Table of Contents

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UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.20549

FORM 10-Q

(MarkOne)

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|--|--------|---------------------------------------------------------------------------------------|
|  |   | QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |

For the Quarterly Period EndedJune  30,2006

or

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|--|--------|---------------------------------------------------------------------------------------|
|  |   | TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGEACT OF 1934 |

For the Transition Period from______________  to  ______________

COMMISSIONFILE NO. 000-51480

JAMES RIVER GROUP,INC.

(Exact Name of Registrant as Specifiedin ItsCharter)

|                                                                   |  |  |                                    |
|-------------------------------------------------------------------|--|--|------------------------------------|
| Delaware                                                          |  |  | 05-0539572                         |
| (Stateor Other Jurisdiction ofIncorporation orOrganization)       |  |  | (I.R.S. EmployerIdentificationNo.) |
| 300Meadowmont Village Circle, Suite 333Chapel Hill, NorthCarolina |  |  | 27517                              |
| (Addressof Principal ExecutiveOffices)                            |  |  | (ZipCode)                          |
|                                                                   |

(919)883-4171

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(Registrant’sTelephone Number, Including AreaCode)

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(FormerName, Former Address and Former Fiscal Year, If Changed Since LastReport)

Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.Yes      No   

Indicate bycheck mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of‘‘accelerated filer and large acceleratedfiler’’ in Rule 12b-2 of the Exchange Act. (Checkone):

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|------------------------------------------|--|--|------------------------------------|--|--|----------------------------------------|
| LargeAccelerated Filer    |  |  | AcceleratedFiler    |  |  | Non-AcceleratedFiler    |
|                                          |

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 oftheAct).   Yes       No   

OnJuly  27,  2006, 15,087,308 shares of theregistrant’s common stock, par value $0.01 per share, wereoutstanding.

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INDEX

|         |  |  |            |  |  |                                                                                           |  |  |      |  |        |  |
|---------|--|--|------------|--|--|-------------------------------------------------------------------------------------------|--|--|------|--|--------|--|
|    |  |  |       |  |  |                                                                                      |  |  | Page |
| PARTI.  |  |  |       |  |  | FINANCIALINFORMATION                                                                      |  |  |      |  |   |  |
|    |  |  | Item1.     |  |  | FinancialStatements:                                                                      |  |  |      |  |   |  |
|    |  |  |       |  |  | CondensedConsolidated BalanceSheets                                                       |  |  |      |  | 1      |  |
|    |  |  |       |  |  | CondensedConsolidated IncomeStatements                                                    |  |  |      |  | 3      |  |
|    |  |  |       |  |  | CondensedConsolidated Statements of CashFlows                                             |  |  |      |  | 4      |  |
|    |  |  |       |  |  | Notes to CondensedConsolidated FinancialStatements                                        |  |  |      |  | 5      |  |
|    |  |  | Item2.     |  |  | Management’s Discussion and Analysis of FinancialCondition and Results ofOperations |  |  |      |  | 13     |  |
|    |  |  | Item3.     |  |  | Quantitative and Qualitative Disclosures About MarketRisk                                 |  |  |      |  | 26     |  |
|    |  |  | Item 4.    |  |  | Controls andProcedures                                                                    |  |  |      |  | 27     |  |
| PARTII. |  |  |       |  |  | OTHERINFORMATION                                                                          |  |  |      |  |   |  |
|    |  |  | Item2.     |  |  | Unregistered Sales of Equity Securities and Use ofProceeds                                |  |  |      |  | 28     |  |
|    |  |  | Item 4.    |  |  | Submissionof Matters to a Vote of SecurityHolders                                         |  |  |      |  | 28     |  |
|    |  |  | Item6.     |  |  | Exhibits                                                                                  |  |  |      |  | 29     |  |
|    |  |  | Signatures |  |  |                                                                                      |  |  |      |  |   |  |
|         |

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PARTI — FINANCIAL INFORMATION

Item 1.    FinancialStatements.

Condensed Consolidated BalanceSheets

|                                                                                                     |  |  |                        |   |         |                 |  |  |  |   |         |  |
|-----------------------------------------------------------------------------------------------------|--|--|------------------------|---|---------|-----------------|--|--|--|---|---------|--|
|                                                                                                |  |  | (Unaudited)June30,2006 |   |         | December31,2005 |
|                                                                                                |  |  | ($ inthousands)        |
| Assets                                                                                              |  |  |                        |   |    |                 |  |  |  |   |    |  |
| Investmentsavailable-for-sale:                                                                      |  |  |                        |   |    |                 |  |  |  |   |    |  |
| Fixedmaturity securities at fair value (amortized cost: 2006 –$447,044; 2005 –$344,636) |  |  |                        | $ | 433,410 |                 |  |  |  | $ | 339,512 |  |
| Cashand cashequivalents                                                                             |  |  |                        |   | 31,766  |                 |  |  |  |   | 41,029  |  |
| Accruedinvestmentincome                                                                             |  |  |                        |   | 4,878   |                 |  |  |  |   | 3,988   |  |
| Premiumsreceivable and agents’balances                                                        |  |  |                        |   | 28,695  |                 |  |  |  |   | 32,521  |  |
| Reinsurancerecoverable on unpaidlosses                                                              |  |  |                        |   | 97,852  |                 |  |  |  |   | 110,514 |  |
| Reinsurancerecoverable on paidlosses                                                                |  |  |                        |   | 6,520   |                 |  |  |  |   | 11,544  |  |
| Prepaidreinsurancepremiums                                                                          |  |  |                        |   | 30,278  |                 |  |  |  |   | 25,922  |  |
| Deferredpolicy acquisitioncosts                                                                     |  |  |                        |   | 15,592  |                 |  |  |  |   | 13,899  |  |
| Federal incometaxesreceivable                                                                       |  |  |                        |   | — |                 |  |  |  |   | 788     |  |
| Deferred taxassets                                                                                  |  |  |                        |   | 13,774  |                 |  |  |  |   | 7,999   |  |
| Intangibleinsuranceassets                                                                           |  |  |                        |   | 4,184   |                 |  |  |  |   | 4,184   |  |
| Property andequipment, net                                                                          |  |  |                        |   | 2,452   |                 |  |  |  |   | 2,741   |  |
| Otherassets                                                                                         |  |  |                        |   | 2,963   |                 |  |  |  |   | 2,403   |  |
| Totalassets                                                                                         |  |  |                        | $ | 672,364 |                 |  |  |  | $ | 597,044 |  |
|                                                                                                     |

Seeaccompanying notes.

1

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Condensed Consolidated Balance Sheets(continued)

|                                                                                                                                                                                          |  |  |                                       |   |         |                 |  |  |  |   |         |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|---------------------------------------|---|---------|-----------------|--|--|--|---|---------|---|
|                                                                                                                                                                                     |  |  | (Unaudited)June30,2006                |   |         | December31,2005 |
|                                                                                                                                                                                     |  |  | ($ in thousandsexcept for share data) |
| Liabilitiesand stockholders’equity                                                                                                                                                 |  |  |                                       |   |    |                 |  |  |  |   |    |   |
| Reserve for losses andloss adjustmentexpenses                                                                                                                                            |  |  |                                       | $ | 263,979 |                 |  |  |  | $ | 226,493 |   |
| Unearnedpremiums                                                                                                                                                                         |  |  |                                       |   | 127,942 |                 |  |  |  |   | 115,765 |   |
| Payables toreinsurers                                                                                                                                                                    |  |  |                                       |   | 6,083   |                 |  |  |  |   | 11,316  |   |
| Seniordebt                                                                                                                                                                               |  |  |                                       |   | 15,000  |                 |  |  |  |   | 15,000  |   |
| Juniorsubordinateddebt                                                                                                                                                                   |  |  |                                       |   | 43,300  |                 |  |  |  |   | 22,681  |   |
| Fundsheld                                                                                                                                                                                |  |  |                                       |   | 17,205  |                 |  |  |  |   | 21,992  |   |
| Accruedexpenses                                                                                                                                                                          |  |  |                                       |   | 6,925   |                 |  |  |  |   | 4,635   |   |
| Federal incometaxes payable                                                                                                                                                              |  |  |                                       |   | 82      |                 |  |  |  |   | — |   |
| Otherliabilities                                                                                                                                                                         |  |  |                                       |   | 5,135   |                 |  |  |  |   | 3,007   |   |
| Totalliabilities                                                                                                                                                                         |  |  |                                       |   | 485,651 |                 |  |  |  |   | 420,889 |   |
| Commitmentsandcontingencies                                                                                                                                                              |  |  |                                       |   |    |                 |  |  |  |   |    |   |
| Stockholders’equity:                                                                                                                                                               |  |  |                                       |   |    |                 |  |  |  |   |    |   |
| Common stock– $0.01 par value; 100,000,000 shares authorized;2006:  15,087,308 shares issued and outstanding;    2005: 15,070,053 shares issued andoutstanding |  |  |                                       |   | 150     |                 |  |  |  |   | 150     |   |
| Common stockwarrants                                                                                                                                                                     |  |  |                                       |   | 524     |                 |  |  |  |   | 524     |   |
| Additional paid-incapital                                                                                                                                                                |  |  |                                       |   | 174,612 |                 |  |  |  |   | 173,903 |   |
|                                                                                                                                                                                     |  |  |                                       |   | 175,286 |                 |  |  |  |   | 174,577 |   |
| Notesreceivable from employees                                                                                                                                                           |  |  |                                       |   | (535    | )               |  |  |  |   | (535    | ) |
| Retained earnings                                                                                                                                                                        |  |  |                                       |   | 20,824  |                 |  |  |  |   | 5,444   |   |
| Accumulated othercomprehensiveloss                                                                                                                                                       |  |  |                                       |   | (8,862  | )               |  |  |  |   | (3,331  | ) |
| Totalstockholders’ equity                                                                                                                                                          |  |  |                                       |   | 186,713 |                 |  |  |  |   | 176,155 |   |
| Totalliabilities and stockholders’equity                                                                                                                                           |  |  |                                       | $ | 672,364 |                 |  |  |  | $ | 597,044 |   |
|                                                                                                                                                                                          |

Seeaccompanying notes.

2

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Condensed Consolidated Income Statements(Unaudited)

|                                   |  |  |                                      |   |         |                          |  |  |      |   |            |      |  |  |  |   |         |   |  |  |  |   |            |   |
|-----------------------------------|--|--|--------------------------------------|---|---------|--------------------------|--|--|------|---|------------|------|--|--|--|---|---------|---|--|--|--|---|------------|---|
|                              |  |  | Three Months Ended June30,           |   |         | Six Months Ended June30, |
|                              |  |  | 2006                                 |   |         | 2005                     |  |  | 2006 |   |            | 2005 |
|                              |  |  | ($in thousands except for sharedata) |
| Revenues                          |  |  |                                      |   |    |                          |  |  |      |   |       |      |  |  |  |   |    |   |  |  |  |   |       |   |
| Grosswrittenpremiums              |  |  |                                      | $ | 74,634  |                          |  |  |      | $ | 57,794     |      |  |  |  | $ | 142,799 |   |  |  |  | $ | 104,814    |   |
| Cededwrittenpremiums              |  |  |                                      |   | (19,810 | )                        |  |  |      |   | (19,266    | )    |  |  |  |   | (34,287 | ) |  |  |  |   | (35,296    | ) |
| Netwrittenpremiums                |  |  |                                      |   | 54,824  |                          |  |  |      |   | 38,528     |      |  |  |  |   | 108,512 |   |  |  |  |   | 69,518     |   |
| Changein net unearnedpremiums     |  |  |                                      |   | (2,222  | )                        |  |  |      |   | (7,454     | )    |  |  |  |   | (7,821  | ) |  |  |  |   | (13,612    | ) |
| Netearnedpremiums                 |  |  |                                      |   | 52,602  |                          |  |  |      |   | 31,074     |      |  |  |  |   | 100,691 |   |  |  |  |   | 55,906     |   |
| Netinvestmentincome               |  |  |                                      |   | 4,506   |                          |  |  |      |   | 2,017      |      |  |  |  |   | 8,499   |   |  |  |  |   | 3,762      |   |
| Realizedinvestmentlosses          |  |  |                                      |   | (49     | )                        |  |  |      |   | (73        | )    |  |  |  |   | (84     | ) |  |  |  |   | (98        | ) |
| Otherincome                       |  |  |                                      |   | 46      |                          |  |  |      |   | 31         |      |  |  |  |   | 88      |   |  |  |  |   | 76         |   |
| Totalrevenues                     |  |  |                                      |   | 57,105  |                          |  |  |      |   | 33,049     |      |  |  |  |   | 109,194 |   |  |  |  |   | 59,646     |   |
| Expenses                          |  |  |                                      |   |    |                          |  |  |      |   |       |      |  |  |  |   |    |   |  |  |  |   |       |   |
| Lossesand loss adjustmentexpenses |  |  |                                      |   | 30,214  |                          |  |  |      |   | 18,960     |      |  |  |  |   | 59,431  |   |  |  |  |   | 32,354     |   |
| Otheroperatingexpenses            |  |  |                                      |   | 13,384  |                          |  |  |      |   | 6,480      |      |  |  |  |   | 25,409  |   |  |  |  |   | 12,173     |   |
| Interestexpense                   |  |  |                                      |   | 896     |                          |  |  |      |   | 642        |      |  |  |  |   | 1,673   |   |  |  |  |   | 1,230      |   |
| Totalexpenses                     |  |  |                                      |   | 44,494  |                          |  |  |      |   | 26,082     |      |  |  |  |   | 86,513  |   |  |  |  |   | 45,757     |   |
| Incomebeforetaxes                 |  |  |                                      |   | 12,611  |                          |  |  |      |   | 6,967      |      |  |  |  |   | 22,681  |   |  |  |  |   | 13,889     |   |
| Federalincome taxexpense          |  |  |                                      |   | 4,060   |                          |  |  |      |   | 2,282      |      |  |  |  |   | 7,301   |   |  |  |  |   | 4,598      |   |
| Netincome                         |  |  |                                      | $ | 8,551   |                          |  |  |      | $ | 4,685      |      |  |  |  | $ | 15,380  |   |  |  |  | $ | 9,291      |   |
| Earningspershare:                 |  |  |                                      |   |    |                          |  |  |      |   |       |      |  |  |  |   |    |   |  |  |  |   |       |   |
| Basic                             |  |  |                                      | $ | 0.57    |                          |  |  |      | $ | 349,033.70 |      |  |  |  | $ | 1.02    |   |  |  |  | $ | 691,518.90 |   |
| Diluted                           |  |  |                                      | $ | 0.53    |                          |  |  |      | $ | 0.46       |      |  |  |  | $ | 0.96    |   |  |  |  | $ | 0.91       |   |
|                                   |

Seeaccompanying notes.

3

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Condensed Consolidated Statements of CashFlows(Unaudited)

|                                                      |  |  |                         |   |          |      |  |  |  |   |         |   |
|------------------------------------------------------|--|--|-------------------------|---|----------|------|--|--|--|---|---------|---|
|                                                 |  |  | SixMonths Ended June30, |
|                                                 |  |  | 2006                    |   |          | 2005 |
|                                                 |  |  | ($in thousands)         |
| Operatingactivities                                  |  |  |                         |   |     |      |  |  |  |   |    |   |
| Net cash providedby operatingactivities              |  |  |                         | $ | 72,610   |      |  |  |  | $ | 54,896  |   |
| Investingactivities                                  |  |  |                         |   |     |      |  |  |  |   |    |   |
| Securitiesavailable-for-sale:                        |  |  |                         |   |     |      |  |  |  |   |    |   |
| Purchases– fixed maturitysecurities            |  |  |                         |   | (142,375 | )    |  |  |  |   | (71,394 | ) |
| Maturitiesand calls – fixed maturitysecurities |  |  |                         |   | 14,700   |      |  |  |  |   | 6,699   |   |
| Sales– fixed maturitysecurities                |  |  |                         |   | 24,105   |      |  |  |  |   | 9,117   |   |
| Sales– equitysecurities                        |  |  |                         |   | —  |      |  |  |  |   | 1,300   |   |
| Payableto securitiesbrokers                          |  |  |                         |   | 1,671    |      |  |  |  |   | (178    | ) |
| Purchases ofproperty andequipment                    |  |  |                         |   | (195     | )    |  |  |  |   | (289    | ) |
| Netcash used in investingactivities                  |  |  |                         |   | (102,094 | )    |  |  |  |   | (54,745 | ) |
| Financingactivities                                  |  |  |                         |   |     |      |  |  |  |   |    |   |
| Proceeds fromexercise of stockoptions                |  |  |                         |   | 173      |      |  |  |  |   | — |   |
| Income taxbenefit from stock optionexercises         |  |  |                         |   | 75       |      |  |  |  |   | — |   |
| Issuance ofjunior subordinateddebt                   |  |  |                         |   | 20,000   |      |  |  |  |   | — |   |
| Issuancecosts                                        |  |  |                         |   | (27      | )    |  |  |  |   | (297    | ) |
| Notes receivablefrom officers anddirectors           |  |  |                         |   | —  |      |  |  |  |   | 2,020   |   |
| Netcash provided by financingactivities              |  |  |                         |   | 20,221   |      |  |  |  |   | 1,723   |   |
| Changein cash and cashequivalents                    |  |  |                         |   | (9,263   | )    |  |  |  |   | 1,874   |   |
| Cash andcash equivalents at beginning ofperiod       |  |  |                         |   | 41,029   |      |  |  |  |   | 20,210  |   |
| Cashand cash equivalents at end ofperiod             |  |  |                         | $ | 31,766   |      |  |  |  | $ | 22,084  |   |
|                                                      |

Seeaccompanying notes.

4

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Notesto Condensed Consolidated Financial Statements(Unaudited)

June30,  2006

1.    Accounting Policies and Basis ofPresentation

Basis of Presentation

Theaccompanying condensed consolidated financial statements and notes havebeen prepared in accordance with accounting principles generallyaccepted in the United States for interim financial information and donot contain all of the information and footnotes required by accountingprinciples generally accepted in the United States for completefinancial statements. Readers are urged to review the Company’s2005 audited consolidated financial statements contained in Form 10-Kfor a more complete description of the Company’s business andaccounting policies. In the opinion of management, all adjustmentsnecessary for a fair presentation of the condensed consolidatedfinancial statements have been included. Such adjustments consist onlyof normal recurring items. Interim results are not necessarilyindicative of results of operations for the full year. The consolidatedbalance sheet as of December 31, 2005 was derived from theCompany’s audited annual consolidated financialstatements.

Significant intercompany transactions andbalances have been eliminated.

Certain reclassificationsof prior year amounts have been made to conform to the 2006presentation.

Estimates andAssumptions

Preparation of the condensed consolidatedfinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the condensedconsolidated financial statements and accompanying disclosures. Thoseestimates are inherently subject to change, and actual results mayultimately differ from those estimates.

New AccountingStandards

On December 16, 2004, the FinancialAccounting Standards Board (FASB) issued Statement No. 123(revised 2004), Share-Based Payment (Statement 123(R)), which isa revision of Statement No. 123, Accounting for Stock-BasedCompensation. Statement 123(R) supersedes Accounting PrinciplesBoard Opinion No. 25, Accounting for Stock Issued toEmployees (APB Opinion No. 25) and amends FASB Statement No.95, Statement of Cash Flows. The Company adopted Statement123(R) using the modified prospective method on January 1,2006.

2.    StockBased Compensation

The Company’s shareholders haveapproved two incentive compensation plans, the 2003 Incentive Plan andthe 2005 Incentive Plan (the Plans). Effective March  23,2006, the 2003 Incentive Plan, for which options were previouslygranted to directors and key employees, was terminated with regard tofuture stock-based awards. Under the 2005 Incentive Plan, keyemployees, directors and third party service providers (generally,consultants, agents, advisors or independent contractors not involvedin marketing or selling the Company’s securities) are eligibleto receive share awards, subject to individual, annual and aggregateaward limits, in the form of options, share appreciation rights,restricted share awards or units, performance shares or units and othershare-based awards as well as cash-based awards. To date, the onlyshare-based awards granted have been options to directors and keyemployees. All share-based equity awards under the Plans are issued atthe discretion of the Compensation Committee of the Company’sBoard of Directors. All options awarded to date vest over a four yearperiod commencing from the date of grant and are exercisable for tenyears from the 

5

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Notesto Condensed Consolidated Financial Statements(Unaudited) (Continued)

2.    StockBased Compensation    (continued)

date of the grant. All options issued pursuantto the 2005 Incentive Plan will vest immediately in the event of achange in control of the Company as defined in the plan. As ofJune  30,  2006 the maximum number of shares available forissuance under the 2005 Incentive Plan is 1,196,596.

Priorto the adoption of Statement 123(R), the Company accounted for stockoption grants using the intrinsic value method prescribed by APBOpinion No. 25. Accordingly, for pro forma disclosures required byStatement 123, the Company used the minimum value method for estimatingcompensation expense for options issued prior to May  3,2005 (the date the Company filed its Form S-1 with the Securities andExchange Commission) and used the fair value method for estimatingcompensation expense for options issued subsequent to May3,  2005. As a result, no compensation expense was recognized inthe Company’s financial statements prior to January1,  2006, as all options granted prior to January1,  2006 had an exercise price equal to the market value of theunderlying common stock on the date of grant.

OnJanuary  1,  2006, the Company adopted the fair valuerecognition provisions of Statement 123(R) using the modifiedprospective method for those options granted subsequent to May3,  2005 and any options granted prior to May  3,2005 that were modified, repurchased or cancelled subsequent toJanuary  1,  2006. Such expense amounts are recognized on astraight-line basis over each award’s vesting period in theCompany’s income statement. No expense will be recognized in theCompany’s financial statements related to options issued priorto May  3,  2005 so long as those options are not modified,repurchased or cancelled. To date, no options granted prior toMay  3,  2005 have been modified, repurchased orcancelled.

As a result of adopting Statement 123(R) onJanuary  1,  2006, the Company recognized $238,000 and$461,000, respectively, of other operating expenses for share-basedcompensation during the three and six months ended June30,  2006. As a result, the Company’s income before incometaxes and net income for the three months ended June  30,2006 are $238,000 and $154,000 lower, respectively, than if the Companyhad continued to account for share-based compensation under APB OpinionNo. 25. The Company’s income before income taxes and net incomefor the six months ended June  30,  2006 are $461,000 and$299,000 lower, respectively, than if the Company had continued toaccount for share-based compensation under APB Opinion No. 25. Basicand diluted earnings per share for the three months and six monthsended June  30,  2006 are $0.01 and $0.02, respectively,lower than if the Company had continued to account for share-basedcompensation under APB Opinion 25. The adoption of Statement 123(R) didnot have a material effect on the Company’s statement of cashflows. No prior period financial statements have been restated as aresult of the adoption of Statement 123(R).

For all periods presented, the Companyused a Black-Scholes option pricing model in determining the fair valueof option grants. The following table summarizes the assumptions usedto estimate the fair value of our share-based awards issued afterMay  3,2005:

|                                  |  |  |                    |
|----------------------------------|--|--|--------------------|
| Expectedterm                     |  |  | 7years             |
| Expected stock pricevolatility   |  |  | 35.00%             |
| Range of risk-freeinterest rates |  |  | 4.08% –5.03% |
| Dividendyield                    |  |  | 0.00%              |
|                                  |

For all awards,the expected term is based on the midpoint between the vesting periodand the contractual term of the award. Stock price volatility wasestimated based on stock price volatility data for similarproperty/casualty companies in the period following their respectiveinitial public offerings. The risk-free interest rate assumption isbased on the seven-year U.S. Treasury rate at the date of grant. TheCompany does not anticipate paying dividends in the nearfuture.

6

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Notesto Condensed Consolidated Financial Statements(Unaudited) (Continued)

2.    StockBased Compensation    (continued)

A summary of option activity underthe Company’s incentive plans as of and for the six months endedJune  30,  2006 is asfollows:

|                                         |  |  |                                       |  |           |                                |  |  |                                             |   |         |                          |  |  |          |  |  |  |   |        |  |
|-----------------------------------------|--|--|---------------------------------------|--|-----------|--------------------------------|--|--|---------------------------------------------|---|---------|--------------------------|--|--|----------|--|--|--|---|--------|--|
|                                    |  |  | Numberof Shares                       |  |           | Weighted-Average ExercisePrice |  |  | Weighted- Average RemainingContractual Term |   |         | Aggregate IntrinsicValue |
|                                    |  |  | ($ in thousands except forshare data) |
| Outstanding, beginning ofyear           |  |  |                                       |  | 2,128,359 |                                |  |  |                                             | $ | 11.79   |                          |  |  |     |  |  |  |   |   |  |
| Granted                                 |  |  |                                       |  | 45,000    |                                |  |  |                                             |   | 25.28   |                          |  |  |     |  |  |  |   |   |  |
| Exercised                               |  |  |                                       |  | (17,255   | )                              |  |  |                                             |   | 10.00   |                          |  |  |     |  |  |  |   |   |  |
| Forfeited                               |  |  |                                       |  | —   |                                |  |  |                                             |   | — |                          |  |  |     |  |  |  |   |   |  |
| Outstanding,end ofperiod                |  |  |                                       |  | 2,156,104 |                                |  |  |                                             | $ | 12.09   |                          |  |  | 7.6years |  |  |  | $ | 27,621 |  |
| Vested or expected to vest,end ofperiod |  |  |                                       |  | 2,133,755 |                                |  |  |                                             | $ | 12.02   |                          |  |  | 7.6years |  |  |  | $ | 27,505 |  |
| Exercisable, end ofperiod               |  |  |                                       |  | 1,084,643 |                                |  |  |                                             | $ | 10.03   |                          |  |  | 7.1years |  |  |  | $ | 16,132 |  |
|                                         |

During the threemonths ended June  30,  2006, the Company granted 45,000options at a weighted-average grant date fair value of $25.28. Reservedshares are issued to satisfy stock option exercises. As of June30,  2006, there was $3.3  million of estimatedunrecognized compensation costs expected to be charged to earnings overa weighted-average period of 3.2 years.

For the sixmonths ended June  30,  2006, the Company received cashfrom stock option exercises of $173,000 and the related income taxbenefit totaled $75,000. The intrinsic value (the difference betweenthe fair value of the options at exercise and the strike price) ofoptions exercised during the six months ended June  30,2006 totaled $217,000. There were no option exercises during the sixmonths ended June  30,2005.

7

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Notesto Condensed Consolidated Financial Statements(Unaudited) (Continued)

3.    Earnings Per Share

|                                                                                                                                 |  |  |                                       |   |            |                          |  |  |      |   |            |      |  |  |  |   |            |  |  |  |  |   |            |   |
|---------------------------------------------------------------------------------------------------------------------------------|--|--|---------------------------------------|---|------------|--------------------------|--|--|------|---|------------|------|--|--|--|---|------------|--|--|--|--|---|------------|---|
|                                                                                                                            |  |  | ThreeMonths Ended June 30,            |   |            | Six Months Ended June30, |
|                                                                                                                            |  |  | 2006                                  |   |            | 2005                     |  |  | 2006 |   |            | 2005 |
|                                                                                                                            |  |  | ($in thousands except for share data) |
| Net income– numerator for diluted earnings pershare                                                                       |  |  |                                       | $ | 8,551      |                          |  |  |      | $ | 4,685      |      |  |  |  | $ | 15,380     |  |  |  |  | $ | 9,291      |   |
| Dividendsinarrears                                                                                                              |  |  |                                       |   | —    |                          |  |  |      |   | (1,195     | )    |  |  |  |   | —    |  |  |  |  |   | (2,376     | ) |
| Netincome available to common shareholders – numerator for basicearnings pershare                                         |  |  |                                       | $ | 8,551      |                          |  |  |      | $ | 3,490      |      |  |  |  | $ | 15,380     |  |  |  |  | $ | 6,915      |   |
| Weighted-averagecommon shares outstanding – denominator for basic earnings pershare                                       |  |  |                                       |   | 15,087,308 |                          |  |  |      |   | 10         |      |  |  |  |   | 15,081,571 |  |  |  |  |   | 10         |   |
| Dilutivepotential commonshares:                                                                                                 |  |  |                                       |   |       |                          |  |  |      |   |       |      |  |  |  |   |       |  |  |  |  |   |       |   |
| SeriesA PreferredStock                                                                                                          |  |  |                                       |   | —    |                          |  |  |      |   | 1,700,000  |      |  |  |  |   | —    |  |  |  |  |   | 1,700,000  |   |
| SeriesB PreferredStock                                                                                                          |  |  |                                       |   | —    |                          |  |  |      |   | 7,135,000  |      |  |  |  |   | —    |  |  |  |  |   | 7,135,000  |   |
| Preferredstockdividends                                                                                                         |  |  |                                       |   | —    |                          |  |  |      |   | 1,057,600  |      |  |  |  |   | —    |  |  |  |  |   | 991,890    |   |
| Options                                                                                                                         |  |  |                                       |   | 823,822    |                          |  |  |      |   | 322,030    |      |  |  |  |   | 779,293    |  |  |  |  |   | 322,440    |   |
| Warrants                                                                                                                        |  |  |                                       |   | 91,945     |                          |  |  |      |   | 29,920     |      |  |  |  |   | 87,802     |  |  |  |  |   | 29,920     |   |
| Weighted-averagecommon shares and dilutive potential common shares outstanding– denominator for diluted earnings pershare |  |  |                                       |   | 16,003,075 |                          |  |  |      |   | 10,244,560 |      |  |  |  |   | 15,948,666 |  |  |  |  |   | 10,179,260 |   |
| Earningspershare:                                                                                                               |  |  |                                       |   |       |                          |  |  |      |   |       |      |  |  |  |   |       |  |  |  |  |   |       |   |
| Basic                                                                                                                           |  |  |                                       | $ | 0.57       |                          |  |  |      | $ | 349,033.70 |      |  |  |  | $ | 1.02       |  |  |  |  | $ | 691,518.90 |   |
| Diluted                                                                                                                         |  |  |                                       | $ | 0.53       |                          |  |  |      | $ | 0.46       |      |  |  |  | $ | 0.96       |  |  |  |  | $ | 0.91       |   |
| Anti-dilutivesecurities excluded from diluted earnings pershare:                                                                |  |  |                                       |   |       |                          |  |  |      |   |       |      |  |  |  |   |       |  |  |  |  |   |       |   |
| Warrantsandoptions                                                                                                              |  |  |                                       |   | 80,084     |                          |  |  |      |   | 46,470     |      |  |  |  |   | 80,084     |  |  |  |  |   | 46,470     |   |
|                                                                                                                                 |

All2005 common stock share and per share amounts have been retroactivelyadjusted to give effect to a ten-for-one stock split of theCompany’s Common Stock effective August  9,  2005 toshareholders of record on that date.

4.    IncomeTaxes

Income tax expense differs from the amountscomputed by applying the Federal statutory income tax rate to incomebefore income taxes primarily due to interest income on tax-advantagedstate and municipal securities.

5.    Reservefor Losses and Loss Adjustment Expenses

A $2.0million reserve redundancy developed in the three months endedJune  30,  2006 on direct business written arising fromprior accident years. Of this development, $1.5  million offavorable development occurred in the Excess and Surplus Insurancecasualty lines, with $1.2  million of this favorable developmentcoming from the 2004 accident year. Favorable development in the Excessand Surplus Insurance property lines of $513,000 primarily related tothe 2005 accident year.

8

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Notesto Condensed Consolidated Financial Statements(Unaudited) (Continued)

5.    Reservefor Losses and Loss Adjustment Expenses    (continued)

A $252,000 reserve deficiencydeveloped in the three months ended June  30,  2005 on thereserve for losses and loss adjustment expenses (LAE) held atDecember  31,  2004. Of this development, $709,000 ofincurred losses related to the Company’s allocation of 2004accident year results of the North Carolina involuntary workers’compensation pool. In addition, Excess and Surplus Insurance casualtylines experienced $199,000 of adverse reserve development, and theExcess and Surplus Insurance property lines experienced $670,000 offavorable reserve development in the second quarter of2005.

A $4.4  million redundancy developed in thesix months ended June  30,  2006 on the prior accident yearreserves. Of this development, $3.0  million of favorabledevelopment occurred in the Excess and Surplus Insurance casualtylines, with $2.4  million of this favorable development comingfrom the 2004 accident year. Favorable development in the Excess andSurplus Insurance property lines was $1.1  million primarilyrelated to the 2005 accident year. Favorable development for theWorkers’ Compensation Insurance lines totaled$299,000.

A $2.1  million redundancy developed inthe six months ended June  30,  2005 on the reserve forlosses and LAE held at December  31,  2004. Of thisdevelopment, $2.4  million occurred in the Excess and SurplusInsurance property lines for the 2004 accident year. TheWorkers’ Compensation Insurance line experienced $283,000 offavorable reserve development on the 2004 accident year in the firstsix months of 2005 on direct business written. This favorabledevelopment was partially offset by $709,000 of incurred losses relatedto the Company’s allocation of 2004 accident year results of theNorth Carolina involuntary workers’ compensationpool.

6.    JuniorSubordinated Debt

On June  15,  2006, JamesRiver Group, Inc. arranged for the sale of $20.0  million oftrust preferred securities (Trust Preferred Securities) through JamesRiver Capital Trust III (the Trust), a Delaware statutory trustsponsored and wholly-owned by the Company. The Trust was created solelyfor the purpose of issuing the Trust Preferred Securities. Inaccordance with FASB Interpretation No. 46, Consolidation ofVariable Interest Entities, an interpretation of ARB No. 51, theTrust has not been consolidated with the Company in these financialstatements.

The Trust used the proceeds from the sale ofits Trust Preferred Securities to purchase $20.6  million of theCompany’s floating rate junior subordinated debentures (theJunior Subordinated Debt) issued to the Trust under an indenture (theIndenture). The Junior Subordinated Debt is the sole asset of theTrust, and the Trust Preferred Securities are the sole liabilities ofthe Trust. The Junior Subordinated Debt matures on June15,  2036, unless accelerated earlier. The Company purchased allof the outstanding common stock of the Trust, and the Company’sinvestment in the Trust is included in other assets in the accompanyingcondensed consolidated balance sheet.

Interest on theTrust Preferred Securities and interest paid by the Company to theTrust on the Junior Subordinated Debt are payable quarterly in arrears.Through September  15,  2006, interest accrues at the perannum rate of 8.3%. On September  15,  2006 andquarterly thereafter, the interest rate will be reset to a per annumrate equal to the three-month LIBOR on the Determination Date (asdefined in the Indenture) plus a margin of 3.0%. The Company hasthe right to defer interest payments on the Junior Subordinated Debtfor up to five years without triggering an event of default. Interestpayable is included in accrued expenses in the accompanying condensedconsolidated balance sheet.

The Trust Preferred Securitiesare subject to mandatory redemption in a like amount (a) upon repaymentof all of the Junior Subordinated Debt on the stated maturity date, (b)contemporaneously with the optional prepayment of all of the JuniorSubordinated Debt by the Company in conjunction with a special event(as defined) and (c) five years or more after the issue date,contemporaneously with the optional prepayment, in whole or in part, ofthe Junior Subordinated Debt.

The Company has provided afull, irrevocable and unconditional guarantee of payments of amountsdue on the Trust Preferred Securities.

9

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Notesto Condensed Consolidated Financial Statements(Unaudited) (Continued)

6.    JuniorSubordinated Debt    (continued)

The Indenture contains certaincovenants with which the Company is in compliance as of June30,  2006.

7.    ComprehensiveIncome

The following table summarizes the components ofcomprehensiveincome:

|                                                                                         |  |  |                            |   |        |                          |  |  |      |   |        |      |  |  |  |   |        |   |  |  |  |   |        |   |
|-----------------------------------------------------------------------------------------|--|--|----------------------------|---|--------|--------------------------|--|--|------|---|--------|------|--|--|--|---|--------|---|--|--|--|---|--------|---|
|                                                                                    |  |  | ThreeMonths Ended June 30, |   |        | Six Months Ended June30, |
|                                                                                    |  |  | 2006                       |   |        | 2005                     |  |  | 2006 |   |        | 2005 |
|                                                                                    |  |  | ($in thousands)            |
| Unrealized gains (losses) arisingduring the period,     beforetaxes |  |  |                            | $ | (4,078 | )                        |  |  |      | $ | 3,622  |      |  |  |  | $ | (8,593 | ) |  |  |  | $ | 213    |   |
| Incometaxes                                                                             |  |  |                            |   | 1,426  |                          |  |  |      |   | (1,267 | )    |  |  |  |   | 3,007  |   |  |  |  |   | (74    | ) |
| Unrealizedgains (losses) arising during the period,     net oftaxes |  |  |                            |   | (2,652 | )                        |  |  |      |   | 2,355  |      |  |  |  |   | (5,586 | ) |  |  |  |   | 139    |   |
| Lessreclassificationadjustment:                                                         |  |  |                            |   |   |                          |  |  |      |   |   |      |  |  |  |   |   |   |  |  |  |   |   |   |
| Lossesrealized in net income                                                            |  |  |                            |   | (49    | )                        |  |  |      |   | (73    | )    |  |  |  |   | (84    | ) |  |  |  |   | (98    | ) |
| Incometaxes                                                                             |  |  |                            |   | 17     |                          |  |  |      |   | 25     |      |  |  |  |   | 29     |   |  |  |  |   | 34     |   |
| Reclassificationadjustment for losses realized in     net income    |  |  |                            |   | (32    | )                        |  |  |      |   | (48    | )    |  |  |  |   | (55    | ) |  |  |  |   | (64    | ) |
| Othercomprehensive income(loss)                                                         |  |  |                            |   | (2,620 | )                        |  |  |      |   | 2,403  |      |  |  |  |   | (5,531 | ) |  |  |  |   | 203    |   |
| Netincome                                                                               |  |  |                            |   | 8,551  |                          |  |  |      |   | 4,685  |      |  |  |  |   | 15,380 |   |  |  |  |   | 9,291  |   |
| Comprehensiveincome                                                                     |  |  |                            | $ | 5,931  |                          |  |  |      | $ | 7,088  |      |  |  |  | $ | 9,849  |   |  |  |  | $ | 9,494  |   |
|                                                                                         |

8.    ContingentLiabilities

The Company is a party to various lawsuitsarising in the ordinary course of its operations. The Company believesthat the ultimate resolution of these matters will not materiallyimpact its financial position or results of operations.

10

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Notesto Condensed Consolidated Financial Statements(Unaudited) (Continued)

9.    Segment Information

The Company has threereportable segments: the Excess and Surplus Insurance segment, theWorkers’ Compensation Insurance segment and the Corporate andOther segment. Segment profit (loss) is measured by underwriting profit(loss), which is generally defined as net earned premiums less lossesand LAE and other operating expenses of the insurance segments. Segmentresults are reported prior to the effects of the intercompanyreinsurance pooling agreement between the Company’s insurancesubsidiaries. The following table summarizes segmentresults:

|                                 |  |  |                             |   |         |                                      |  |  |                    |   |         |       |  |  |  |   |         |  |  |  |  |   |         |  |
|---------------------------------|--|--|-----------------------------|---|---------|--------------------------------------|--|--|--------------------|---|---------|-------|--|--|--|---|---------|--|--|--|--|---|---------|--|
|                            |  |  | Excessand Surplus Insurance |   |         | Workers’Compensation Insurance |  |  | Corporate andOther |   |         | Total |
|                            |  |  | ($ inthousands)             |
| ThreeMonths Ended June 30,2006  |  |  |                             |   |    |                                      |  |  |                    |   |    |       |  |  |  |   |    |  |  |  |  |   |    |  |
| Grosswrittenpremiums            |  |  |                             | $ | 63,788  |                                      |  |  |                    | $ | 10,846  |       |  |  |  | $ | — |  |  |  |  | $ | 74,634  |  |
| Netearnedpremiums               |  |  |                             |   | 43,316  |                                      |  |  |                    |   | 9,286   |       |  |  |  |   | — |  |  |  |  |   | 52,602  |  |
| Segmentrevenues                 |  |  |                             |   | 46,754  |                                      |  |  |                    |   | 9,972   |       |  |  |  |   | 379     |  |  |  |  |   | 57,105  |  |
| Underwritingprofit              |  |  |                             |   | 9,760   |                                      |  |  |                    |   | 410     |       |  |  |  |   | — |  |  |  |  |   | 10,170  |  |
| Netinvestmentincome             |  |  |                             |   | 3,487   |                                      |  |  |                    |   | 674     |       |  |  |  |   | 345     |  |  |  |  |   | 4,506   |  |
| Interestexpense                 |  |  |                             |   | — |                                      |  |  |                    |   | — |       |  |  |  |   | 896     |  |  |  |  |   | 896     |  |
| Segmentassets                   |  |  |                             |   | 558,025 |                                      |  |  |                    |   | 83,659  |       |  |  |  |   | 30,680  |  |  |  |  |   | 672,364 |  |
| ThreeMonths Ended June  30,2005 |  |  |                             |   |    |                                      |  |  |                    |   |    |       |  |  |  |   |    |  |  |  |  |   |    |  |
| Grosswrittenpremiums            |  |  |                             | $ | 49,466  |                                      |  |  |                    | $ | 8,328   |       |  |  |  | $ | — |  |  |  |  | $ | 57,794  |  |
| Netearnedpremiums               |  |  |                             |   | 24,423  |                                      |  |  |                    |   | 6,651   |       |  |  |  |   | — |  |  |  |  |   | 31,074  |  |
| Segmentrevenues                 |  |  |                             |   | 26,001  |                                      |  |  |                    |   | 6,985   |       |  |  |  |   | 63      |  |  |  |  |   | 33,049  |  |
| Underwritingprofit              |  |  |                             |   | 5,619   |                                      |  |  |                    |   | 256     |       |  |  |  |   | — |  |  |  |  |   | 5,875   |  |
| Netinvestmentincome             |  |  |                             |   | 1,583   |                                      |  |  |                    |   | 325     |       |  |  |  |   | 109     |  |  |  |  |   | 2,017   |  |
| Interestexpense                 |  |  |                             |   | — |                                      |  |  |                    |   | — |       |  |  |  |   | 642     |  |  |  |  |   | 642     |  |
| Segmentassets                   |  |  |                             |   | 293,353 |                                      |  |  |                    |   | 44,034  |       |  |  |  |   | 13,163  |  |  |  |  |   | 350,550 |  |
|                                 |

|                               |  |  |                             |   |         |                                      |  |  |                    |   |         |       |  |  |  |   |         |  |  |  |  |   |         |  |
|-------------------------------|--|--|-----------------------------|---|---------|--------------------------------------|--|--|--------------------|---|---------|-------|--|--|--|---|---------|--|--|--|--|---|---------|--|
|                          |  |  | Excessand Surplus Insurance |   |         | Workers’Compensation Insurance |  |  | Corporate andOther |   |         | Total |
|                          |  |  | ($ inthousands)             |
| Six Months Ended June 30,2006 |  |  |                             |   |    |                                      |  |  |                    |   |    |       |  |  |  |   |    |  |  |  |  |   |    |  |
| Grosswrittenpremiums          |  |  |                             | $ | 121,556 |                                      |  |  |                    | $ | 21,243  |       |  |  |  | $ | — |  |  |  |  | $ | 142,799 |  |
| Netearnedpremiums             |  |  |                             |   | 82,900  |                                      |  |  |                    |   | 17,791  |       |  |  |  |   | — |  |  |  |  |   | 100,691 |  |
| Segmentrevenues               |  |  |                             |   | 89,382  |                                      |  |  |                    |   | 19,086  |       |  |  |  |   | 726     |  |  |  |  |   | 109,194 |  |
| Underwritingprofit(loss)      |  |  |                             |   | 17,891  |                                      |  |  |                    |   | (233    | )     |  |  |  |   | — |  |  |  |  |   | 17,658  |  |
| Netinvestmentincome           |  |  |                             |   | 6,566   |                                      |  |  |                    |   | 1,272   |       |  |  |  |   | 661     |  |  |  |  |   | 8,499   |  |
| Interestexpense               |  |  |                             |   | — |                                      |  |  |                    |   | — |       |  |  |  |   | 1,673   |  |  |  |  |   | 1,673   |  |
| Segmentassets                 |  |  |                             |   | 558,025 |                                      |  |  |                    |   | 83,659  |       |  |  |  |   | 30,680  |  |  |  |  |   | 672,364 |  |
| SixMonths Ended June  30,2005 |  |  |                             |   |    |                                      |  |  |                    |   |    |       |  |  |  |   |    |  |  |  |  |   |    |  |
| Grosswrittenpremiums          |  |  |                             | $ | 91,235  |                                      |  |  |                    | $ | 13,579  |       |  |  |  | $ | — |  |  |  |  | $ | 104,814 |  |
| Netearnedpremiums             |  |  |                             |   | 45,255  |                                      |  |  |                    |   | 10,651  |       |  |  |  |   | — |  |  |  |  |   | 55,906  |  |
| Segmentrevenues               |  |  |                             |   | 48,179  |                                      |  |  |                    |   | 11,237  |       |  |  |  |   | 230     |  |  |  |  |   | 59,646  |  |
| Underwritingprofit            |  |  |                             |   | 11,261  |                                      |  |  |                    |   | 757     |       |  |  |  |   | — |  |  |  |  |   | 12,018  |  |
| Netinvestmentincome           |  |  |                             |   | 2,929   |                                      |  |  |                    |   | 572     |       |  |  |  |   | 261     |  |  |  |  |   | 3,762   |  |
| Interestexpense               |  |  |                             |   | — |                                      |  |  |                    |   | — |       |  |  |  |   | 1,230   |  |  |  |  |   | 1,230   |  |
| Segmentassets                 |  |  |                             |   | 293,353 |                                      |  |  |                    |   | 44,034  |       |  |  |  |   | 13,163  |  |  |  |  |   | 350,550 |  |
|                               |

11

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Notesto Condensed Consolidated Financial Statements(Unaudited) (Continued)

9.    Segment Information    (continued)

The following table reconciles theunderwriting profit (loss) of the insurance segments by individualsegment to consolidated income before taxes:

|                                                           |  |  |                            |   |        |                          |  |  |      |   |        |      |  |  |  |   |        |   |  |  |  |   |        |   |
|-----------------------------------------------------------|--|--|----------------------------|---|--------|--------------------------|--|--|------|---|--------|------|--|--|--|---|--------|---|--|--|--|---|--------|---|
|                                                      |  |  | ThreeMonths Ended June 30, |   |        | Six Months Ended June30, |
|                                                      |  |  | 2006                       |   |        | 2005                     |  |  | 2006 |   |        | 2005 |
|                                                      |  |  | ($in thousands)            |
| Underwriting profit (loss) ofinsurancesegments:           |  |  |                            |   |   |                          |  |  |      |   |   |      |  |  |  |   |   |   |  |  |  |   |   |   |
| Excessand SurplusInsurance                                |  |  |                            | $ | 9,760  |                          |  |  |      | $ | 5,619  |      |  |  |  | $ | 17,891 |   |  |  |  | $ | 11,261 |   |
| Workers’Compensation Insurance                      |  |  |                            |   | 410    |                          |  |  |      |   | 256    |      |  |  |  |   | (233   | ) |  |  |  |   | 757    |   |
| Totalunderwriting profit of insurancesegments             |  |  |                            |   | 10,170 |                          |  |  |      |   | 5,875  |      |  |  |  |   | 17,658 |   |  |  |  |   | 12,018 |   |
| Netinvestmentincome                                       |  |  |                            |   | 4,506  |                          |  |  |      |   | 2,017  |      |  |  |  |   | 8,499  |   |  |  |  |   | 3,762  |   |
| Realizedinvestmentlosses                                  |  |  |                            |   | (49    | )                        |  |  |      |   | (73    | )    |  |  |  |   | (84    | ) |  |  |  |   | (98    | ) |
| Otherincome                                               |  |  |                            |   | 46     |                          |  |  |      |   | 31     |      |  |  |  |   | 88     |   |  |  |  |   | 76     |   |
| Otheroperating expenses of the Corporate and Othersegment |  |  |                            |   | (1,166 | )                        |  |  |      |   | (241   | )    |  |  |  |   | (1,807 | ) |  |  |  |   | (639   | ) |
| Interestexpense                                           |  |  |                            |   | (896   | )                        |  |  |      |   | (642   | )    |  |  |  |   | (1,673 | ) |  |  |  |   | (1,230 | ) |
| Consolidatedincome beforetaxes                            |  |  |                            | $ | 12,611 |                          |  |  |      | $ | 6,967  |      |  |  |  | $ | 22,681 |   |  |  |  | $ | 13,889 |   |
|                                                           |

10.    OtherOperating Expenses

Other operating expenses consist ofthefollowing:

|                                                           |  |  |                            |   |        |                          |  |  |      |   |       |      |  |  |  |   |        |  |  |  |  |   |        |  |
|-----------------------------------------------------------|--|--|----------------------------|---|--------|--------------------------|--|--|------|---|-------|------|--|--|--|---|--------|--|--|--|--|---|--------|--|
|                                                      |  |  | ThreeMonths Ended June 30, |   |        | Six Months Ended June30, |
|                                                      |  |  | 2006                       |   |        | 2005                     |  |  | 2006 |   |       | 2005 |
|                                                      |  |  | ($in thousands)            |
| Other underwriting expenses ofthe insurancesegments       |  |  |                            | $ | 3,856  |                          |  |  |      | $ | 1,667 |      |  |  |  | $ | 7,563  |  |  |  |  | $ | 3,303  |  |
| Amortizationof policy acquisitioncosts                    |  |  |                            |   | 8,362  |                          |  |  |      |   | 4,572 |      |  |  |  |   | 16,039 |  |  |  |  |   | 8,231  |  |
| Otheroperating expenses of the Corporate and Othersegment |  |  |                            |   | 1,166  |                          |  |  |      |   | 241   |      |  |  |  |   | 1,807  |  |  |  |  |   | 639    |  |
| Total                                                     |  |  |                            | $ | 13,384 |                          |  |  |      | $ | 6,480 |      |  |  |  | $ | 25,409 |  |  |  |  | $ | 12,173 |  |
|                                                           |

12

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Item2.    Management’s Discussion and Analysis of FinancialCondition and Results ofOperations.

OVERVIEW

James River Group, Inc. is aholding company that owns and manages property/casualty insurancecompanies focused on specialty insurance niches. We seekto:

|  |              |                                     |
|--|--------------|-------------------------------------|
|  | •  | earn a profit from underwriting;and |

|  |              |                                                      |
|--|--------------|------------------------------------------------------|
|  | •  | produce a return on average equityof 15% or greater. |

By earning a profit fromunderwriting, we expect that the premiums we earn in any period to besufficient to pay all of the losses and loss adjustment expenses (LAE)we incur during the period as well as all of the expenses associatedwith our operations. We use underwriting profit or loss as a basis forevaluating our underwriting performance. We intend to generateunderwriting profits by minimizing expenses and focusing onunderwriting specialty insurance risks where we can use our expertiseto price and structure policies to minimize our claims expenses. Webelieve that we can do this since we operate at a lower expense ratiothan many of our competitors, focus on specialty insurance markets,underwrite each risk individually, use timely and accurate data andactively manage claims. Our underwriting profit for the three monthsended June  30,  2006 was $9.0  million, an increaseof 59.8% over the $5.6  million reported for the sameperiod last year. For the six months ended June  30,  2006,our underwriting profit was $15.9  million, an increase of39.3% over the $11.4  million reported for the same periodlast year.

We calculate return on equity by dividingannualized net income by average stockholders' equity for theperiod. Our overall financial goal is to produce an annual return onequity of at least 15.0%. Our return on average equity was18.6% for the quarter ended June  30,  2006 and17.0% for the six months ended June  30,  2006. Ourreturn on average equity for the same periods in 2005 was 21.4%and 21.5%, respectively. After the end of the second quarter of2005, we raised $84.6  million in our initial public offering(see ‘‘Initial Public Offering’’). As aresult, comparison of our year-over-year return on equity shouldinclude the proceeds of this offering.

We are organizedinto three reportable segments, which are separately managed businessunits:

|  |              |                                                                                                                                                                                  |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | The Excess and Surplus Insurancesegment offers commercial excess and surplus lines liability andproperty insurance through James River Insurance Company (James RiverInsurance); |

|  |              |                                                                                                                                                                                                                    |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | The Workers'Compensation Insurance segment offers workers' compensationcoverage primarily for the residential construction industry in NorthCarolina through Stonewood Insurance Company (Stonewood Insurance);and |

|  |              |                                                                                                                                                    |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | The Corporate and Other segmentconsists of management and treasury activities of our holding companyand interest expense associated with our debt. |

James RiverInsurance and Stonewood Insurance each have a financial strength ratingof ‘‘A−’’ (Excellent) from A.M.Best.

13

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RESULTS OF OPERATIONS

Thefollowing table compares the components of netincome:

|                                   |  |  |                            |   |         |                          |  |  |         |   |         |      |  |  |      |  |        |         |  |  |  |   |         |   |  |  |  |   |         |   |  |  |  |  |        |    |
|-----------------------------------|--|--|----------------------------|---|---------|--------------------------|--|--|---------|---|---------|------|--|--|------|--|--------|---------|--|--|--|---|---------|---|--|--|--|---|---------|---|--|--|--|--|--------|----|
|                              |  |  | ThreeMonths Ended June 30, |   |         | Six Months Ended June30, |
|                              |  |  | 2006                       |   |         | 2005                     |  |  | %Change |   |         | 2006 |  |  | 2005 |  |        | %Change |
|                              |  |  | ($ inthousands)            |
| Gross writtenpremiums             |  |  |                            | $ | 74,634  |                          |  |  |         | $ | 57,794  |      |  |  |      |  | 29.1   | %       |  |  |  | $ | 142,799 |   |  |  |  | $ | 104,814 |   |  |  |  |  | 36.2   | %  |
| Netwrittenpremiums                |  |  |                            | $ | 54,824  |                          |  |  |         | $ | 38,528  |      |  |  |      |  | 42.3   | %       |  |  |  | $ | 108,512 |   |  |  |  | $ | 69,518  |   |  |  |  |  | 56.1   | %  |
| Netretention(a)                   |  |  |                            |   | 73.5    | %                        |  |  |         |   | 66.7    | %    |  |  |      |  |   |         |  |  |  |   | 76.0    | % |  |  |  |   | 66.3    | % |  |  |  |  |   |    |
| Netearnedpremiums                 |  |  |                            | $ | 52,602  |                          |  |  |         | $ | 31,074  |      |  |  |      |  | 69.3   | %       |  |  |  | $ | 100,691 |   |  |  |  | $ | 55,906  |   |  |  |  |  | 80.1   | %  |
| Lossesand loss adjustmentexpenses |  |  |                            |   | (30,214 | )                        |  |  |         |   | (18,960 | )    |  |  |      |  | 59.4   | %       |  |  |  |   | (59,431 | ) |  |  |  |   | (32,354 | ) |  |  |  |  | 83.7   | %  |
| Otheroperatingexpenses            |  |  |                            |   | (13,384 | )                        |  |  |         |   | (6,480  | )    |  |  |      |  | 106.5  | %       |  |  |  |   | (25,409 | ) |  |  |  |   | (12,173 | ) |  |  |  |  | 108.7  | %  |
| Underwritingprofit(b)             |  |  |                            |   | 9,004   |                          |  |  |         |   | 5,634   |      |  |  |      |  | 59.8   | %       |  |  |  |   | 15,851  |   |  |  |  |   | 11,379  |   |  |  |  |  | 39.3   | %  |
| Netinvestmentincome               |  |  |                            |   | 4,506   |                          |  |  |         |   | 2,017   |      |  |  |      |  | 123.4  | %       |  |  |  |   | 8,499   |   |  |  |  |   | 3,762   |   |  |  |  |  | 125.9  | %  |
| Realizedinvestmentlosses          |  |  |                            |   | (49     | )                        |  |  |         |   | (73     | )    |  |  |      |  | (32.9  | )%      |  |  |  |   | (84     | ) |  |  |  |   | (98     | ) |  |  |  |  | (14.3  | )% |
| Otherincome                       |  |  |                            |   | 46      |                          |  |  |         |   | 31      |      |  |  |      |  | 48.4   | %       |  |  |  |   | 88      |   |  |  |  |   | 76      |   |  |  |  |  | 15.8   | %  |
| Interestexpense                   |  |  |                            |   | (896    | )                        |  |  |         |   | (642    | )    |  |  |      |  | 39.6   | %       |  |  |  |   | (1,673  | ) |  |  |  |   | (1,230  | ) |  |  |  |  | 36.0   | %  |
| Federalincome taxexpense          |  |  |                            |   | (4,060  | )                        |  |  |         |   | (2,282  | )    |  |  |      |  | 77.9   | %       |  |  |  |   | (7,301  | ) |  |  |  |   | (4,598  | ) |  |  |  |  | 58.8   | %  |
| Netincome                         |  |  |                            | $ | 8,551   |                          |  |  |         | $ | 4,685   |      |  |  |      |  | 82.5   | %       |  |  |  | $ | 15,380  |   |  |  |  | $ | 9,291   |   |  |  |  |  | 65.5   | %  |
| Ratios:                           |  |  |                            |   |    |                          |  |  |         |   |    |      |  |  |      |  |   |         |  |  |  |   |    |   |  |  |  |   |    |   |  |  |  |  |   |    |
| Lossratio                         |  |  |                            |   | 57.4    | %                        |  |  |         |   | 61.0    | %    |  |  |      |  |   |         |  |  |  |   | 59.0    | % |  |  |  |   | 57.9    | % |  |  |  |  |   |    |
| Expenseratio                      |  |  |                            |   | 25.4    | %                        |  |  |         |   | 20.9    | %    |  |  |      |  |   |         |  |  |  |   | 25.2    | % |  |  |  |   | 21.8    | % |  |  |  |  |   |    |
| Combinedratio                     |  |  |                            |   | 82.9    | %                        |  |  |         |   | 81.9    | %    |  |  |      |  |   |         |  |  |  |   | 84.3    | % |  |  |  |   | 79.6    | % |  |  |  |  |   |    |
|                                   |

|     |                                                                                        |
|-----|----------------------------------------------------------------------------------------|
| (a) | Netretention is defined as the ratio of net written premiums to grosswritten premiums. |

|     |                                                                                       |
|-----|---------------------------------------------------------------------------------------|
| (b) | See‘‘Reconciliation of Non-GAAP Measures’’ forfurther detail. |

Net income was $8.6  million,or $0.53 per diluted share, for the three months ended June30,  2006, which represented an 82.5% increase over thenet income of $4.7  million, or $0.46 per diluted share, for thethree months ended June  30,  2005. For the six-monthperiod ended June  30,  2006, net income was $15.4million, or $0.96 per diluted share, which represented a 65.5%increase over the same period in the prior year of $9.3  million,or $0.91 per diluted share. Weighted-average diluted shares outstandingin the second quarter of 2006 of 16.0  million (15.9million on a year-to-date basis) exceeded those in the second quarterof 2005 of 10.2  million (10.2  million on a year-to-datebasis) principally as a result of shares issued in the Company’sinitial public offering in August  2005.

Ourcombined ratio for the three months ended June  30,  2006was 82.9%. The combined ratio is a measure of underwritingperformance and represents the relationship of incurred losses, LAE andother operating expenses to net earned premiums. A combined ratio ofless than 100.0% indicates an underwriting profit, while acombined ratio greater than 100.0% reflects an underwritingloss. The combined ratio for the quarter included $2.0  million,or 3.9 points, of favorable reserve development on direct businesswritten arising from prior accident years including $1.5  millionfrom the Excess and Surplus Insurance segment’s casualtybusiness and $513,000 from the Excess and Surplus Insurancesegment’s property business.

In the prior year,the combined ratio for the three months ended June  30,2005 was 81.9%. It included $457,000, or 1.5 points, offavorable reserve development on direct business written arising fromprior accident years including $670,000 from the Excess and SurplusInsurance segment’s property business, offset by $199,000 ofadverse development from the Excess and Surplus Insurancesegment’s casualty business.

The combined ratiofor the six months ended June  30,  2006 of 84.3%included $4.4  million, or 4.3 points, of favorable reservedevelopment on direct business arising from prior accident yearsincluding 

14

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$3.0  million from the Excess andSurplus Insurance segment’s casualty business, $1.1million from the Excess and Surplus Insurance segment’s propertybusiness and $242,000 from the Workers’ Compensation Insurancesegment.

In the prior year, the combined ratio for the sixmonths ended June  30 was 79.6%. It included $2.8million, or 5.0 points, of favorable reserve development on directbusiness written arising from prior accident years including$2.4  million from the Excess and Surplus Insurancesegment’s property business and $283,000 from theWorkers’ Compensation Insurance segment.

UNDERWRITINGRESULTS

There is an intercompany reinsurance poolingagreement in place between James River Insurance and StonewoodInsurance to best employ our capital at the regulatory level. We reportall segment information in this ‘‘Management'sDiscussion and Analysis of Financial Condition and Results ofOperations’’ prior to the effects of this intercompanyreinsurance pooling agreement because we evaluate the operatingperformance of our reportable segments on a pre-poolingbasis.

The following table compares our combined ratios bysegment:

|                                     |  |  |                            |  |      |                          |  |  |      |  |      |      |  |  |  |  |       |   |  |  |  |  |      |   |
|-------------------------------------|--|--|----------------------------|--|------|--------------------------|--|--|------|--|------|------|--|--|--|--|-------|---|--|--|--|--|------|---|
|                                |  |  | ThreeMonths Ended June 30, |  |      | Six Months Ended June30, |
|                                |  |  | 2006                       |  |      | 2005                     |  |  | 2006 |  |      | 2005 |
| Excessand SurplusInsurance          |  |  |                            |  | 77.5 | %                        |  |  |      |  | 77.0 | %    |  |  |  |  | 78.4  | % |  |  |  |  | 75.1 | % |
| Workers’CompensationInsurance |  |  |                            |  | 95.6 | %                        |  |  |      |  | 96.2 | %    |  |  |  |  | 101.3 | % |  |  |  |  | 92.9 | % |
| Total                               |  |  |                            |  | 82.9 | %                        |  |  |      |  | 81.9 | %    |  |  |  |  | 84.3  | % |  |  |  |  | 79.6 | % |
|                                     |

Excessand Surplus Insurance

The combined ratio for theExcess and Surplus Insurance segment for the three months endedJune  30,  2006 was 77.5%, comprised of a loss ratioof 55.3% and an expense ratio of 22.2%. This included$2.0  million, or 4.7 points, of favorable reserve development inour loss estimates consisting of $1.5  million arising fromcasualty business and $513,000 from property business (primarilyattributable to favorable development on reserves associated withHurricane Katrina). This compares to the second quarter of the prioryear’s combined ratio of 77.0%, comprised of a loss ratioof 59.6% and an expense ratio of 17.3%. This included$471,000, or 1.9 points, of favorable development which included$670,000 of favorable development on property business being partiallyoffset by $199,000 of unfavorable development on casualty business. Theexpense ratio for the same period in the prior year, benefited from$2.2  million of ceding commissions that James River Insurancereceived on a quota share reinsurance contract which was not renewedfor 2006. That reinsurance contract also affected the expense ratio ofthe second quarter of the prior year by reducing net earned premiums by$8.5  million.

The combined ratio for the Excessand Surplus Insurance segment for the six months ended June30,  2006 was 78.4%, comprised of a loss ratio of55.9% and an expense ratio of 22.6%. This included$4.1  million, or 5.0 points, of favorable development in ourloss estimates consisting of $3.0  million arising from casualtybusiness and $1.1  million from property business. This comparesto the first six months of the prior year’s combined ratio of75.1%, comprised of a loss ratio of 57.2% and an expenseratio of 17.9%. Our 2005 results included $2.5  million,or 5.5 points, of favorable development, $2.4  million of whichwas from our property business. The expense ratio for the same periodin the prior year benefited from $4.1  million of cedingcommissions that James River Insurance received on a quota sharereinsurance contract that was not renewed for 2006. That contract alsoaffected the expense ratio of the second quarter of the prior year byreducing net earned premiums by $16.0  million.

15

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Underwriting results by major lineof business within the Excess and Surplus Insurance segment are asfollows:

|                    |  |  |                                 |   |        |                              |  |  |       |   |       |               |  |  |               |   |        |       |  |  |  |   |        |   |  |  |  |   |       |   |  |  |  |   |        |   |
|--------------------|--|--|---------------------------------|---|--------|------------------------------|--|--|-------|---|-------|---------------|--|--|---------------|---|--------|-------|--|--|--|---|--------|---|--|--|--|---|-------|---|--|--|--|---|--------|---|
|               |  |  | ThreeMonths Ended June 30, 2006 |   |        | Six Months EndedJune 30,2006 |
|               |  |  | CasualtyLines                   |   |        | PropertyLines                |  |  | Total |   |       | CasualtyLines |  |  | PropertyLines |   |        | Total |
|               |  |  | ($in thousands)                 |
| Net earnedpremiums |  |  |                                 | $ | 41,624 |                              |  |  |       | $ | 1,692 |               |  |  |               | $ | 43,316 |       |  |  |  | $ | 79,327 |   |  |  |  | $ | 3,573 |   |  |  |  | $ | 82,900 |   |
| LossesandLAE       |  |  |                                 | $ | 23,866 |                              |  |  |       | $ | 79    |               |  |  |               | $ | 23,945 |       |  |  |  | $ | 45,175 |   |  |  |  | $ | 1,137 |   |  |  |  | $ | 46,312 |   |
| Lossratio          |  |  |                                 |   | 57.3   | %                            |  |  |       |   | 4.7   | %             |  |  |               |   | 55.3   | %     |  |  |  |   | 56.9   | % |  |  |  |   | 31.8  | % |  |  |  |   | 55.9   | % |
|                    |

|                    |  |  |                                 |   |        |                              |  |  |       |   |       |               |  |  |               |   |        |       |  |  |  |   |        |   |  |  |  |   |        |    |  |  |  |   |        |   |
|--------------------|--|--|---------------------------------|---|--------|------------------------------|--|--|-------|---|-------|---------------|--|--|---------------|---|--------|-------|--|--|--|---|--------|---|--|--|--|---|--------|----|--|--|--|---|--------|---|
|               |  |  | ThreeMonths Ended June 30, 2005 |   |        | Six Months EndedJune 30,2005 |
|               |  |  | CasualtyLines                   |   |        | PropertyLines                |  |  | Total |   |       | CasualtyLines |  |  | PropertyLines |   |        | Total |
|               |  |  | ($in thousands)                 |
| Net earnedpremiums |  |  |                                 | $ | 23,025 |                              |  |  |       | $ | 1,398 |               |  |  |               | $ | 24,423 |       |  |  |  | $ | 42,700 |   |  |  |  | $ | 2,555  |    |  |  |  | $ | 45,255 |   |
| LossesandLAE       |  |  |                                 | $ | 14,807 |                              |  |  |       | $ | (239  | )             |  |  |               | $ | 14,568 |       |  |  |  | $ | 27,197 |   |  |  |  | $ | (1,312 | )  |  |  |  | $ | 25,885 |   |
| Lossratio          |  |  |                                 |   | 64.3   | %                            |  |  |       |   | (17.1 | )%            |  |  |               |   | 59.6   | %     |  |  |  |   | 63.7   | % |  |  |  |   | (51.3  | )% |  |  |  |   | 57.2   | % |
|                    |

Workers’Compensation Insurance

The combined ratio for theWorkers’ Compensation Insurance segment for the three monthsended June  30,  2006 was 95.6%, comprised of a lossratio of 67.5% and an expense ratio of 28.1%. The lossratio included $19,000, or 0.2 points, of favorable reserve developmenton direct business from prior accident years. Results for the threemonths ended June  30,  2006 included $227,000, or 2.4points, of net costs assigned from the North Carolina involuntaryworkers’ compensation pool. The results for the second quarterof 2006 compare to those of 2005 where the Workers’ CompensationInsurance segment had a combined ratio of 96.2%, comprised of aloss ratio of 66.0% and an expense ratio of 30.1%. Theloss ratio for the second quarter of the prior year included $14,000,or 0.2 points, of adverse development from prior accident years.Results for the three months ended June  30,  2005 included$268,000, or 4.0 points, of net costs assigned in the Company’sinitial allocation from the North Carolina involuntary workers’compensation pool.

The combined ratio for theWorkers’ Compensation Insurance segment for the six months endedJune  30,  2006 was 101.3%, comprised of a lossratio of 73.7% and an expense ratio of 27.6%. The lossratio for this period included high loss activity in the first quarterof 2006. The loss ratio included $242,000, or 1.4 points, of favorablereserve development on direct business from prior accident years.Results for the six months ended June  30,  2006 included$779,000, or 4.4 points, of net costs assigned from the North Carolinainvoluntary workers’ compensation pool. For the six months endedJune  30,  2005, the Workers’ Compensation Insurancesegment had a combined ratio of 92.9%, comprised of a loss ratioof 60.7% and an expense ratio of 32.2%. The loss ratioincluded $283,000, or 2.7 points, of favorable reserve development ondirect business from prior accident years. Results for the six monthsended June  30,  2005 included $268,000, or 2.5 points, ofcosts assigned in the Company’s initial allocation from theNorth Carolina involuntary workers’ compensation pool. Theexpense ratio of the Workers’ Compensation Insurance segmentimproved significantly over the prior year principally due to economiesof scale achieved by this segment.

16

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RESERVES

TheCompany’s reserve for losses and LAE at June  30,2006 was $264.0  million. Of this amount, 69.2% relates toamounts that are incurred but not reported (IBNR). At June30,  2006, the amount of net reserves related to IBNR was79.5% of the total net reserve for losses and LAE. TheCompany’s gross reserves for losses and LAE by segment aresummarized asfollows:

|                                     |  |  |                                  |   |        |                 |  |  |        |   |         |  |  |  |  |   |         |  |
|-------------------------------------|--|--|----------------------------------|---|--------|-----------------|--|--|--------|---|---------|--|--|--|--|---|---------|--|
|                                |  |  | GrossReserves at June  30,  2006 |
|                                |  |  | Case                             |   |        | IBNR            |  |  | Total  |
|                                |  |  |                             |   |        | ($in thousands) |  |  |   |
| Excess andSurplusInsurance          |  |  |                                  |   |   |                 |  |  |        |   |    |  |  |  |  |   |    |  |
| CasualtyLines                       |  |  |                                  | $ | 31,850 |                 |  |  |        | $ | 148,087 |  |  |  |  | $ | 179,937 |  |
| PropertyLines                       |  |  |                                  |   | 40,127 |                 |  |  |        |   | 17,970  |  |  |  |  |   | 58,097  |  |
| Workers’CompensationInsurance |  |  |                                  |   | 9,286  |                 |  |  |        |   | 16,659  |  |  |  |  |   | 25,945  |  |
| Total                               |  |  |                                  | $ | 81,263 |                 |  |  |        | $ | 182,716 |  |  |  |  | $ | 263,979 |  |
|                                     |

TheCompany’s net reserves for losses and LAE by segment aresummarized asfollows:

|                                     |  |  |                                |   |        |                 |  |  |        |   |         |  |  |  |  |   |         |  |
|-------------------------------------|--|--|--------------------------------|---|--------|-----------------|--|--|--------|---|---------|--|--|--|--|---|---------|--|
|                                |  |  | NetReserves at June  30,  2006 |
|                                |  |  | Case                           |   |        | IBNR            |  |  | Total  |
|                                |  |  |                           |   |        | ($in thousands) |  |  |   |
| Excess andSurplusInsurance          |  |  |                                |   |   |                 |  |  |        |   |    |  |  |  |  |   |    |  |
| CasualtyLines                       |  |  |                                | $ | 14,859 |                 |  |  |        | $ | 111,718 |  |  |  |  | $ | 126,577 |  |
| PropertyLines                       |  |  |                                |   | 9,911  |                 |  |  |        |   | 6,827   |  |  |  |  |   | 16,738  |  |
| Workers’CompensationInsurance |  |  |                                |   | 9,286  |                 |  |  |        |   | 13,526  |  |  |  |  |   | 22,812  |  |
| Total                               |  |  |                                | $ | 34,056 |                 |  |  |        | $ | 132,071 |  |  |  |  | $ | 166,127 |  |
|                                     |

PREMIUMS

Thefollowing table summarizes the growth in premium volume by componentand business segment:

|                                     |  |  |                            |   |        |                          |  |  |         |   |        |      |  |  |      |  |        |         |  |  |  |   |         |  |  |  |  |   |         |  |  |  |  |  |        |   |
|-------------------------------------|--|--|----------------------------|---|--------|--------------------------|--|--|---------|---|--------|------|--|--|------|--|--------|---------|--|--|--|---|---------|--|--|--|--|---|---------|--|--|--|--|--|--------|---|
|                                |  |  | ThreeMonths Ended June 30, |   |        | Six Months Ended June30, |
|                                |  |  | 2006                       |   |        | 2005                     |  |  | %Change |   |        | 2006 |  |  | 2005 |  |        | %Change |
|                                |  |  | ($ inthousands)            |
| Gross writtenpremiums:              |  |  |                            |   |   |                          |  |  |         |   |   |      |  |  |      |  |   |         |  |  |  |   |    |  |  |  |  |   |    |  |  |  |  |  |   |   |
| Excessand SurplusInsurance          |  |  |                            | $ | 63,788 |                          |  |  |         | $ | 49,466 |      |  |  |      |  | 29.0   | %       |  |  |  | $ | 121,556 |  |  |  |  | $ | 91,235  |  |  |  |  |  | 33.2   | % |
| Workers’CompensationInsurance |  |  |                            |   | 10,846 |                          |  |  |         |   | 8,328  |      |  |  |      |  | 30.2   | %       |  |  |  |   | 21,243  |  |  |  |  |   | 13,579  |  |  |  |  |  | 56.4   | % |
|                                |  |  |                            | $ | 74,634 |                          |  |  |         | $ | 57,794 |      |  |  |      |  | 29.1   | %       |  |  |  | $ | 142,799 |  |  |  |  | $ | 104,814 |  |  |  |  |  | 36.2   | % |
| Netwrittenpremiums:                 |  |  |                            |   |   |                          |  |  |         |   |   |      |  |  |      |  |   |         |  |  |  |   |    |  |  |  |  |   |    |  |  |  |  |  |   |   |
| Excessand SurplusInsurance          |  |  |                            | $ | 45,368 |                          |  |  |         | $ | 31,203 |      |  |  |      |  | 45.4   | %       |  |  |  | $ | 89,944  |  |  |  |  | $ | 58,105  |  |  |  |  |  | 54.8   | % |
| Workers’CompensationInsurance |  |  |                            |   | 9,456  |                          |  |  |         |   | 7,325  |      |  |  |      |  | 29.1   | %       |  |  |  |   | 18,568  |  |  |  |  |   | 11,413  |  |  |  |  |  | 62.7   | % |
|                                |  |  |                            | $ | 54,824 |                          |  |  |         | $ | 38,528 |      |  |  |      |  | 42.3   | %       |  |  |  | $ | 108,512 |  |  |  |  | $ | 69,518  |  |  |  |  |  | 56.1   | % |
| Netearnedpremiums:                  |  |  |                            |   |   |                          |  |  |         |   |   |      |  |  |      |  |   |         |  |  |  |   |    |  |  |  |  |   |    |  |  |  |  |  |   |   |
| Excessand SurplusInsurance          |  |  |                            | $ | 43,316 |                          |  |  |         | $ | 24,423 |      |  |  |      |  | 77.4   | %       |  |  |  | $ | 82,900  |  |  |  |  | $ | 45,255  |  |  |  |  |  | 83.2   | % |
| Workers’CompensationInsurance |  |  |                            |   | 9,286  |                          |  |  |         |   | 6,651  |      |  |  |      |  | 39.6   | %       |  |  |  |   | 17,791  |  |  |  |  |   | 10,651  |  |  |  |  |  | 67.0   | % |
|                                |  |  |                            | $ | 52,602 |                          |  |  |         | $ | 31,074 |      |  |  |      |  | 69.3   | %       |  |  |  | $ | 100,691 |  |  |  |  | $ | 55,906  |  |  |  |  |  | 80.1   | % |
|                                     |

Theincreases in premiums noted above are due to an increase in renewalbusiness and growth in the Company’s broker and agency networks.The number of brokers submitting business to the Excess and SurplusInsurance segment grew 27.3% from 172 to 219 for the threemonths ended June  30,  2005 and 2006, respectively. Thenumber of agencies in the Workers’ Compensation Insurancenetwork grew 14.5% from 124 to 142 as of June  30,2005 and 2006, respectively.

17

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Gross written premiums forStonewood Insurance for the three and six-month periods endedJune  30,  2006 included $657,000 and $1.2  million,respectively, of premiums assumed from our allocation of theinvoluntary workers’ compensation pool for NorthCarolina.

Net written premiums increased as noted abovefor the three and six-month periods ended June  30,  2006.For the three months ended June  30,  2006 and 2005, ournet retention was 73.5% and 66.7%, respectively. For thesix months ended June  30,  2006 and 2005, our netretention was 76.0% and 66.3%, respectively. We enteredinto a quota share reinsurance contract effective January1,  2005 that transferred a portion of the risk related tocertain property/casualty business written by James River Insurance in2005 to reinsurers in exchange for a portion of our direct writtenpremiums on that business. This quota share treaty reduced our netretention ratio for both the three-month and six-month periods endedJune  30,  2005. Ceded written premiums and ceded earnedpremiums related to this quota share treaty for the three-month andsix-month periods ended June  30,  2005 totaled $8.5million and $16.0  million, respectively. This quota sharereinsurance treaty was not renewed for 2006.

Net earnedpremiums also grew as noted above. Premiums are earned ratably over theterms of our insurance policies, generally twelve months.

INVESTING RESULTS

Net investment income for the threemonths ended June  30,  2006 was $4.5  million, up123.4% from $2.0  million for the three months endedJune  30,  2005. Net investment income for the six monthsended June  30,  2006 was $8.5  million, up125.9% from $3.8  million for the six months endedJune  30,  2005. The increase in net investment incomereflects the significant growth in our invested assets from$228.8  million at June  30,  2005 to $433.4million at June  30,  2006. The growth in our investedassets came from net written premiums, the $84.6  million ofproceeds from our initial public offering and the underwriters’exercise of their over-allotment option in August  2005 and the$20.0  million of net proceeds from our offering of juniorsubordinated debt in June  2006. The following table summarizesour investmentreturns:

|                                     |  |  |                            |  |        |                          |  |  |      |  |        |      |  |  |  |  |        |   |  |  |  |  |        |   |
|-------------------------------------|--|--|----------------------------|--|--------|--------------------------|--|--|------|--|--------|------|--|--|--|--|--------|---|--|--|--|--|--------|---|
|                                |  |  | ThreeMonths Ended June 30, |  |        | Six Months Ended June30, |
|                                |  |  | 2006                       |  |        | 2005                     |  |  | 2006 |  |        | 2005 |
| Annualizedgross investment yieldon: |  |  |                            |  |   |                          |  |  |      |  |   |      |  |  |  |  |   |   |  |  |  |  |   |   |
| Averagecash and investedassets      |  |  |                            |  | 4.3    | %                        |  |  |      |  | 3.8    | %    |  |  |  |  | 4.3    | % |  |  |  |  | 3.7    | % |
| Averagefixed maturitysecurities     |  |  |                            |  | 4.3    | %                        |  |  |      |  | 4.0    | %    |  |  |  |  | 4.2    | % |  |  |  |  | 4.0    | % |
| Annualizedtax equivalent yieldon:   |  |  |                            |  |   |                          |  |  |      |  |   |      |  |  |  |  |   |   |  |  |  |  |   |   |
| Averagefixed maturitysecurities     |  |  |                            |  | 4.8    | %                        |  |  |      |  | 4.4    | %    |  |  |  |  | 4.7    | % |  |  |  |  | 4.4    | % |
|                                     |

Ourcash and invested assets consist of fixed maturity securities and cashand cash equivalents. Our fixed maturity securities are classified asavailable-for-sale and are carried at fair value with unrealized gainsand losses on these securities reported, net of tax, as a separatecomponent of accumulated other comprehensive income (loss). The averageduration of our fixed maturity security portfolio at June30,  2006 is approximately 4.6 years.

18

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The amortized cost and fair valueof our investments in fixed maturity securities were asfollows:

|                                                                    |  |  |                 |   |         |                  |  |  |                     |   |         |                |  |  |           |  |       |                     |  |  |  |   |         |  |  |  |  |   |         |  |  |  |  |  |       |   |
|--------------------------------------------------------------------|--|--|-----------------|---|---------|------------------|--|--|---------------------|---|---------|----------------|--|--|-----------|--|-------|---------------------|--|--|--|---|---------|--|--|--|--|---|---------|--|--|--|--|--|-------|---|
|                                                               |  |  | June30, 2006    |   |         | December 31,2005 |
|                                                               |  |  | AmortizedCost   |   |         | Fair Value       |  |  | % of TotalFairValue |   |         | Amortized Cost |  |  | FairValue |  |       | % of TotalFairValue |
|                                                               |  |  | ($ inthousands) |
| Corporate                                                          |  |  |                 | $ | 96,707  |                  |  |  |                     | $ | 93,101  |                |  |  |           |  | 21.5  | %                   |  |  |  | $ | 97,807  |  |  |  |  | $ | 95,899  |  |  |  |  |  | 28.3  | % |
| U.S.Treasury securities and obligations of U.S. Governmentagencies |  |  |                 |   | 43,731  |                  |  |  |                     |   | 41,784  |                |  |  |           |  | 9.6   | %                   |  |  |  |   | 46,868  |  |  |  |  |   | 45,929  |  |  |  |  |  | 13.5  | % |
| Stateandmunicipal                                                  |  |  |                 |   | 161,582 |                  |  |  |                     |   | 157,758 |                |  |  |           |  | 36.4  | %                   |  |  |  |   | 99,047  |  |  |  |  |   | 98,161  |  |  |  |  |  | 28.9  | % |
| Mortgage-backed                                                    |  |  |                 |   | 92,164  |                  |  |  |                     |   | 89,279  |                |  |  |           |  | 20.6  | %                   |  |  |  |   | 65,319  |  |  |  |  |   | 64,424  |  |  |  |  |  | 19.0  | % |
| Asset-backed                                                       |  |  |                 |   | 52,860  |                  |  |  |                     |   | 51,488  |                |  |  |           |  | 11.9  | %                   |  |  |  |   | 35,595  |  |  |  |  |   | 35,099  |  |  |  |  |  | 10.3  | % |
| Total                                                              |  |  |                 | $ | 447,044 |                  |  |  |                     | $ | 433,410 |                |  |  |           |  | 100.0 | %                   |  |  |  | $ | 344,636 |  |  |  |  | $ | 339,512 |  |  |  |  |  | 100.0 | % |
|                                                                    |

Theamortized cost and fair value of our investments in fixed maturitysecurities summarized by contractual maturity were asfollows:

|                                  |  |  |                 |   |         |            |  |  |                      |   |         |  |  |  |  |  |        |   |
|----------------------------------|--|--|-----------------|---|---------|------------|--|--|----------------------|---|---------|--|--|--|--|--|--------|---|
|                             |  |  | June  30,2006   |
|                             |  |  | AmortizedCost   |   |         | Fair Value |  |  | % of Total FairValue |
|                             |  |  | ($ inthousands) |
| Duein:                           |  |  |                 |   |    |            |  |  |                      |   |    |  |  |  |  |  |   |   |
| One year orless                  |  |  |                 | $ | 10,883  |            |  |  |                      | $ | 10,753  |  |  |  |  |  | 2.5    | % |
| Afterone year through fiveyears  |  |  |                 |   | 87,098  |            |  |  |                      |   | 83,985  |  |  |  |  |  | 19.4   | % |
| Afterfive years through tenyears |  |  |                 |   | 74,896  |            |  |  |                      |   | 71,684  |  |  |  |  |  | 16.5   | % |
| Aftertenyears                    |  |  |                 |   | 129,143 |            |  |  |                      |   | 126,221 |  |  |  |  |  | 29.1   | % |
| Mortgage-backed                  |  |  |                 |   | 92,164  |            |  |  |                      |   | 89,279  |  |  |  |  |  | 20.6   | % |
| Asset-backed                     |  |  |                 |   | 52,860  |            |  |  |                      |   | 51,488  |  |  |  |  |  | 11.9   | % |
| Total                            |  |  |                 | $ | 447,044 |            |  |  |                      | $ | 433,410 |  |  |  |  |  | 100.0  | % |
|                                  |

AtJune  30,  2006, our fixed maturity security portfolio hadan unrealized loss of $13.6  million, representing 3.0% ofthe amortized cost of the portfolio. The majority of the unrealizedlosses on fixed maturity securities at June  30,  2006 areinterest rate related. Each security in our portfolio had a fair valuethat was greater than 90% of its amortized cost at June30,  2006. None of the fixed maturity securities with unrealizedlosses has ever missed, or been delinquent on, a scheduled principal orinterest payment. At June  30,  2006, 96.5% of ourfixed maturity security portfolio was rated‘‘A−’’ or better by Standard &Poor's or received an equivalent rating from another nationallyrecognized rating agency.

We have concluded that none ofthe available-for-sale securities with unrealized losses at June30,  2006 has experienced an other-than-temporary impairment. Weconsidered our intent and ability to hold the securities for asufficient time to allow for a recovery in value in thisdetermination.

Our cash and cash equivalents were$31.8  million at June  30,  2006. The percentage ofour cash and invested assets in cash and cash equivalents was6.8% at June  30,  2006 compared to 10.8% atDecember  31,  2005. At June  30,  2006, cashand invested assets per share was $30.83 compared to $25.25 atDecember  31,  2005.

OTHER OPERATINGEXPENSES

Other operating expenses for the Company includeboth the underwriting, acquisition and insurance expenses of the Excessand Surplus Insurance segment and the Workers’ CompensationInsurance segment as well as the expenses of the Corporate and Othersegment that are not reimbursed by the insurance segments.

Other operating expenses for the Corporate and Other segmentinclude personnel costs associated with holding company employees,directors' fees, professional fees and various other corporate

19

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expenses. A majority of these costs arereimbursed by our subsidiaries. The amount of the reimbursement isincluded primarily as underwriting expenses in the results of ourinsurance subsidiaries. The amounts of other operating expenses of theCorporate and Other segment represent the expenses of the holdingcompany that were not reimbursed by our subsidiaries (including costsassociated with potential acquisitions and other strategicinitiatives). These costs may vary from period to period based on thestatus of these initiatives. The total costs for the operating expensesof the Corporate and Other segment were $1.2  million and$241,000 for the three months ended June  30,  2006 and2005, respectively. These expenses were $1.8  million and$639,000 for the six months ended June  30,  2006 and 2005,respectively. The significant increase in other operating expenses ofthe Corporate and Other segment over the prior periods was attributableto planned increases in legal and consulting expenses, most notablythose associated with being a public registrant – particularlycosts associated with the implementation of the internal controldocumentation and testing requirements of the Sarbanes-Oxley Act. Otheroperating expenses for the three-month and six-month periods endedJune  30,  2006 also included $238,000 and $461,000,respectively, of compensation expense associated with the expensing ofstock options in connection with the adoption of Financial AccountingStandards Board (FASB) Statement No. 123 (revised 2004), Share-BasedPayment (Statement 123(R)), effective January  1,  2006(see ‘‘New Accounting Standards’’).

Interest expense totaled $896,000 and $642,000 for the threemonths ended June  30,  2006 and 2005, respectively, and$1.7  million and $1.2  million, respectively, for the sixmonths ended June  30,  2006 and 2005. Interest expenserelated to $15.0  million of senior debt and $43.3  millionof junior subordinated debt. Interest on these notes accrues atfloating rates, and the increase in interest expense reflects increasesin interest rates over the past 12 months as well as the issuance ofthe additional $20.6  million of junior subordinated debt inJune  2006.

INCOME TAXES

Income tax ratesfor the three months ended June  30,  2006 and 2005 of32.2% and 32.8%, respectively, differ from the amountscomputed by applying the Federal statutory income tax rate to incomebefore taxes primarily due to interest income on tax-advantaged stateand municipal securities. For the six months ended June30,  2006 and 2005, those rates were 32.2% and33.1% respectively. Tax-advantaged state and municipalsecurities represented 36.4% of our fixed maturity securityportfolio at June  30,  2006 compared to 29.0% atJune  30,  2005.

SENIOR DEBT AND JUNIOR SUBORDINATEDDEBT

In May  2004, we issued $15.0  millionof senior debt due April  29,  2034, with net proceeds tous of $14.5  million. The senior debt is not redeemable by theholder or subject to sinking fund requirements. Interest accruesquarterly and is payable in arrears at a floating rate per annum equalto three-month LIBOR plus 3.85%. The senior debt is redeemableprior to its stated maturity at our option in whole or in part, on orafter May  15,  2009. The terms of the senior debt containscertain covenants, which, among other things, restrict our assumingsenior indebtedness secured by our Common Stock or oursubsidiaries’ capital stock or issuing shares of oursubsidiaries’ capital stock. We are in compliance with all suchcovenants at June  30,  2006.

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We have sold trust preferredsecurities through three Delaware statutory trusts sponsored andwholly-owned by us. Each trust used the net proceeds from the sale ofits trust preferred securities to purchase our floating rate juniorsubordinated debt. The following table summarizes the nature and termsof the junior subordinated debt and trust preferred securitiesoutstanding at June  30,2006:

|                                                                     |  |  |                           |   |       |                             |  |  |                                                                        |   |        |  |  |  |  |   |        |  |
|---------------------------------------------------------------------|--|--|---------------------------|---|-------|-----------------------------|--|--|------------------------------------------------------------------------|---|--------|--|--|--|--|---|--------|--|
|                                                                |  |  | James RiverCapital TrustI |   |       | James RiverCapital Trust II |  |  | JamesRiverCapital Trust III                                            |
|                                                                |  |  | ($in thousands)           |
| Issuedate                                                           |  |  | May26,2004                |   |       | December15,2004             |  |  | June15,  2006                                                          |
| Principal amount of trust preferredsecurities                       |  |  |                           | $ | 7,000 |                             |  |  |                                                                        | $ | 15,000 |  |  |  |  | $ | 20,000 |  |
| Principalamount of junior subordinateddebt                          |  |  |                           | $ | 7,217 |                             |  |  |                                                                        | $ | 15,464 |  |  |  |  | $ | 20,619 |  |
| Maturitydate of junior subordinated debt, unless acceleratedearlier |  |  | May24,  2034              |   |       | December15,  2034           |  |  | June15,  2036                                                          |
| Trust commonstock                                                   |  |  |                           | $ | 217   |                             |  |  |                                                                        | $ | 464    |  |  |  |  | $ | 619    |  |
| Interestrate, perannum                                              |  |  | Three-MonthLIBORplus 4.0% |   |       | Three-MonthLIBOR plus 3.4%  |  |  | 8.3%through September  30,  2006; Three-MonthLIBORplus 3.0% thereafter |
| Redeemable at100% of principal amount at our option on orafter      |  |  | May24,  2009              |   |       | December15,  2009           |  |  | June15,  2011                                                          |
|                                                                     |

We have provided a full,irrevocable and unconditional guarantee of payment of the obligationsof each of the trusts under the trust preferred securities. Theindentures for the junior subordinated debt contain certain covenantswith which we are in compliance as of June  30,2006.

At June  30,  2006, the ratio of totaldebt outstanding to total capitalization (defined as total debtoutstanding plus total stockholders' equity) was 23.8%. Weuse capital to support our premium growth and having debt as part ofour capital structure allows us to generate higher earnings per shareand book value per share results than we could by using entirely equitycapital. Our target debt to total capitalization ratio is 35.0%or less.

LIQUIDITY AND CAPITAL RESOURCES

Sources andUses of Funds    

We areorganized as a holding company with all of our operations beingconducted by our wholly-owned insurance company subsidiaries.Accordingly, our holding company receives cash through loans frombanks, issuance of equity and debt securities (including our initialpublic offering in August  2005), corporate service fees ordividends received from our insurance subsidiaries, payments from oursubsidiaries pursuant to our consolidated tax allocation agreement andother transactions.

The payment to us of dividends by oursubsidiaries is limited by statute. In general, these restrictionsrequire that dividends be paid out of earned surplus and limit theaggregate amount of dividends or other distributions that oursubsidiaries may declare or pay within any twelve-month period withoutadvance regulatory approval. The maximum amount of dividends availableto us from our insurance subsidiaries during 2006 without regulatoryapproval is $14.5  million. However, insurance regulators havebroad powers to prevent reduction of statutory surplus to inadequatelevels and could refuse to permit the payment of dividends under anyapplicable formula.

At June  30,  2006, cashand invested assets at our holding company totaled $31.2million.

Our premium to surplus ratio (defined asannualized net written premiums to statutory surplus) is reviewed bymanagement as well as our rating agency as a component of leverage andefficiency of deployed capital. As we have a relatively limitedoperating history, the rating agency’s metrics require us tohave a lower premium to surplus ratio than that of some of ourcompetitors. For the six months ended June  30,  2006, ourpremium to surplus ratio was 1.1 to 1.0.

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Cash Flows

Oursources of operating funds consist primarily of written premiums,investment income and proceeds from offerings of debt and equitysecurities. We use operating cash flows primarily to pay operatingexpenses, losses and LAE and incometaxes.

|                                                |  |  |                         |   |          |      |  |  |  |   |         |   |
|------------------------------------------------|--|--|-------------------------|---|----------|------|--|--|--|---|---------|---|
|                                           |  |  | SixMonths Ended June30, |
|                                           |  |  | 2006                    |   |          | 2005 |
|                                           |  |  | ($in thousands)         |
| Cash and cashequivalents provided by (usedin): |  |  |                         |   |     |      |  |  |  |   |    |   |
| Operatingactivities                            |  |  |                         | $ | 72,610   |      |  |  |  | $ | 54,896  |   |
| Investingactivities                            |  |  |                         |   | (102,094 | )    |  |  |  |   | (54,745 | ) |
| Financingactivities                            |  |  |                         |   | 20,221   |      |  |  |  |   | 1,723   |   |
| Changein cash and cashequivalents              |  |  |                         | $ | (9,263   | )    |  |  |  | $ | 1,874   |   |
|                                                |

Theincrease in net cash provided by operating activities from 2005 to 2006reflects the significant growth in our premium cash receipts during theperiod.

Cash from financing transactions during the sixmonths ended June  30,  2006, as noted above, was primarilyattributable to the $20.0  million of proceeds from the issuanceof the junior subordinated debt on June  15,  2006.Financing transactions for the six months ended June  30,2005 included the repayment of $2.0  million of notes from ourdirectors and executive officers.

Initial PublicOffering

On May  3,  2005, we filed aregistration statement on Form S-1 with the Securities ExchangeCommission for an initial public offering of Common Stock. Ourregistration statement was declared effective on August8,  2005. On August  9,  2005, we effected aten-for-one split of our Common Stock to shareholders of record on thatdate. Immediately prior to the closing of the initial public offeringon August  12,  2005, all of our outstanding Series AConvertible Preferred Stock and Series B Convertible Preferred Stock,including shares representing accrued but unpaid dividends, wereconverted into approximately 10.0  million shares of CommonStock. In addition, we amended and restated our certificate ofincorporation to increase the number of authorized shares of CommonStock to 100.0  million and decrease the number of authorizedshares of preferred stock to 5.0  million. Gross proceeds fromthe sale of 4.4  million shares of Common Stock, at an initialpublic offering price per share of $18.00, totaled $80.0million. Costs associated with the initial public offering included$5.6  million of underwriting costs and $995,000 of otherissuance costs.

On August  26,  2005, theunderwriters of the initial public offering exercised theirover-allotment option in which an additional 666,600 shares of CommonStock were issued and sold at the $18.00 initial public offering priceper share. Gross proceeds from this transaction were $12.0million and underwriting costs were$840,000.

Reinsurance

We enter intoreinsurance contracts to limit our exposure to potential losses arisingfrom large risks and to provide additional capacity for growth. Theratio of net written premiums to gross written premiums is referred toas our net retention. For the six months ended June  30,2006 and 2005, our net retention was 76.0% and 66.3%,respectively. Our reinsurance is contracted under excess of loss andquota share reinsurance contracts. In quota share reinsurance, thereinsurer agrees to assume a specified percentage of the cedingcompany's losses arising out of a defined class of business inexchange for a corresponding percentage of premiums. In excess of lossreinsurance, the reinsurer agrees to assume all or a portion of theceding company's losses in excess of a specified amount. Inexcess of loss reinsurance, the premium payable to the reinsurer isnegotiated by the parties based on their assessment of the amount ofrisk being ceded to the reinsurer because the reinsurer does not shareproportionately in the ceding company's losses.

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The following is a summary of ourcasualty reinsurance in place at June  30,2006:

|                            |  |  |                                           |  |  |                                                                                                             |  |  |                                                                                                              |
|----------------------------|--|--|-------------------------------------------|--|--|-------------------------------------------------------------------------------------------------------------|--|--|--------------------------------------------------------------------------------------------------------------|
| Lineof Business            |  |  | Company Policy Limit                      |  |  | ReinsuranceCoverage                                                                                         |  |  | CompanyRetention                                                                                             |
| PrimaryCasualty            |  |  | Up to $5.0  millionper occurrence         |  |  | $4.0  millionexcess of $1.0million                                                                          |  |  | $1.0  million peroccurrence                                                                                  |
| Excess Casualty            |  |  | Up to $8.0million per occurrence          |  |  | 75% quota share(1)                                                                                          |  |  | $500,000 per occurrence                                                                                      |
| Workers’Compensation |  |  | Unlimited (benefits prescribed bystatute) |  |  | $19.3  million in excess of $750,000 peroccurrence with a maximum of $9.3  million on any one injuredworker |  |  | $750,000 per occurrence and losses above $20.0million per occurrence and above $10.0  million on any onelife |
|                            |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | For policies with anoccurrence limit of $1.0  million or higher, the quota sharepercentage is set such that our retention is $1.0 million. For allexcess casualty policy limits in excess of $5.0  million, wepurchase facultative reinsurance. For policies where we also write theunderlying primary casualty policy, the quota share reinsurance reducesour retention to $100,000, which results in a $1.1 million retentionfor James River Insurance on that risk. |

The followingtable is a summary of our property reinsurance in place as ofJune  30,2006:

|                 |  |  |                                           |  |  |                     |  |  |                                             |
|-----------------|--|--|-------------------------------------------|--|--|---------------------|--|--|---------------------------------------------|
| Lineof Business |  |  | Company Per RiskLimit                     |  |  | Reinsurance Program |  |  | CompanyRetention                            |
| PrimaryProperty |  |  | Generally up to $5.0million per risk (1)  |  |  | 75%quota share      |  |  | Up to 25% of thefirst $5.0  million (2) (3) |
| ExcessProperty  |  |  | Generally up to $5.0  million per risk(1) |  |  | 75% quota share     |  |  | 25% of the first$5.0  million (3)           |
|                 |

|     |                                                                                                                                                                                                                                                              |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Per risklimits in excess of $5.0  million are reinsured throughfacultative reinsurance or run-off coverage of the Company’s$10.0  million excess of $5.0  million reinsurance programin place prior to the June  1,  2006 property reinsurancerenewal. |

|     |                                     |
|-----|-------------------------------------|
| (2) | $250,000 for non-catastrophelosses. |

|     |                                                                                                                                      |
|-----|--------------------------------------------------------------------------------------------------------------------------------------|
| (3) | Subject to maximum coverage of100% of ceded premium for a single occurrence. Estimated cededpremium is approximately $30.0  million. |

We usecatastrophe-modeling software to analyze the risk of severe losses fromhurricanes and earthquakes and to individually review each propertyinsurance policy to determine its impact on the risk of our overallportfolio. We model our portfolio of insurance policies in force eachmonth and track our accumulations of exposed values geographically tomanage our concentration in any one area. In the fourth quarter of2005, we began reducing our exposure to hurricane losses by not writingany new or renewal primary property insurance with wind coverage within100 miles of the Southeast and Gulf coasts of the United States orwithin 30 miles of the Northeast coast of the United States. We arereducing the concentration of exposed limits in any 50 mile area to$50  million or less.

We measure exposure topotential catastrophe losses in terms of probable maximum loss (PML),which is an estimate of the amount we would expect to pay in any onecatastrophe event over a specified period of time (return period). Wemanage this potential loss by purchasing catastrophe reinsurancecoverage.

Effective June  1,  2006, wepurchased catastrophe reinsurance of $17.5  million in excess ofour $2.5  million per event retention. This coverage has onereinstatement in the event we exhaust any of the coverage.Additionally, our property quota share reinsurance treaty effectivelyprovides coverage for a single occurrence up to 100% of cededpremium, which is estimated at $30  million for the periodJune  1,  2006 through May  31,  2007. Ourproperty quota share reinsurance treaty is not subject to any

23

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reinstatement premiums or an aggregate capon ceded losses. The combination of our property catastrophe and quotashare reinsurance treaties provides coverage for a single occurrence ofup to approximately $50  million. Based on our computer modeling,a $50  million gross catastrophe loss is expected to exceed our500 year return period. In the event of a $50  million grossproperty catastrophe loss to the Company, we estimate our net after taxcost at approximately $3.2  million, including reinstatementpremiums. In addition to our retention, we would retain any losses inexcess of $50  million.

Reinsurance contracts do notrelieve us from our obligations to policyholders. The failure of areinsurer to honor its obligations could result in losses to us, andtherefore, we establish allowances for amounts considereduncollectible. At June  30,  2006, there was no allowancefor uncollectible reinsurance. James River Insurance and StonewoodInsurance generally target reinsurers with A.M. Best financial strengthratings of ‘‘A’’ (Excellent) or better forliability coverages and ‘‘A−’’(Excellent) or better for property coverages.

AtJune  30,  2006, we had reinsurance recoverables on unpaidlosses of $97.9  million and reinsurance recoverables on paidlosses of $6.5  million. Included in reinsurance recoverables onunpaid losses at June  30,  2006 are $19.0  millionof recoverables related to Hurricane Katrina and $14.9  millionrelated to Hurricane Wilma. All but $1.8  million of our totalrecoverables at June  30,  2006 are from reinsurers rated‘‘A’’ or better by A.M. Best or arecollateralized with letters of credit or trust account assets for whichwe are the beneficiary.

NEW ACCOUNTINGSTANDARDS

On December  16,  2004, the FASBissued Statement 123(R), which is a revision of Statement No. 123,Accounting for Stock-Based Compensation. Statement 123(R)supersedes Accounting Principles Board Opinion No. 25, Accountingfor Stock Issued to Employees (APB Opinion No. 25) and amends FASBStatement No. 95, Statement of Cash Flows. We adopted Statement123(R) using the modified prospective method on January1,  2006.

Prior to May  3,  2005 (thedate that we filed the Form S-1 with the Securities and ExchangeCommission), we used the minimum value method to calculate the proforma disclosures required by Statement 123. We continue to account forthe portion of awards granted prior to May  3,  2005 andnot modified, cancelled or repurchased subsequent to that date usingthe provisions of APB Opinion No. 25 and its related interpretiveguidance.

Prior to adopting Statement 123(R) onJanuary  1,  2006, we accounted for stock option grantsusing the intrinsic value method prescribed in APB Opinion No. 25.Because all options granted prior to January  1,  2006 werefor a fixed number of shares with an exercise price equal to the fairvalue of the shares at the date of grant, we recognized no compensationexpense for these stock options. When we adopted Statement 123(R), webegan recognizing the expense associated with awards issued on or afterMay  3,  2005 and for awards modified, repurchased orcancelled on or after that date in the income statement over theaward’s vesting period using the modified prospective method. Asa result of adopting Statement 123(R) on January  1,  2006,our income before income taxes and net income for the three monthsended June  30,  2006 are $238,000 and $154,000 lower,respectively, than if we had continued to account for share-basedcompensation under APB Opinion No. 25. Such amounts are $461,000 and$299,000, respectively, for the six months ended June  30,2006. Reported basic and diluted earnings per share for the threemonths ended June  30,  2006 would have each increased by$0.01 ($0.02 for the six months ended June  30,  2006) ifwe had not adopted Statement 123(R). The adoption of Statement 123(R)did not have a material effect on our statement of cashflows.

24

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The assumptions used in valuingoption awards vary depending on the date of grant. The following tablesummarizes the assumptions used to estimate the fair value of ourshared-based awards issued after May  3,2005:

|                                  |  |  |                    |
|----------------------------------|--|--|--------------------|
| Expectedterm                     |  |  | 7years             |
| Expected stock pricevolatility   |  |  | 35.0%              |
| Range of risk-freeinterest rates |  |  | 4.08% –5.03% |
| Dividendyield                    |  |  | 0.0%               |
|                                  |

For all awards,the expected term is based on the midpoint between the vesting periodand the contractual term of the award. Stock price volatility wasestimated based on stock price volatility data for similarproperty/casualty companies in the period following their respectiveinitial public offerings. The risk-free interest rate assumption isbased on the 7-year U.S. Treasury rate at the date of grant. TheCompany does not anticipate paying dividends in the near future. As ofJune  30,  2006, there was $3.3  million of estimatedunrecognized compensation costs expected to be charged to earnings overa weighted-average period of 3.2 years.

CRITICAL ACCOUNTINGPOLICIES AND ESTIMATES

Critical accounting estimates aredefined as those estimates that are both important to the portrayal ofour financial condition and results of operations and that require usto exercise significant judgment. We use significant judgmentconcerning future results and developments in applying these criticalaccounting estimates and in preparing our consolidated financialstatements. These judgments and estimates affect the reported amountsof assets, liabilities, revenues and expenses and the disclosure ofmaterial contingent assets and liabilities. We evaluate our estimatesregularly using information that we believe to be relevant. Thesereviews include evaluating the adequacy of reserves for losses and LAE,evaluating the investment portfolio for other-than-temporary declinesin estimated fair value, evaluating reinsurance recoverables forcollectibility and analyzing the recoverability of deferred tax assets.With our adoption of Statement 123(R) on January  1,  2006,estimating the compensation expense associated with share-based awardsbecame a critical accounting estimate. The assumptions underlying thisestimate have been described above. Actual results may differmaterially from the estimates and assumptions used in preparing theconsolidated financial statements.

Readers are urged toreview ‘‘Management’s Discussion and Analysis ofFinancial Condition and Results of Operations – CriticalAccounting Policies and Estimates’’ and Note 1 to theaudited consolidated financial statements contained in our Form 10-Kfor the fiscal year ended December  31,  2005 on file withthe Securities and Exchange Commission for a more complete descriptionof our critical accounting policies andestimates.

RECONCILIATION OF NON-GAAP MEASURES

Thefollowing table reconciles the underwriting profit (loss) by individualsegment and of the whole company to consolidated income before taxes.We believe that these measures are useful to investors in evaluatingthe performance of our Company and its insurance segments because ourobjective is to consistently earn underwriting profits. We evaluate theperformance of our insurance segments and allocate resources basedprimarily on underwriting profit (loss) of insurance segments. Ourdefinition of underwriting profit (loss) of insurance segments andunderwriting profit (loss) may not be comparable to the definition ofunderwriting profit (loss) for other companies.

25

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|                                                           |  |  |                            |   |        |                          |  |  |      |   |        |      |  |  |  |   |        |   |  |  |  |   |        |   |
|-----------------------------------------------------------|--|--|----------------------------|---|--------|--------------------------|--|--|------|---|--------|------|--|--|--|---|--------|---|--|--|--|---|--------|---|
|                                                      |  |  | Three Months Ended June30, |   |        | Six Months Ended June30, |
|                                                      |  |  | 2006                       |   |        | 2005                     |  |  | 2006 |   |        | 2005 |
|                                                      |  |  | ($in thousands)            |
| Underwriting profit(loss) of the insurancesegments:       |  |  |                            |   |   |                          |  |  |      |   |   |      |  |  |  |   |   |   |  |  |  |   |   |   |
| Excessand SurplusInsurance                                |  |  |                            | $ | 9,760  |                          |  |  |      | $ | 5,619  |      |  |  |  | $ | 17,891 |   |  |  |  | $ | 11,261 |   |
| Workers’CompensationInsurance                       |  |  |                            |   | 410    |                          |  |  |      |   | 256    |      |  |  |  |   | (233   | ) |  |  |  |   | 757    |   |
| Totalunderwriting profit of insurancesegments             |  |  |                            |   | 10,170 |                          |  |  |      |   | 5,875  |      |  |  |  |   | 17,658 |   |  |  |  |   | 12,018 |   |
| Otheroperating expenses of the Corporate and Othersegment |  |  |                            |   | (1,166 | )                        |  |  |      |   | (241   | )    |  |  |  |   | (1,807 | ) |  |  |  |   | (639   | ) |
| Underwritingprofit                                        |  |  |                            |   | 9,004  |                          |  |  |      |   | 5,634  |      |  |  |  |   | 15,851 |   |  |  |  |   | 11,379 |   |
| Netinvestmentincome                                       |  |  |                            |   | 4,506  |                          |  |  |      |   | 2,017  |      |  |  |  |   | 8,499  |   |  |  |  |   | 3,762  |   |
| Realizedinvestmentlosses                                  |  |  |                            |   | (49    | )                        |  |  |      |   | (73    | )    |  |  |  |   | (84    | ) |  |  |  |   | (98    | ) |
| Otherincome                                               |  |  |                            |   | 46     |                          |  |  |      |   | 31     |      |  |  |  |   | 88     |   |  |  |  |   | 76     |   |
| Interestexpense                                           |  |  |                            |   | (896   | )                        |  |  |      |   | (642   | )    |  |  |  |   | (1,673 | ) |  |  |  |   | (1,230 | ) |
| Consolidatedincome beforetaxes                            |  |  |                            | $ | 12,611 |                          |  |  |      | $ | 6,967  |      |  |  |  | $ | 22,681 |   |  |  |  | $ | 13,889 |   |
|                                                           |

OUTLOOKFOR 2006

For 2006, we anticipate achieving an annualreturn on average equity of at least 15% and writing at acombined ratio of between 80% and 90%. We also expectgrowth in gross written premiums of between 20% and 30%for 2006.

|  |
|--|
|  |  |
|  |

‘‘SAFEHARBOR’’ STATEMENT UNDER THE PRIVATE SECURITIESLITIGATION REFORM ACT OF 1995: This Form 10-Q contains‘‘forward-looking’’ statements within themeaning of the Securities Litigation Reform Act of 1995, includingamong others those concerning: expectations regarding our business andgrowth strategies; the basis for our reserve estimates; the adequacy ofour reserves; our expected cost associated with a catastrophe loss; ouroutlook for 2006; the resolution of litigation; and our belief that ourreinsurance recoverables are collectible. Such statements involvecertain risks and uncertainties that could cause actual results todiffer materially from those in the forward-looking statements.Potential risks and uncertainties include such factors as: effects ofincreased competition; effects of the cyclical nature of our business;effects of developments in the financial or capital markets; changes inavailability, cost or quality of reinsurance; losses of key personnelor the inability to recruit qualified personnel; payment of claims byreinsurers on time or at all; effects of severe weather conditions andother catastrophes; effects of war or terrorism; changes inrelationships with agencies, brokers and agents; changes in ratingagency policies or practices; declines in financial ratings; changes inregulations or laws applicable to our insurance subsidiaries; changesin legal theories of liability under our insurance policies; accuracyof assumptions underlying our reserves for losses and LAE and ourcatastrophe model; actual losses incurred by policyholders as a resultof hurricanes and risks described in our filings with the Securitiesand Exchange Commission, including our Form 10-K for the fiscal yearended December  31,2005.

|  |
|--|
|  |  |
|  |

Item 3.    Quantitative andQualitative Disclosures About Market Risk.

Market risk isthe potential economic loss principally arising from adverse changes inthe fair value of financial instruments. The major components of marketrisk affecting us are credit risk and interest rate risk. Our marketrisks at June  30,  2006 have not materially changed fromthose identified in our Form 10-K for the fiscal year endedDecember  31,  2005.

Credit Risk

Credit risk is the potential economic loss principallyarising from adverse changes in the financial condition of a specificdebt issuer or a reinsurer.

26

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We address the risk associatedwith debt issuers by investing in fixed maturity securities that areinvestment grade, which are those securities rated‘‘BBB−’’ or higher by Standard &Poor's, or an equivalent rating by another nationally recognizedrating agency. We monitor the financial condition of all of the issuersof fixed maturity securities in our portfolio. Our outside investmentmanagers assist us in this process. We utilize a ratings changesreport, a security watch list and a schedule of securities inunrealized loss positions as part of this process. If a security israted investment grade at the time that we purchase it and then isdowngraded to below investment grade while we hold it, we evaluate thesecurity for impairment, and after discussing the security with ourinvestment advisors, make a decision to either dispose of the securityor continue to hold it. Finally, we employ stringent diversificationrules that limit our credit exposure to any single issuer or businesssector.

We address the risk associated with reinsurers bygenerally targeting reinsurers with A.M. Best financial strengthratings of ‘‘A’’ (Excellent) or better forliability coverages and ‘‘A−’’(Excellent) or better for property coverages. In an effort to minimizeour exposure to the insolvency of our reinsurers, our SecurityCommittee, consisting of our Chief Financial Officer and our corporateactuary, evaluates the acceptability and reviews the financialcondition of each reinsurer annually. In addition, our SecurityCommittee continually monitors rating downgrades involving any of ourreinsurers. At June  30  2006, all but $1.8  millionof our reinsurance recoverables are either from companies with A.M.Best ratings of ‘‘A’’ (Excellent) orbetter, or are collateralized by a letter of credit or by a trustagreement with American Empire.

Interest Rate Risk

Interest rate risk is the risk that we may incur economiclosses due to adverse changes in interest rates. The primary marketrisk to the investment portfolio is interest rate risk associated withinvestments in fixed maturity securities. Fluctuations in interestrates have a direct impact on the market valuation of these securities.We manage our exposure to interest rate risk through an asset/liabilitymatching process. In the management of this risk, the characteristicsof duration, credit and variability of cash flows are criticalelements. These risks are assessed regularly and balanced within thecontext of our liability and capital position. Our outside investmentmanagers assist us in this process. We also have interest rate riskrelating to our senior debt and junior subordinated debt, sinceinterest accrues at a floating rate.

|              |                          |
|--------------|--------------------------|
| Item4.  | Controls and Procedures. |

Evaluation ofDisclosure Controls and Procedures

We carried out anevaluation as of the end of the period covered by this report, underthe supervision and with the participation of our management, includingour Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controlsand procedures, as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended (the Exchange Act), as ofthe end of the period covered by this report. Based upon thatevaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures were effective asof that date. Disclosure controls and procedures are designed to ensurethat information required to be disclosed in reports filed or submittedby us under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the Securities andExchange Commission’s rules and forms.

Changes inInternal Control Over Financial Reporting

There hasbeen no change in our internal control over financial reporting (asdefined in Rule 13a-15(f) under the Exchange Act) that occurredduring the period covered by this report that has materially affectedor is reasonably likely to materially affect our internal control overfinancial reporting.

27

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PARTII — OTHER INFORMATION

Item 2.    Unregistered Salesof Equity Securities and Use ofProceeds.

|  |           |                                             |
|--|-----------|---------------------------------------------|
|  | (b)  | Use of Proceeds fromInitial Public Offering |

On May 3, 2005, wefiled a registration statement on Form S-1 with the Securities ExchangeCommission for an initial public offering of Common Stock. The offeringwas made through an underwriting syndicate led by book-running managerKeefe, Bruyette & Woods, Inc., and co-managers Bear, Stearns& Co., Inc., Friedman, Billings, Ramsey & Co., Inc. andWachovia Capital Markets, LLC. Our registration statement was declaredeffective on August  8,  2005. On August  9,2005, we effected a ten-for-one split of our Common Stock toshareholders of record on that date. Immediately prior to the closingof the initial public offering on August  12,  2005, all ofour outstanding Series A Convertible Preferred stock and Series BConvertible Preferred Stock, including shares representing accrued butunpaid dividends, were converted into 9,956,413 shares of Common Stock.In addition, on that date we amended and restated our certificate ofincorporation to increase the number of authorized shares of CommonStock to 100,000,000 and decrease the number of authorized shares ofpreferred stock to 5,000,000. Gross proceeds from the sale of 4,444,000shares of Common Stock, at an initial public offering price per shareof $18.00, totaled $80.0  million. Costs associated with theinitial public offering included $5.6  million of underwritingcosts and $995,000 of other issuance costs, resulting in net proceedsfrom the sale of $73.4  million.

On August26,  2005, the underwriters of the initial public offeringexercised their over-allotment option in which an additional 666,600shares of Common Stock were issued and sold at the $18.00 initialpublic offering price per share. Gross proceeds from this transactionwere $12.0  million and underwriting costs were $840,000,resulting in net proceeds from the sale of $11.2  million.

We contributed $60.5  million of the proceeds fromthe offering to our insurance subsidiaries. We intend to use theremaining proceeds for general corporate purposes, which may includepotential acquisitions or additional contributions to our insurancesubsidiaries.

Item 4.    Submission of Matters to a Vote ofSecurity Holders.

The Company’s Annual Meeting ofStockholders was held on May  23,  2006. Shareholderselected four Class I directors for the ensuing three-year period andratified the appointment of Ernst & Young LLP as theCompany’s independent registered public accounting firm forfiscal year 2006. Results were as follows:

Election ofDirectors:

|                  |  |  |     |  |            |          |  |  |  |  |           |  |
|------------------|--|--|-----|--|------------|----------|--|--|--|--|-----------|--|
|             |  |  | For |  |            | Withheld |
| AlanN. Colner    |  |  |     |  | 13,751,216 |          |  |  |  |  | 41,778    |  |
| DallasW. Luby    |  |  |     |  | 13,790,379 |          |  |  |  |  | 2,615     |  |
| A. WellfordTabor |  |  |     |  | 12,092,737 |          |  |  |  |  | 1,700,257 |  |
| NicolasD.Zerbib  |  |  |     |  | 13,773,579 |          |  |  |  |  | 19,415    |  |
|                  |

Continuingdirectors of the Company were: Matthew Bronfman, John T. Sinnott andMichael H. Steinhardt, whose terms expire in 2007 and J. Adam Abram,Richard W. Wright, Joel L. Fleishman and James L. Zech, whose termsexpire in 2008.

Ratification of appointment of Ernst &Young LLP as the independent registered public accounting firm forfiscal year2006:

|            |  |  |         |  |       |         |  |  |                 |  |   |  |  |  |  |  |   |  |
|------------|--|--|---------|--|-------|---------|--|--|-----------------|--|---|--|--|--|--|--|---|--|
| For        |  |  | Against |  |       | Abstain |  |  | BrokerNon-votes |
| 13,791,779 |  |  |         |  | 1,215 |         |  |  |                 |  | 0 |  |  |  |  |  | 0 |  |
|            |

28

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Item6.    Exhibits.

|            |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|------------|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNo. |  |  | Description ofExhibit                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.1        |  |  | ThirdAmended and Restated Certificate of Incorporation (incorporated hereinby reference to Exhibit 3.1 to the Company’s Current Report onForm 8-K dated August  12,  2005 (File No.000-51480)).                                                                                                                                                                                                                                                     |
| 3.2        |  |  | Form of Third Amended andRestated By-Laws (incorporated herein by reference to Exhibit 3.2 tothe Company’s Current Report on Form 8-K dated August12,  2005 (File No.000-51480)).                                                                                                                                                                                                                                                                   |
| 4.1        |  |  | Specimen Stock Certificate,representing James River Group, Inc. common stock, par value $0.01 pershare (incorporated by reference to Exhibit 4.1 to the Company’sRegistration Statement on Form S-1 (File No.333-124605)).                                                                                                                                                                                                                          |
| 4.2        |  |  | Form of Warrant relatingto Series B Convertible Preferred Stock (incorporated by reference toExhibit 4.2 to the Company’s Registration Statement on Form S-1(File No.333-124605)).                                                                                                                                                                                                                                                                  |
| 4.3        |  |  | Registration RightsAgreement dated January  21,  2003, by and among JamesRiver Group, Inc. and certain stockholders as named therein(incorporated by reference to Exhibit 4.6 to the Company’sRegistration Statement on Form S-1 (File No.333-124605)).                                                                                                                                                                                             |
| 4.4        |  |  | Indenture dated as ofMay  26,  2004, by and between James River Group, Inc. andWilmington Trust Company, as Trustee, relating to Floating Rate SeniorDebentures Due 2034 (incorporated by reference to Exhibit 4.8 to theCompany’s Registration Statement on Form S-1 (File No.333-124605)).                                                                                                                                                        |
| 4.5        |  |  | Indenture dated as ofMay  26,  2004, by and between James River Group, Inc. andWilmington Trust Company, as Trustee, relating to Floating Rate JuniorSubordinated Debentures Due 2034 (incorporated by reference to Exhibit4.9 to the Company’s Registration Statement on Form S-1 (FileNo. 333-124605)).                                                                                                                                           |
| 4.6        |  |  | Amended and RestatedDeclaration of Trust of James River Capital Trust I dated as ofMay 26, 2004, by and among James River Group, Inc., the Trustees(as defined therein) and the holders, from time to time, of undividedbeneficial interests in James River Capital Trust I (incorporated byreference to Exhibit 4.10 to the Company’s RegistrationStatement on Form S-1 (File No.333-124605)).                                                |
| 4.7        |  |  | Preferred SecuritiesGuarantee Agreement dated as of May  26,  2004, by JamesRiver Group, Inc., as Guarantor and Wilmington Trust Company, asPreferred Guarantee Trustee, for the benefit of the Holders (as definedtherein) of James River Capital Trust I (incorporated by reference toExhibit 4.11 to the Company’s Registration Statement on Form S-1(File No. 333-124605)).                                                                     |
| 4.8        |  |  | Indenture datedDecember  15,  2004, by and between James River Group, Inc.and Wilmington Trust Company, as Trustee, relating to Floating RateJunior Subordinated Deferrable Interest Debentures Due 2034(incorporated by reference to Exhibit 4.12 to the Company’sRegistration Statement on Form S-1 (File No.333-124605)).                                                                                                                        |
| 4.9        |  |  | Amended and RestatedDeclaration of Trust of James River Capital Trust II dated as ofDecember  15,  2004, by and among James River Group, Inc.,the Trustees (as defined therein), the Administrators (as namedtherein), and the holders, from time to time, of undivided beneficialinterests in the James River Capital Trust II (incorporated byreference to Exhibit 4.13 to the Company’s RegistrationStatement on Form S-1 (File No.333-124605)). |
|            |

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|            |  |  |                                                                                                                                                                                                                                                                                                                                                                                                          |
|------------|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNo. |  |  | Description ofExhibit                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.10       |  |  | Guarantee Agreementdated as of December  15,  2004, by James River Group,Inc., as Guarantor, and Wilmington Trust Company, as Guarantee Trustee,for the benefit of the Holders (as defined therein) from time to timeof the capital securities of James River Capital Trust II (incorporatedby reference to Exhibit 4.14 to the Company’s RegistrationStatement on Form S-1 (File No.333-124605)). |
| 4.11       |  |  | Indenture datedJune  15,  2006, by and between James River Group, Inc. andWilmington Trust Company, as Trustee, relating to Floating Rate JuniorSubordinated Deferrable Interest Debentures Due 2036.**                                                                                                                                                                                                  |
| 4.12       |  |  | Amended and Restated Declaration of Trust ofJames River Capital Trust III dated as of June 15, 2006, by and amongJames River Group, Inc., the Trustees (as defined therein), theAdministrators (as named therein), and the holders, from time to time,of undivided beneficial interests in the James River Capital TrustIII.**                                                                           |
| 4.13       |  |  | Guarantee Agreement dated as ofJune  15,  2006, by James River Group, Inc., as Guarantor,and Wilmington Trust Company, as Guarantee Trustee, for the benefit ofthe Holders (as defined therein) from time to time of the capitalsecurities of James River Capital Trust III.**                                                                                                                           |
| 10.1       |  |  | Employment Agreement dated and effective as ofMay  31,  2006 by and between James River Group, Inc. andGregg T. Davis (incorporated by reference to Exhibit 10.1 to theCompany’s Current Report on Form 8-K dated June  6,2006 (File No.000-51480).*                                                                                                                                               |
| 31.1       |  |  | Certification of ChiefExecutive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002.                                                                                                                                                                                                                                                                                                        |
| 31.2       |  |  | Certification of Chief FinancialOfficer pursuant to Section 302 of the Sarbanes-Oxley Act of2002.                                                                                                                                                                                                                                                                                                        |
| 32         |  |  | Certification of the ChiefExecutive Officer and Chief Financial Officer pursuant toSection 906 of the Sarbanes-Oxley Act of2002.                                                                                                                                                                                                                                                                    |
|            |

|   |                                                                         |
|---|-------------------------------------------------------------------------|
| * | Denotes compensatory plan orarrangement for Company officer ordirector. |

|    |                                                                                                                                                                                      |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** | Exhibit not included pursuant toItem 601(b)(4)(iii) and (v) of Regulation S-K. The Company will providea copy of such exhibit to the Securities and Exchange Commission uponrequest. |

30

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SIGNATURES

Pursuantto the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.

|  | James RiverGroup, Inc. |
|--|------------------------|

August  2,2006

|  | /s/ Gregg T.Davis                                 |
|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | GreggT. DavisExecutive Vice President –Finance |
|--|------------------------------------------------------|

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