  |      |  |   | 10,587  |  
|                                                                            |      |                             |         |      |  |   |         |  
|Total expense                                                               |      |                             | 28,360  |      |  |   | 23,760  |  
|                                                                            |      |                             |         |      |  |   |         |  
|Income from continuing operations before income taxes and minority interest |      |                             | 4,337   |      |  |   | 9,917   |  
|Minority interest                                                           |      |                             | (43     | )    |  |   |        |  
|Income tax expense                                                          |      |                             | 1,511   |      |  |   | 3,471   |  
|                                                                            |      |                             |         |      |  |   |         |  
|Net income                                                                  |      | $                           | 2,783   |      |  | $ | 6,446   |  
|                                                                            |      |                             |         |      |  |   |         |  
|                                                                            |      |                            
|Key Measures:                                                               |      |                             |         |      |  |   |         |  
|Gross written premiums                                                      |      | $                           | 32,655  |      |  | $ | 31,711  |  
|Net written premiums                                                        |      |                             | 29,351  |      |  |   | 30,003  |  
|GAAP Ratios:                                                                |      |                             |         |      |  |   |         |  
|Net ex-catastrophe loss ratio                                               |      |                             | 50.4    | %    |  |   | 38.5    | %
|Net catastrophe loss ratio                                                  |      |                             | 2.7     | %    |  |   | 2.3     | %
|Net expense ratio                                                           |      |                             | 38.1    | %    |  |   | 32.8    | %
|                                                                            |      |                             |         |      |  |   |         |  
|Net combined ratio                                                          |      |                             | 91.2    | %    |  |   | 73.6    | %
|                                                                            |      |                             |         |      |  |   |         |  
|Total assets                                                                |      | $                           | 229,600 |      |  | $ | 213,942 |  
|Net underwriting leverage                                                   |      |                             | 2.3     | x    |  |   | 2.3     | x

Underwriting income

Premiums Gross written premiums increased 3.0% to $32.7 million for the first quarter of 2006 compared with $31.7 million in the same period in 2005. The growth included a 20.9% increase in our
personal property lines primarily fueled by $3.0 million of new premium for our high-margin low-value dwelling initiative compared to $0.1 million in 2005. This program was not fully operational until the second quarter in 2005. Offsetting this
growth was a 15.9% decrease in the highly competitive standard and nonstandard personal auto markets.



20



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##### Table of Contents

The personal property market is increasingly competitive in parts of Texas and Louisiana that are less exposed to
catastrophe losses. At the same time, there are other market disruptions in our geographic target area that we believe may provide opportunities to write additional premiums. We are introducing our new HO-3 policy form in Texas in the second
quarter. This new product, which provides broader coverage, underwriting credits and pricing alternatives, combined with additional commission incentives and increased companion auto policy credits, should generate additional premium for both our
standard and low-value dwelling programs.

Net written and net insurance premiums earned decreased 2.2% and 3.7% to $29.4 million and $31.1 million,
respectively, for the first quarter of 2006 compared with $30.0 million and $32.3 million in the same period in 2005, respectively. The net premium growth in the personal property lines was offset by the higher reinsurance costs (the bulk of the
higher catastrophe reinsurance costs are allocated to the Personal Lines Segment) and the reductions in the personal auto lines. We recently received approval for a 7.0% average increase for Texas personal property and a 17.7% average increase for
Louisiana personal property to offset the higher cost of reinsurance. These average increases vary by territory based upon actuarial justification. The impact on net insurance premiums earned from the approved increase in Texas and Louisiana should
become significant starting with the third quarter 2006.

Net losses and loss adjustment expenses incurred The total net loss ratio
for the Personal Lines segment increased to 53.1% from 40.8% in the first quarter of 2005 for the same period in 2006. The primary drivers of the higher loss ratio are higher personal auto losses and the effects of increased average loss severity in
Texas and Louisiana personal property exposures which, while not directly resulting from the major hurricane activity in 2005, may have been caused by anomalies associated with the catastrophic events. The higher demand for materials and contractors
from hurricane claims has impacted the cost of subsequent non-catastrophe reflected losses. Our low-value dwelling program continues to produce excellent results with a net loss ratio of 32.3%. Personal auto also reported increases in its net loss
ratio due to declining premium volume and continually narrowing margins that are consistent with much of the personal auto market. Catastrophe losses for this segment were consistent with historical patterns and the prior year. Further, the personal
property results in 2005 were positively impacted by a $1.4 million favorable loss development from estimated mold losses in prior years which resulted in a 4.3 point reduction in the 2005 loss ratio.

Underwriting, acquisition and operating expense The expense ratio for this segment was 38.1% in the first quarter of 2006 compared to 32.8% for the
same period in 2005, with the increase stemming primarily from the costs of implementing SOX and additional costs associated with being a public company.

Underwriting income  The net combined ratio for the first quarter 2006 was 91.2% compared to 73.6% for the same period in 2005. The increase of 17.6 points can be attributable to several factors,
including approximately 2.3 points for higher reinsurance costs not yet recovered through rate increases; increases in the loss ratios of both personal property and personal auto; and increases in the expense ratio, which were driven by the
additional costs of being a public company. For the first quarter of 2006, the low-value dwelling program produced exceptional underwriting results. The standard personal property line produced an underwriting result slightly below plan and the
personal auto line produced an underwriting loss, which was not planned, although not completely unexpected in the current soft auto market. The 2006 net combined ratio was only 2.9 points below plan; however, the comparison to the prior year is
more pronounced due to the favorable loss development of mold loss estimates in 2005 combined with exceptional loss experience for the period.

Income from continuing operations before income taxes

Income from continuing operations before income taxes in this segment was $4.3
million for the first quarter of 2006, or 56.3% lower than the $9.9 million for the same period in 2005. The decline can be attributed to less favorable underwriting results and increased expenses and the favorable mold loss development recorded in
2005.



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##### Table of Contents

Independent Agents  Commercial Lines

The Commercial Lines segment represents 17.2% and 17.9% of our gross written premium for the first quarters in 2006 and 2005, respectively. This segment also represents 27.4% and 28.7% of our net insurance premiums
earned for the first quarters in 2006 and 2005, respectively. In 2006, this segment accounted for $0.9 million of our $6.9 million of consolidated net income for the quarter. The table below summarizes our historical results of operations for the
Commercial Lines segment and illustrates certain operating results and key measures we use in monitoring and evaluating our operations. The information is intended to summarize and supplement information contained in our condensed consolidated
financial statements included elsewhere in this Form 10-Q and to assist the reader in gaining a better understanding of our results of operations.



|                                                             |      |                             |         |      |  |   |         |  
|------------------------------------------------------------ | ---- | --------------------------- | ------- | ---- |  | - | ------- | -
|Results of OperationsIndependent AgentsCommercial Lines    |      | Three Months EndedMarch 31, |        
|                                                             | 2006 |                             |         | 2005 | 
|                                                             |      | (Dollars in thousands)      |        
|Net insurance premiums earned                                |      | $                           | 17,361  |      |  | $ | 16,397  |  
|Net investment income                                        |      |                             | 1,195   |      |  |   | 688     |  
|Net realized losses                                          |      |                             | (20     | )    |  |   |        |  
|Other income                                                 |      |                             | 47      |      |  |   | 46      |  
|                                                             |      |                             |         |      |  |   |         |  
|Total revenues                                               |      |                             | 18,583  |      |  |   | 17,131  |  
|                                                             |      |                             |         |      |  |   |         |  
|Net losses and loss adjustment expenses incurred             |      |                             | 9,268   |      |  |   | 10,859  |  
|Underwriting, acquisition and operating expenses:            |      |                             |         |      |  |   |         |  
|Commissions                                                  |      |                             | 3,384   |      |  |   | 2,903   |  
|Other underwriting, acquisition and operating expenses       |      |                             | 4,496   |      |  |   | 3,505   |  
|                                                             |      |                             |         |      |  |   |         |  
|Total underwriting, acquisition and operating expenses       |      |                             | 7,880   |      |  |   | 6,408   |  
|                                                             |      |                             |         |      |  |   |         |  
|Total expense                                                |      |                             | 17,148  |      |  |   | 17,267  |  
|                                                             |      |                             |         |      |  |   |         |  
|Income (loss) from continuing operations before income taxes |      |                             | 1,435   |      |  |   | (136    | )
|Income tax expense (benefit)                                 |      |                             | 500     |      |  |   | (48     | )
|                                                             |      |                             |         |      |  |   |         |  
|Net income (loss)                                            |      | $                           | 935     |      |  | $ | (88     | )
|                                                             |      |                             |         |      |  |   |         |  
|                                                             |      |                            
|Key Measures:                                                |      |                             |         |      |  |   |         |  
|Gross written premiums                                       |      |                             | 21,702  |      |  |   | 19,850  |  
|Net written premiums                                         |      |                             | 18,429  |      |  |   | 17,421  |  
|GAAP Ratios:                                                 |      |                             |         |      |  |   |         |  
|Net ex-catastrophe loss ratio                                |      |                             | 50.9    | %    |  |   | 64.9    | %
|Net catastrophe loss ratio                                   |      |                             | 2.5     | %    |  |   | 1.3     | %
|Net expense ratio                                            |      |                             | 45.4    | %    |  |   | 39.1    | %
|                                                             |      |                             |         |      |  |   |         |  
|Net combined ratio                                           |      |                             | 98.8    | %    |  |   | 105.3   | %
|                                                             |      |                             |         |      |  |   |         |  
|Total assets                                                 |      |                             | 163,267 |      |  |   | 159,703 |  
|Net underwriting leverage                                    |      |                             | 2.3     | x    |  |   | 2.2     | x

Underwriting income

Premiums Commercial Lines gross written premiums increased by 9.3% to $21.7 million in the first quarter of 2006 from $19.9 million for the same period in 2005. The increase occurred as the result
of well-diversified growth in target markets primarily in Texas and Louisiana, including our farm and ranch program. We continue the purposeful nonrenewal of policies in certain classes and lines of business that have been deemphasized as the result
of our re-underwriting initiatives in recent years. We achieved gross written premium growth in excess of 8.0% in all lines except for workers compensation, including a 22.1% increase in commercial liability.



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The commercial lines market is generally softening and becoming increasingly competitive in most market areas, except for
commercial risks located in catastrophe-prone areas. We recently released our new farm and ranch internet-based application and quoting system (FarmLink), and we are on track to roll out a new package policy (RePak) during the second quarter
primarily for commercial risks in small-medium markets. This product also features an internet-based rating and binding capability. We believe these new products will enable us to continue growing our commercial book of business.

Net written premiums and net insurance premiums earned were $18.4 million and $17.4 million, respectively, in the first quarter of 2006 compared to $17.4 million and
$16.4 million for the same period in 2005. Net written and earned premiums increased 5.8% and 5.9%, respectively, in 2006. The cost of reinsurance increased for the Commercial Lines segment, although the cost was much smaller than the cost allocated
to the Personal Lines segment.

Net losses and loss adjustment expenses incurred The total net loss ratio for Commercial Lines
improved to 53.4% in the first quarter of 2006 compared to 66.2% for the same period in 2005. The 12.8 point improvement was driven by a significant improvement in the 2006 commercial liability line results and a $2.7 million adjustment in 2005 for
unfavorable loss and loss adjustment expense development on older commercial liability claims. Our commercial property line experienced a significant increase in total net loss ratio in the first quarter of 2006, primarily as the result of two large
fire losses. The net loss ratio for workers compensation also increased due to three claims in excess of $100,000. Catastrophe losses for the first quarter were minimal and within our normal experience for the first quarter.

Underwriting, acquisition and operating expense The expense ratio for this segment was 45.4% in the first quarter of 2006 compared to 39.1% in for
the same period in 2005, with the increase driven by higher technology costs for systems supporting the commercial lines products for which the productivity benefits have not yet been realized, combined with the cost of implementing SOX and the
additional costs associated with being a public company.

Underwriting income  The net combined ratio for the Commercial
Lines segment was 98.8% for the first quarter of 2006 compared to 105.3% for the same period in 2005. The 6.5 point improvement is attributable to the significant improvement in the total net loss ratio partially offset by increased operating and
underwriting expenses.

Income from continuing operations before income taxes

Income from continuing operations before income taxes in this segment was $1.4 million in the first quarter of 2006 compared to a loss of $0.1 million for the same period in 2005. The improvement in 2006 is due in
part to considerably improved loss experience combined with increased investment income.



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##### Table of Contents

Program Management

The Program Management segment accounted for 26.5% and 25.5% of our gross written premiums in the first quarter of 2006 and 2005, respectively. This segment also accounted for 23.4% and 14.8% of our net insurance premiums earned in the
first quarter of 2006 and 2005, respectively. The Program Management segment also produced $1.9 million of our $6.9 million of consolidated net income.

The table below summarizes our historical results of operations for the Program Management segment and illustrates certain operating results and key measures we use in monitoring and evaluating our operations. The information is intended to
summarize and supplement information contained in our condensed consolidated financial statements included elsewhere in this Form 10-Q and to assist the reader in gaining a better understanding of our results of operations.



|                                                       |      |                            |         |      |  |   |         |  
|------------------------------------------------------ | ---- | -------------------------- | ------- | ---- |  | - | ------- | -
|Results of OperationsProgram Management               |      | Three Months EndedMarch 31 |        
|                                                       | 2006 |                            |         | 2005 | 
|                                                       |      | (Dollars in thousands)     |        
|Net insurance premiums earned                          |      | $                          | 14,780  |      |  | $ | 8,476   |  
|Net investment income                                  |      |                            | 986     |      |  |   | 524     |  
|Net realized losses                                    |      |                            | (16     | )    |  |   |        |  
|Other income                                           |      |                            | 500     |      |  |   | 569     |  
|                                                       |      |                            |         |      |  |   |         |  
|Total revenues                                         |      |                            | 16,250  |      |  |   | 9,569   |  
|                                                       |      |                            |         |      |  |   |         |  
|Net losses and loss adjustment expenses incurred       |      |                            | 7,487   |      |  |   | 5,649   |  
|Underwriting, acquisition and operating expenses:      |      |                            |         |      |  |   |         |  
|Commissions                                            |      |                            | 2,994   |      |  |   | 1,860   |  
|Other underwriting, acquisition and operating expenses |      |                            | 2,913   |      |  |   | 1,418   |  
|                                                       |      |                            |         |      |  |   |         |  
|Total underwriting, acquisition and operating expenses |      |                            | 5,907   |      |  |   | 3,278   |  
|                                                       |      |                            |         |      |  |   |         |  
|Total expense                                          |      |                            | 13,394  |      |  |   | 8,927   |  
|                                                       |      |                            |         |      |  |   |         |  
|Income from continuing operations before income taxes  |      |                            | 2,856   |      |  |   | 642     |  
|Income tax expense                                     |      |                            | 995     |      |  |   | 225     |  
|                                                       |      |                            |         |      |  |   |         |  
|Net income                                             |      | $                          | 1,861   |      |  | $ | 417     |  
|                                                       |      |                            |         |      |  |   |         |  
|                                                       |      |                           
|Key Measures:                                          |      |                            |         |      |  |   |         |  
|Gross written premiums                                 |      |                            | 33,448  |      |  |   | 28,172  |  
|Net written premiums                                   |      |                            | 15,948  |      |  |   | 11,379  |  
|GAAP Ratios:                                           |      |                            |         |      |  |   |         |  
|Net loss ratio                                         |      |                            | 50.7    | %    |  |   | 66.6    | %
|Net expense ratio                                      |      |                            | 40.0    | %    |  |   | 38.7    | %
|                                                       |      |                            |         |      |  |   |         |  
|Net combined ratio                                     |      |                            | 90.7    | %    |  |   | 105.3   | %
|                                                       |      |                            |         |      |  |   |         |  
|Total assets                                           |      |                            | 227,897 |      |  |   | 195,716 |  
|Net underwriting leverage                              |      |                            | 2.2     | x    |  |   | 2.2     | x

Underwriting income

Premiums Gross written premiums for the first quarter of 2006 increased 18.7% to $33.4 million compared to $28.2 million for the same period in 2005 primarily due to the development of our new
program for voluntary non-subscribers to the Texas Workers Compensation system and growth in the commercial auto/small casualty premiums produced by Texas General Agency (TGA), our long-standing and largest MGA relationship. The
nonsubscriber program was implemented in the second quarter of 2005 and generated $2.8 million in the first quarter of 2006, and the TGA program increased to $29.1 million from $26.0 million for the same period in 2005. Net written premiums in the
first quarter of 2006 increased 40.2%



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##### Table of Contents

to $15.9 million from $11.4 million in 2005 and net insurance premiums earned increased 74.4% to $14.8 million in the first quarter of 2006 from $8.5 million
in the first quarter of 2005. The increase in net premiums is primarily because of our increased retention of the business produced by TGA (50% in 2006 compared to 40% in 2005 and 20% in 2004) and growth in the non-subscriber program.

As noted in our Annual Report on Form 10-K, we changed the classification of certain policy fees collected by the unaffiliated MGA program managers. Such fees were
previously included in our written and earned premiums and are now offset against the related policy fee commission returned to the producers. Premium and commission amounts shown herein do not include producer policy fees. This presentation is
consistent with our Annual Report, which reclassified all amounts reported in prior years to conform to the current treatment.

Net losses and loss
adjustment expenses incurred The net loss ratio for this segment was 50.7% for the first quarter of 2006 compared to 66.6% for the same period in 2005. The 15.9 point improvement is primarily attributable to improvement in the
business generated by TGA and the profitability of the nonsubscriber program. The TGA business produced significantly higher than normal auto losses during the first quarter of 2005. The nonsubscriber program, while still new, has produced favorable
loss experience in 2006.

Underwriting, acquisition and operating expense The expense ratio for this segment in the first quarter of
2006 was 40.0%, which is comparable to the 38.7% for the same period in 2005. Commissions that fluctuate with the incurred loss expense of programs was a key driver of the increase in expenses.

Underwriting income  The net combined ratio for the Program Management segment was 90.7% for the first quarter of 2006 compared to 105.3% for the
same period in 2005. The 14.6 point improvement is attributable to the significant improvement in the total net loss ratio, primarily in the TGA program combined with growth in the nonsubscriber program with corresponding favorable loss experience.

Other income

Other income represents fronting
fees retained for unaffiliated MGA programs and is presented net of expenses associated with the production of these fees. Fronting fees for the first quarter of 2006 were $0.7 million, less fronting fee expense of $0.2 million. Fronting fees for
the first quarter of 2005 were $0.8 million, less fronting fee expense of $0.2 million. Fronting fees declined slightly in the first quarter of 2006 compared to the same period in 2005 due to a change in the fronting fee arrangement with TGA.

Income from continuing operations before income taxes

Income from continuing operations before income taxes in this segment was $2.9 million in the first quarter of 2006 compared to $0.6 million for the same period in 2005. The improvement in 2006 is due in part to considerably improved loss
experience combined with increased investment income.



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##### Table of Contents

Insurance Services and Corporate

The Insurance Services segment accounted for 30.4% and 28.0% of our gross written premiums in the first quarter of 2006 and 2005, respectively. Since we do not retain any underwriting risk in this segment, there is no
net written or earned premium. This segment also produced $1.3 million of our $6.9 million of consolidated net income.

The table below summarizes our
historical results of operations for the Insurance Services segment and illustrates certain operating results and key measures we use in monitoring and evaluating our operations. The information is intended to summarize and supplement information
contained in our condensed consolidated financial statements included elsewhere in this Form 10-Q and to assist the reader in gaining a better understanding of our results of operations.



|                                                                                                                              |      |                             |         |      |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------- | ---- | --------------------------- | ------- | ---- |  | - | ------- | -
|Results of OperationsInsurance Services and Corporate                                                                        |      | Three Months EndedMarch 31, |        
|                                                                                                                              | 2006 |                             |         | 2005 | 
|                                                                                                                              |      | (Dollars in thousands)      |        
|Net investment income                                                                                                         |      | $                           | 119     |      |  | $ | 148     |  
|Net realized (losses) gains                                                                                                   |      |                             | (1      | )    |  |   | 1       |  
|Other income                                                                                                                  |      |                             | 725     |      |  |   | 539     |  
|                                                                                                                              |      |                             |         |      |  |   |         |  
|Total revenues                                                                                                                |      |                             | 843     |      |  |   | 688     |  
|                                                                                                                              |      |                             |         |      |  |   |         |  
|Underwriting, acquisition and operating expenses:                                                                             |      |                             |         |      |  |   |         |  
|Other underwriting, acquisition and operating expenses                                                                        |      |                             | (156    | )    |  |   | (5      | )
|                                                                                                                              |      |                             |         |      |  |   |         |  
|Total underwriting, acquisition and operating expenses                                                                        |      |                             | (156    | )    |  |   | (5      | )
|Interest expense                                                                                                              |      |                             | 935     |      |  |   | 735     |  
|                                                                                                                              |      |                             |         |      |  |   |         |  
|Total expense                                                                                                                 |      |                             | 779     |      |  |   | 730     |  
|                                                                                                                              |      |                             |         |      |  |   |         |  
|Income (loss) from continuing operations before income taxes and equity in earnings of consolidated foreign insurance company |      |                             | 64      |      |  |   | (42     | )
|Income tax expense (benefit)                                                                                                  |      |                             | 23      |      |  |   | (15     | )
|Equity in earnings of unconsolidated foreign insurance company                                                                |      |                             | 1,298   |      |  |   | 703     |  
|                                                                                                                              |      |                             |         |      |  |   |         |  
|Net income                                                                                                                    |      | $                           | 1,339   |      |  | $ | 676     |  
|                                                                                                                              |      |                             |         |      |  |   |         |  
|Key Measures:                                                                                                                 |      |                             |         |      |  |   |         |  
|Gross written premiums                                                                                                        |      |                             | 38,494  |      |  |   | 30,952  |  
|Total assets                                                                                                                  |      |                             | 180,594 |      |  |   | 170,783 |  

Gross written premiums

Gross written premiums for the Insurance Services segment increased 24.4% to $38.5 million in the first quarter of 2006 compared to $31.0 million in the same period in 2005. These premiums come from fronting programs
generally for national carriers. The largest of these programs generated an increase in gross written premium of 47.3% over the same quarter in 2005. The second largest program increased 6.7% over the same quarter in 2005. The third largest program
in the first quarter of 2005 declined by 37.3% in the same period in 2006; however, another similar sized program grew 39.8% in the same quarter to become the third largest in the first quarter of 2006.

As noted in our Annual Report on Form 10-K, we changed the classification of certain policy fees collected by the unaffiliated MGA program managers. Such fees were
previously included in our written premiums and represented earned premiums in this segment. These fees are now offset against the related policy fee commission returned to the producers which we believe provides a more appropriate presentation for
this segment. This presentation is consistent with our Annual Report, which reclassified all amounts reported in prior years to conform to the current treatment.



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Other income

Other income primarily represents fronting fees retained for fronting programs from other national or regional insurance carriers. These are net of our expenses associated with producing this business. Fronting fees for the first quarter
2006 were $0.8 million, less expenses of $0.3 million for a net total of $0.5 million. Fronting fees for the first quarter 2005 were $0.6 million, less expenses of $0.2 million for a net total of $0.4 million. The increase in 2006 parallels the
increase in gross written premiums.

Other income also includes net miscellaneous other income, including sales of certain unused assets.

Underwriting, acquisition and operating expenses

There are no
underwriting or acquisition expenses associated with this segment since there is no underwriting retention. Total expenses for this segment generally show as credits due to the nature of intercompany leasing arrangements of certain fixed assets. The
increase in the credit for the first quarter of 2006 compared to the same period in 2005 is primarily due to the increase in fixed assets related to our relocation to a new home office late in the first quarter of 2005. The amounts reflect a full
quarter of activity in 2006. All intercompany transactions are eliminated in consolidation.

Interest expense

Interest expense increased 27.2% in the first quarter of 2006 over the same period in 2005 due to the acquisition of the $20.0 million senior credit facility in February
2005. Rising interest rates also contributed to the increase in interest expense as some of our long-term debt obligations are based on floating interest rates.

Income (loss) from continuing operations before income taxes and equity in earnings of unconsolidated foreign insurance company

Net
income from continuing operations before income taxes was $64,000 in the first quarter of 2006 compared to a net loss of $42,000 for the same period in 2005. The increase was due to growth in fronting fee income and leasing income from the other
segments, which outpaced the increase in interest expense in 2006.

Equity in earnings of unconsolidated foreign insurance company

Equity in earnings of our unconsolidated foreign insurance company was $1.3 million in the first quarter of 2006 compared to $0.7 million for the
same period in 2005. The increase from 2005 to 2006 was driven primarily by Atlas improved investment results combined with a weaker U.S. dollar. In accordance with SFAS No. 109 and APB No. 23 we did not recognize a deferred tax
liability for the excess of the carrying value over the tax basis of our investment in Atlas, since the difference is treated as a permanent difference under GAAP. Accordingly, $2.8 million of cumulative deferred tax expense and deferred tax
liability on the equity earnings of Atlas have not been recognized in the condensed consolidated financial statements at March 31, 2006.

Liquidity
and Capital Resources

Cash Flows

The
Company is a holding company with no business operations of its own. Consequently, our ability to pay dividends to stockholders, meet debt service obligations, pay taxes and administrative expenses is largely dependent on dividends or other
distributions from our subsidiaries and affiliates. Generally, there are no restrictions on the payment of dividends by our non-insurance company subsidiaries and affiliates other than state corporate laws regarding solvency and those imposed
pursuant to the terms of our senior debt credit facility. As a result, our non-insurance company subsidiaries and affiliates generate revenues, profits and net cash flows that are generally unrestricted as to their availability for the payment of
dividends, and we expect to use those revenues to service our corporate obligations, such as debt service payments and to pay stockholder dividends. We had $3.1 million and $5.4 million of cash and short-term invested assets at our holding company
and our non-insurance company subsidiaries as of March 31, 2006 and December 31, 2005, respectively.



27



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##### Table of Contents

Our insurance company subsidiaries are restricted by statute as to the amount of dividends that they may pay without
prior approval of their domiciliary state insurance departments. Generally, Texas-domiciled insurers may pay dividends without advance regulatory approval only from unassigned surplus, and then only to the extent that all dividends paid in the
twelve months ending on the date in question do not exceed the greater of (1) 10 percent of their policyholders surplus as of December 31 of the preceding year or (2) 100 percent of their net income for the calendar year
preceding the year in which the value is being determined and subject to available earned surplus as defined by the domiciliary state insurance department. In addition, insurance companies are required by law to maintain a minimum level of surplus
on a statutory basis. Statutory surplus is calculated by subtracting total liabilities from total admitted assets computed under accounting principles prescribed or permitted by the insurers state of domicile. As of January 1, 2006, the
maximum dividend that Republic Underwriters Insurance Company could pay without prior approval was $16.9 million. Any dividend in excess of this amount would be considered an extraordinary dividend, which would require advance approval
by the Texas Insurance Commissioner.

Sources of funds consist primarily of net premiums received, commission fronting fee income, collected reinsurance
recoverables on hurricane losses, net investment income and proceeds from the sales and maturity of investments. Funds are used primarily to pay claims, operating expenses, purchase investments and pay dividends. The Company used net cash in
operations of $5.4 million for the three months ended March 31, 2006. The primary driver of the use of funds in operations during the first quarter of 2006 was the timing of the payments of reinsurance payables. The Companys management
believes that we have adequate financial resources to satisfy all claims and meet all other cash needs for the next 12 months.

Investment Portfolio

Our primary investment objectives are to preserve capital and manage our investment portfolio in a manner to achieve a total rate of return in
excess of a specified benchmark portfolio. Our investment portfolio has an average duration of 3.4 years that provides a high degree of liquidity since it is comprised principally of readily marketable fixed income and short-term securities. We
classify our investments in fixed investments as available for sale and report these securities at their estimated fair values based on quoted market prices. Changes in unrealized gains and losses on these securities are reported as a separate
component of comprehensive net income, and accumulated unrealized gains and losses are reported as a component of accumulated other comprehensive net income (loss) in stockholders equity, net of deferred taxes. The $2.3 million after tax
increase in unrealized losses in the first quarter 2006 resulted from increases in market interest rates. None of the investments in our portfolio have other-than-temporary unrealized losses as of March 31, 2006. Realized gains and losses are
credited or charged to income in the period in which they are realized.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

There have been no material changes in the Companys market risk during the three months ended March 31, 2006. Market risk relates to changes in the value of financial instruments that arise from adverse movements in factors such
as interest rates and equity prices. We are mainly exposed to changes in interest rates that affect the fair value of our investments in fixed maturity securities. Based on our average portfolio duration of 3.4 years, we estimate that a 50-basis
point increase in interest rates would result in an unrealized investment of loss, net of tax, of approximately $3.8 million.



|Item 4. | Controls and Procedures
|------- | -----------------------

(a) Evaluation of disclosure
controls and procedures.

Under the supervision and with the participation of management, including our Chief Executive Officer
(CEO) and our Chief Financial Officer (CFO), we have carried out an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
Exchange Act)). The evaluation included certain internal control areas in which we have made and are continuing to make changes to improve and enhance controls in preparation for managements assessment of internal controls over
financial reporting required for the annual period ending December 31, 2006. Based on that evaluation, our CEO and our CFO concluded that, subject to the limitations noted in this



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Item 4, our disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance 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 that material
information regarding the Company and its consolidated subsidiaries is made known to our CEO and CFO, particularly during the period when our periodic reports are being prepared.

(b) Changes in internal control over financial reporting.

There were no changes in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the period covered in this report that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

We continue to prepare for our first management report on internal control over financial reporting, as required by Section 404
of SOX for the annual period ending December 31, 2006, as well as continue to make improvements in areas such as information technology change control processes and access controls. These initiatives may result in changes to our internal
control over financial reporting.

(c) Inherent limitations on effectiveness of controls

Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or
detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute assurance that the control systems objectives will be met. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations of all control systems, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and
that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls
is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of control
effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.



29



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

Hurricane Katrina Litigation

One of the Companys subsidiaries is currently defending a statewide putative class action lawsuit pending in the District Court of the
Parish of Orleans, Louisiana filed in the aftermath of Hurricane Katrina on April 12, 2006. The plaintiffs generally allege that Republic Fire and Casualty Insurance Company and other unaffiliated insurer defendants breached their policies by
failing to pay the face value of policies to insureds who sustained a total loss of their homes and improvements in part as a result of a non-covered loss from Hurricane Katrina. Plaintiffs seek to recover face value of the policies regardless of
the anti-concurrence provisions of the Companys policies or the fact the Company timely paid covered losses in accordance with the policies provisions. This lawsuit seeks declaratory relief and unspecified monetary damages, statutory
penalties and attorneys fees. This matter is in the early stages of development, and the Company is defending it vigorously. No class has been certified in this matter. The Company cannot at this time predict the outcome of this matter, is
unable to estimate a range of possible loss, if any, and cannot predict whether or not the outcome will have a material adverse effect on the Companys business, financial position or results of operations.

Other Litigation

The Company and its subsidiaries are
parties to various other lawsuits incidental to and arising in the ordinary course of their businesses. The Company believes that there are meritorious defenses to all of these lawsuits and is defending them vigorously. The Company believes that
resolution of its pending litigation, other than the Hurricane Katrina Litigation for which it is too early to predict, will not, individually or in the aggregate, have a material adverse effect on the Companys financial position. However,
given the unpredictability of litigation, there can be no assurance that any litigation will not have a material adverse effect on the Companys financial results for any given period.



|Item 1A. | Risk Factors
|-------- | ------------

You should carefully consider the risks
described below, together with the other information contained in our Annual Report on Form 10-K for the period ending December 31, 2005. Additional risks not presently known to us or that we currently deem immaterial may also impair our
business, financial condition, or results of operations. Any of the risks described below could individually or in combination result in a significant or material adverse effect on our financial condition or results of operations, and a
corresponding decline in the market price of our common stock. These risks listed below may also include forward-looking statements and our actual results may differ substantially from those discussed in those forward-looking statements. Other
unforeseen risks may also negatively influence our results of operations or financial condition. We believe that these factors include but are not limited to the following:



| |  |  | The occurrence of severe catastrophic events may have a material adverse effect on us, particularly because we conduct business in a concentrated geographical area.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are exposed to claims related to severe weather, which may result in an increase in claims frequency and severity.
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | If we cannot price our business accurately, our profitability could be materially and adversely affected.
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | If our actual losses and loss adjustment expenses exceed our loss and loss adjustment expense estimates, our financial condition and results of operations could be materially and
adversely affected.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If we cannot obtain adequate reinsurance protection for the risks we underwrite, we may be exposed to greater losses from these risks or we may reduce the amount of business we
underwrite, which may adversely affect our financial condition and results of operations.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If our reinsurers do not pay losses in a timely fashion, or at all, we may incur substantial losses that could materially and adversely affect our financial condition and results of
operations.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | We rely on independent insurance agents to distribute our products. If our agents fail or choose not to market our insurance products successfully, our growth may be limited and our
financial condition and results of operations may be adversely affected.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We rely on managing general agents (MGAs) to underwrite some of our products and administer claims. If one of our MGAs binds us to policies that expose us to unexpected
losses or fails to appropriately administer claims, including claims related to runoff business in programs we have terminated, our financial condition and results of operations could be materially and adversely affected.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If we are unable to maintain our business relationship with our largest producing MGA, our financial condition and results of operations could be adversely affected.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our success depends in substantial part upon our personnel who have knowledge and experience in our target markets and lines of business.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decline in our A- (Excellent) financial strength rating by A.M. Best could cause our sales and earnings to decrease.
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | The failure of any of the loss limitation methods we employ could have a material adverse effect on our financial condition and results of operations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The effects of emerging claim and coverage issues on our business are uncertain. We could experience a material adverse effect on our financial condition and results of operations
if legal or regulatory mandates override the industry standard exclusion clauses in our policies, or changes in other legal theories of liability under our insurance policies or the failure of any loss limitation we apply.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are currently named in a class-action lawsuit associated with Hurricane Katrina. An unfavorable outcome in this lawsuit, or any other similar action that might arise related to
Hurricane Katrina or any other catastrophe event or legal matter, could have a material adverse effect on our financial condition and results of operations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Because our main source of premiums is in Texas, unfavorable changes in the economic or regulatory environment in that state may have a material adverse effect on our financial
condition and results of operations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If we are unsuccessful in competing against larger or more well-established rivals, our financial condition and results of operations could be adversely affected.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our investment performance may suffer as a result of adverse capital market developments or other factors, which may affect our financial results and ability to conduct business.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our investment in Seguros Atlas, S.A., a Mexican insurance company, represents a significant concentration of investment assets and also subjects us to geopolitical risks and
exchange rate fluctuations that could impact the value of our investment and our profitability.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our investment results may be adversely affected by interest rate changes.
| | - |  | --------------------------------------------------------------------------



| |  |  | We may require additional capital in the future, which may not be available or only available on unfavorable terms.
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | The regulatory system under which we operate, and potential changes to that system, could have a material adverse effect on our business.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If the states in which we write insurance drastically increase the assessments we are required to pay, our financial condition and results of operations will suffer.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We may be subject to high retaliatory taxes in several states as a result of our multistate operations, which could have a material adverse impact on our financial condition and
results of operations.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We conduct most of our fronting business through our affiliated county mutual insurance company. If Texas changes its regulation of county mutual insurance companies, our financial
condition and results of operations may suffer.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Our ability to meet ongoing cash requirements and pay dividends may be limited by our holding company structure and regulatory constraints.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Current legal and regulatory activities relating to the insurance industry, including investigations into contingent commission arrangements, could affect our business, financial
condition and results of operations.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are subject to periodic financial and market conduct examinations by state insurance departments. If these examinations identify significant findings or recommend changes to our
operations, our financial condition and results of operations could be affected.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We rely on our information technology and telecommunications systems, and the failure or disruption of these systems could disrupt our operations and adversely affect our results of
operations.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Failures in our electronic underwriting system could adversely affect our financial condition and results of operations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Failure to successfully enhance our systems or implement new systems to support existing or new products could adversely affect our financial condition and results of operations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acquisitions could result in operating difficulties, dilution and other harmful consequences.
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | Applicable insurance laws may make it difficult to effect a change of control of our company.
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | Anti-takeover provisions in our certificate of incorporation and bylaws and under Delaware law could impede an attempt to replace or remove our directors or otherwise effect a
change of control of our company, which could diminish the value of our common stock.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A few large stockholders may be able to influence stockholder decisions, which may conflict with other stockholder interests.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | We are subject to the risks of terrorist activities.
| | - |  | ----------------------------------------------------



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

None.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None.



|Item 5. | Other Information
|------- | -----------------

None.



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##### Table of Contents

|Item 6. | Exhibits
|------- | --------



|               |  |                                                                                                                                                                                                                                                         |  |          
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------
|Exhibit Number |  | Description                                                                                                                                                                                                                                             |  | Reference
|3.1            |  | Amended and Restated Certificate of Incorporation of Republic Companies Group, Inc.                                                                                                                                                                     |  | (c)      
|               |  |                                                                                                                                                                                                                                                        
|3.2            |  | Amended and Restated Bylaws of Republic Companies Group, Inc.                                                                                                                                                                                           |  | (c)      
|               |  |                                                                                                                                                                                                                                                        
|4.1            |  | Form of Common Stock Certificate.                                                                                                                                                                                                                       |  | (c)      
|               |  |                                                                                                                                                                                                                                                        
|10.1           |  | Stock Purchase Agreement, dated as of May 9, 2003, by and among Republic Financial Services, Inc. (Texas), Republic Financial Services, Inc. (Nevada), Winterthur U.S. Holdings, Inc., RTXA,
Inc., and RTXA Sub Inc.                                    |  | (a)      
|               |  |                                                                                                                                                                                                                                                        
|10.2           |  | Securities Purchase Agreement and First Amendment thereto, effective May 9, 2003, among RTXA, Inc. and the investors party thereto.                                                                                                                     |  | (a)      
|               |  |                                                                                                                                                                                                                                                        
|10.3           |  | Amended and Restated Registration Rights Agreement among Republic Companies Group, Inc. and the Investors party thereto, dated August 8, 2005.                                                                                                          |  | (c)      
|               |  |                                                                                                                                                                                                                                                        
|10.4           |  | Employment Agreement, dated as of November 17, 2003, between Republic Underwriters Insurance Company and Parker W. Rush.                                                                                                                                |  | (a)      
|               |  |                                                                                                                                                                                                                                                        
|10.5           |  | Employment Agreement, dated as of May 9, 2003, between RTXA, Inc. and Martin B. Cummings.                                                                                                                                                               |  | (a)      
|               |  |                                                                                                                                                                                                                                                        
|10.6           |  | Employment Agreement, dated as of April 9, 2004, between Republic Underwriters Insurance Company and Robert S. Howey.                                                                                                                                   |  | (a)      
|               |  |                                                                                                                                                                                                                                                        
|10.7           |  | Republic Companies Group, Inc. Stock Plan, effective May 1, 2004.                                                                                                                                                                                       |  | (d)      
|               |  |                                                                                                                                                                                                                                                        
|10.8           |  | Republic Financial Services, Inc. Deferred Compensation Plan, effective July 1, 1995, as amended.                                                                                                                                                       |  | (d)      
|               |  |                                                                                                                                                                                                                                                        
|10.9           |  | Excess of Loss Reinsurance Agreement and Addenda Nos. 1-3, effective January 1, 1994, between Winterthur Swiss Insurance Company and Republic Insurance Company.                                                                                        |  | (a)      
|               |  |                                                                                                                                                                                                                                                        
|10.10          |  | Reinsurance Agreement, dated May 9, 2003, by and between Winterthur Swiss Insurance Company and Republic Underwriters Insurance Company.                                                                                                                |  | (a)      
|               |  |                                                                                                                                                                                                                                                        
|10.11          |  | Amended and Restated Investor Rights Agreement, dated as of December 9, 2004, between Republic Companies Group, Inc. and certain stockholders designated therein.                                                                                       |  | (a)      
|               |  |                                                                                                                                                                                                                                                        
|10.12          |  | Credit Agreement, dated as of February 23, 2005, among Republic Companies, Inc., Republic Companies Group, Inc. and The Frost National Bank.                                                                                                            |  | (a)      
|               |  |                                                                                                                                                                                                                                                        
|10.13          |  | Lease Agreement, dated August 31, 2004, between TC Dallas #2, LP and Republic Underwriters Insurance Company.                                                                                                                                           |  | (a)      
|               |  |                                                                                                                                                                                                                                                        
|10.14          |  | Amended and Restated Managing General Agency Agreement, dated January 1, 2006, by and between Republic Lloyds, Republic-Vanguard Insurance Company, Southern County Mutual Insurance Company,
Southern Insurance Company and Texas General Agency, Inc. |  | (e)      
|               |  |                                                                                                                                                                                                                                                        
|10.15          |  | 2005 Equity-Based Compensation Plan, effective August 8, 2005.                                                                                                                                                                                          |  | (c)      
|               |  |                                                                                                                                                                                                                                                        
|10.16          |  | Employee Stock Purchase Plan, effective August 8, 2005.                                                                                                                                                                                                 |  | (c)      



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##### Table of Contents

|      |  |                                                                                          |  |    
|----- |  | ---------------------------------------------------------------------------------------- |  | ---
|10.17 |  | Deferred Compensation Plan for Directors, effective August 1, 2005.                      |  | (c)
|      |  |                                                                                         
|10.18 |  | Republic Underwriters Insurance Company Incentive Bonus Plan, effective January 1, 2005. |  | (c)
|      |  |                                                                                         
|10.19 |  | Incentive Stock Option Award Agreement.                                                  |  | (b)
|      |  |                                                                                         
|10.20 |  | Form of Restricted Stock Award Agreement                                                 |  | (f)
|      |  |                                                                                         
|31.1  |  | Rule 13a-14(a)/15d-14(a) Certification by Parker W. Rush                                 |  |   
|      |  |                                                                                         
|31.2  |  | Rule 13a-14(a)/15d-14(a) Certification by Martin B. Cummings                             |  |   
|      |  |                                                                                         
|32.1  |  | Section 1350 Certifications by Parker W. Rush and Martin B. Cummings                     |  |  



| | Filed herewith.
|- | ---------------



| | Furnished herewith.
|-- | -------------------



|(a) | Previously filed on May 10, 2005 as an Exhibit of like number to the Companys registration statement on Form S-1 (File No. 333-124758) and incorporated herein by
reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Previously filed on August 12, 2005 as an Exhibit to the Companys Current Report on Form 8-K (File No. 000-51455) and incorporated herein by reference.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | Previously filed on September 19, 2005 as an Exhibit of like number to the Companys Form 10-Q for the quarterly period ended June 30, 2005 (File No. 000-51455) and
incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) | Previously filed on July 19, 2005 as an Exhibit of like number to the Companys registration statement on Form S-1/A (File No. 333-124758) and incorporated herein by
reference.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) | Previously filed on March 30, 2006 as an Exhibit of like number to the Companys Form 10-K for the annual period ended December 31, 2005 (File No. 000-51455) and
incorporated herein by reference. Portions of this document were omitted pursuant to a confidential treatment request filed with the Securities and Exchange Commission. Such portions have been provided separately to the Commission.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(f) | Previously filed on February 16, 2006 as an Exhibit to the Companys Current Report on Form 8-K (File No. 000-51455) and incorporated herein by reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURE

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.



|                   |  |  |  |                                |  |                           |  |                                           
|------------------ |  |  |  | ------------------------------ |  | ------------------------- |  | ------------------------------------------
|                   |  |  |  | Republic Companies Group, Inc.
|                   |  |  | 
|Date: May 12, 2006 |  |  |  | By:                            |  | /s/    MARTIN B. CUMMINGS
|                   |  |  |  |                                |  |                           |  | Martin B. Cummings                        
|                   |  |  |  |                                |  |                           |  | Vice President and Chief Financial Officer



35