##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from       to
 Commission file number: 000-51127
 NATIONAL ATLANTIC HOLDINGS CORPORATION
 (Exact name of Registrant as specified in its charter)
 New Jersey(State or other jurisdiction of 
incorporation or organization)
    
    22-3316586(I.R.S. Employer
Identification No.)
 4 Paragon Way
Freehold, NJ 07728
(732) 665-1100  (Address, including zip code, of
Registrants principal executive offices)
 Registrants telephone number, including area code:
(732) 665-1100
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, no par value per share
    
    The Nasdaq Stock Market LLC
 Securities Registered pursuant to Section 12(g) of the Act:
None
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
    
    Smaller reporting company o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



TABLE OF CONTENTS  PART IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7a. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and ManagementItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and ServicesPART IVItem 15. Exhibit and Financial Statement SchedulesEX-14.1: CODE OF ETHICSEX-23.1: CONSENT OF BEARD MILLER COMPANY LLPEX-23.2: CONSENT OF DELOITTE & TOUCHE LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION    Table of Contents  
 PART I
 The Company, National Atlantic, NAHC, we, us, and our refer to National
Atlantic Holdings Corporation and its consolidated subsidiaries, and Proformance refers to
Proformance Insurance Company, a wholly-owned insurance subsidiary of NAHC.
  
 Item 1. Business
 Overview
 ,
  et seq.
            2




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##### Table of Contents




    
    Riverview Professional Services, Inc., which we refer to as Riverview,
which provides case management and medical treatment cost containment
to ensure cost-efficient service in the treatment of auto accident
victims and reduced claims expenses for Proformance. Riverview is also
a third party claims administrator providing claims handling services
to companies that self insure.
    
    National Atlantic Insurance Agency, Inc., which we refer to as NAIA,
which provides services to orphan policyholders no longer serviced
by their independent agents and policyholders acquired as part of our
replacement carrier transactions.
 3




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##### Table of Contents



Net Income (Loss) and Revenues
 Net Income (Loss)
    
    
    RevenuesFor the year
    
    
    
    
    
    
    
    
    
    
    For the yearended
    
    
    
    
    
    
    
    
    
    
    endedDecember 31,
    
    
    
    
    
    
    
    
    
    
    December 31,2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Proformance Insurance Company
    
    $
    (6,295
    )
    
    $
    15,613
    
    
    $
    8,530
    
    
    $
    183,916
    
    
    $
    174,783
    
    
    $
    186,277Riverview Professional Services
    
    
    187
    
    
    
    474
    
    
    
    485
    
    
    
    4,198
    
    
    
    5,654
    
    
    
    4,713National Atlantic Insurance Agency
    
    
    748
    
    
    
    910
    
    
    
    830
    
    
    
    2,078
    
    
    
    2,370
    
    
    
    2,234Mayfair Reinsurance Company Limited
    
    
    286
    
    
    
    (114
    )
    
    
    (414
    )
    
    
    1,564
    
    
    
    260
    
    
    
    152National Atlantic Holdings Corporation
    
    
    (1,120
    )
    
    
    (2,501
    )
    
    
    (2,995
    )
    
    
    179
    
    
    
    677
    
    
    
    541Less intercompany eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,664
    )
    
    
    (7,888
    )
    
    
    (6,576
    )Total
    
    $
    (6,194
    )
    
    $
    14,382
    
    
    $
    6,436
    
    
    $
    184,271
    
    
    $
    175,856
    
    
    $
    187,341
 www.nationalatlantic.com.
 Our Growth Strategies
  Focusing on the New Jersey Market.
 Capturing a Larger Share of Our Agents Business.
 Converting Single Coverage Policies into Our Packaged Policies and
Opportunistically Growing Our Business through Replacement Carrier
Transactions.
 Marketing the Services of Our Non-Insurance Subsidiaries to Third
Parties.
 Other Subsidiaries
  4




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##### Table of Contents



Riverview Professional Services, Inc.
    National Atlantic Insurance Agency, Inc.
   Mayfair Reinsurance Company Limited
   Niagara Atlantic Holdings Corporation
  The New Jersey Property and Casualty Insurance Market
 Regulatory Environment
  5




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##### Table of Contents



New Jersey Market for Private Passenger Automobile Insurance
  Recent and Proposed Legislation
     New Jersey Automobile Insurance Competition & Choice Act
  Rate Increases.
 Excess Profits.
 6




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##### Table of Contents



Take All Comers Requirement.
 Tier Rating.
 Unsatisfied Claim and Judgment Fund.
 Insurance Fraud Detection Reward Program.
 Insurance Scenarios.
 Automobile Insurance Urban Enterprise Zone Program
  Personal Automobile Insurance Plan
  7




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##### Table of Contents



Commercial Automobile Insurance Plan
   New Jersey Automobile Insurance Risk Exchange
   Summary of Replacement Carrier Transactions
 Ohio Casualty Replacement Carrier Transaction
  8




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##### Table of Contents



9




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##### Table of Contents



Sentry Insurance Replacement Carrier Transaction
    Metropolitan Property and Casualty Replacement Carrier Transaction
    The Hartford Financial Services Group, Inc. Replacement Carrier Transaction
    10




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##### Table of Contents



Hanover Insurance Group Replacement Carrier Transaction
     Products
 High Proformance Policy
  
    
    Private passenger automobile insurance, including bodily injury and property damage
liability, uninsured motorist coverage, personal injury protection, extended medical
payments, comprehensive fire and theft, collision, rental reimbursement, towing and
labor, and miscellaneous electronic device and mobile telephone coverages;
    
    Homeowners and condominium insurance coverage, including various endorsements for
extended coverage for eligible property and liability exposures;
    
    Personal excess (umbrella) liability insurance as an additional line of coverage; and
    
    Personal specialty property lines covering jewelry, furs, fine arts, cameras,
electronic data process equipment, boats, yachts and other high value items.
   11




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##### Table of Contents



Other Products
     Years ended December 31,Direct Written Premium
    
    2007
    
    2006
    
    2005Private passenger auto
    
    $
    104,471
    
    
    
    58.5
    %
    
    $
    111,379
    
    
    
    65.1
    %
    
    $
    152,482
    
    
    
    77.0
    %Commercial auto
    
    
    18,385
    
    
    
    10.3
    %
    
    
    17,883
    
    
    
    10.5
    %
    
    
    17,921
    
    
    
    9.0
    %Homeowners
    
    
    37,244
    
    
    
    20.8
    %
    
    
    29,273
    
    
    
    17.1
    %
    
    
    20,925
    
    
    
    10.6
    %Other liability
    
    
    18,579
    
    
    
    10.4
    %
    
    
    12,534
    
    
    
    7.3
    %
    
    
    6,721
    
    
    
    3.4
    %Total
    
    $
    178,679
    
    
    
    100.0
    %
    
    $
    171,069
    
    
    
    100.0
    %
    
    $
    198,049
    
    
    
    100.0
    %
  Distribution
 Independent Agent Relationships
  Partner Agents
  12




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##### Table of Contents



Replacement Carrier Service Agents
   Agency Agreements
  Peer Review Committee
 
 13




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##### Table of Contents



Marketing
 Strategy
   
    
    To offer a range of products, which we believe enables our agents to meet the insurance needs of their clients
who meet our target criteria;
    
    To price our products competitively, including offering discounts when and where appropriate for policyholders
seeking to place all of their primary property and casualty insurance coverage with one carrier;
    
    To offer agents competitive commissions, with incentives for placing their more profitable business with us; and
    
    To provide a level of support and service that enhances the agents ability to do business with their clients
and with us while reducing operating costs, providing us with an ability to maintain our competitive pricing
position.
 Agent Commissions and Incentive Plans
  
    
    Agent Commission Rates.We pay agent commissions on new and renewal
business, which we believe are competitive in our marketplace.
    
    Partner Agents Profit Sharing Plan.Our Partner Agents profit
sharing plan rewards our Partner Agents by providing annual incentives
based primarily on profit benchmarks as well as growth and product mix
of the business produced by each Partner Agent.
    
    Custom Agency Plan.Our Custom Agents are our Partner Agents that
participate in the Custom Agency Plan. The Custom Agency Plan enables
Custom Agents to perform some of the basic underwriting, claims
processing and other functions for additional compensation. As of
December 31, 2007, 96.2% of our Partner Agents participate in the
Custom Agency Plan.
    
    Investment Incentive.All of our Partner Agents are shareholders of
NAHC. By reason of their ownership interest in NAHC, we believe that
each agent has an incentive to provide us with more profitable
segments of the personal and commercial lines business in New Jersey.
 Service and Support
  Underwriting
 General
 14




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##### Table of Contents



Agent Underwriting Authority
   Use of Credit Scoring
    Claims
     15




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Reserves
    
  16




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##### Table of Contents



Years ended December 31,2007
    
    
    2006
    
    
    2005(in thousands)Balance as of beginning of year
    
    $
    191,386
    
    
    $
    219,361
    
    
    $
    184,283Less reinsurance recoverable on unpaid losses
    
    
    (17,866
    )
    
    
    (28,069
    )
    
    
    (24,936
    )Net balance as of beginning of year
    
    
    173,520
    
    
    
    191,292
    
    
    
    159,347Incurred related to:Current period
    
    
    125,483
    
    
    
    103,801
    
    
    
    122,728Prior period
    
    
    19,602
    
    
    
    23
    
    
    
    10,066Total incurred
    
    
    145,085
    
    
    
    103,824
    
    
    
    132,794Paid related to:Current period
    
    
    49,020
    
    
    
    38,009
    
    
    
    42,301Prior period
    
    
    90,171
    
    
    
    83,587
    
    
    
    58,548Total paid
    
    
    139,191
    
    
    
    121,596
    
    
    
    100,849Net balance as of December 31,
    
    
    179,414
    
    
    
    173,520
    
    
    
    191,292Plus reinsurance recoverable on unpaid losses
    
    
    17,691
    
    
    
    17,866
    
    
    
    28,069Balance as of December 31,
    
    $
    197,105
    
    
    $
    191,386
    
    
    $
    219,361
     17




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##### Table of Contents



As of and for the Year Ended December 31,1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007(in thousands)As Originally Estimated
    
    
    14,965
    
    
    
    15,484
    
    
    
    20,386
    
    
    
    30,014
    
    
    
    66,041
    
    
    
    112,872
    
    
    
    159,347
    
    
    
    191,292
    
    
    
    173,520
    
    
    
    179,414As Re-estimated as of December
31, 2007
    
    
    22,314
    
    
    
    27,613
    
    
    
    40,312
    
    
    
    45,536
    
    
    
    83,403
    
    
    
    129,786
    
    
    
    183,597
    
    
    
    207,451
    
    
    
    191,787
    
    
    
    179,414Liability Re-estimated as of:One Year Later
    
    
    15,261
    
    
    
    17,901
    
    
    
    25,588
    
    
    
    32,028
    
    
    
    74,671
    
    
    
    112,200
    
    
    
    169,414
    
    
    
    191,315
    
    
    
    191,787
    
    
    
    Two Years Later
    
    
    16,530
    
    
    
    21,201
    
    
    
    29,484
    
    
    
    38,952
    
    
    
    74,981
    
    
    
    125,591
    
    
    
    172,912
    
    
    
    207,451
    
    
    
    
    
    
    
    Three Years Later
    
    
    18,471
    
    
    
    23,740
    
    
    
    33,720
    
    
    
    40,999
    
    
    
    82,583
    
    
    
    126,571
    
    
    
    183,597
    
    
    
    
    
    
    
    
    
    
    
    Four Years Later
    
    
    20,203
    
    
    
    25,797
    
    
    
    35,905
    
    
    
    43,875
    
    
    
    81,737
    
    
    
    129,786
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Five Years Later
    
    
    20,924
    
    
    
    26,324
    
    
    
    37,614
    
    
    
    44,185
    
    
    
    83,403
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six Years Later
    
    
    21,339
    
    
    
    26,880
    
    
    
    38,847
    
    
    
    46,913
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Seven Years Later
    
    
    21,725
    
    
    
    26,637
    
    
    
    40,312
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eight Years Later
    
    
    21,730
    
    
    
    27,613
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine Years Later
    
    
    22,314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ten Years LaterCumulative Deficiency
(Redundancy)
    
    
    7,349
    
    
    
    12,129
    
    
    
    19,926
    
    
    
    15,522
    
    
    
    17,362
    
    
    
    16,914
    
    
    
    24,250
    
    
    
    16,159
    
    
    
    18,267Cumulative Amounts Paid as of :One Year Later
    
    
    6,770
    
    
    
    6,437
    
    
    
    11,147
    
    
    
    13,819
    
    
    
    23,695
    
    
    
    44,398
    
    
    
    58,562
    
    
    
    83,496
    
    
    
    90,173
    
    
    
    Two Years Later
    
    
    10,554
    
    
    
    13,511
    
    
    
    19,591
    
    
    
    22,766
    
    
    
    40,764
    
    
    
    72,551
    
    
    
    110,637
    
    
    
    148,846
    
    
    
    
    
    
    
    Three Years Later
    
    
    15,178
    
    
    
    18,926
    
    
    
    25,518
    
    
    
    32,609
    
    
    
    55,683
    
    
    
    102,585
    
    
    
    156,468
    
    
    
    
    
    
    
    
    
    
    
    Four Years Later
    
    
    18,050
    
    
    
    21,944
    
    
    
    30,969
    
    
    
    40,054
    
    
    
    68,019
    
    
    
    122,373
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Five Years Later
    
    
    18,722
    
    
    
    24,282
    
    
    
    34,808
    
    
    
    43,364
    
    
    
    73,342
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six Years Later
    
    
    20,091
    
    
    
    25,498
    
    
    
    37,196
    
    
    
    46,019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Seven Years Later
    
    
    20,778
    
    
    
    26,287
    
    
    
    39,209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eight Years Later
    
    
    21,354
    
    
    
    27,446
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine Years Later
    
    
    21,924
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ten Years Later
 18




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##### Table of Contents



As of and for the Year Ended December 31,1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007Percentage of intially estimated liabilityLiability Re-estimated as of:One Year Later
    
    
    102
    %
    
    
    116
    %
    
    
    126
    %
    
    
    107
    %
    
    
    113
    %
    
    
    99
    %
    
    
    106
    %
    
    
    100
    %
    
    
    111
    %
    
    
    Two Years Later
    
    
    110
    %
    
    
    137
    %
    
    
    145
    %
    
    
    130
    %
    
    
    114
    %
    
    
    111
    %
    
    
    109
    %
    
    
    108
    %
    
    
    
    
    
    
    Three Years Later
    
    
    123
    %
    
    
    153
    %
    
    
    165
    %
    
    
    137
    %
    
    
    125
    %
    
    
    112
    %
    
    
    115
    %
    
    
    
    
    
    
    
    
    
    
    Four Years Later
    
    
    135
    %
    
    
    167
    %
    
    
    176
    %
    
    
    146
    %
    
    
    124
    %
    
    
    115
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Five Years Later
    
    
    140
    %
    
    
    170
    %
    
    
    185
    %
    
    
    147
    %
    
    
    126
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six Years Later
    
    
    143
    %
    
    
    174
    %
    
    
    191
    %
    
    
    152
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Seven Years Later
    
    
    145
    %
    
    
    172
    %
    
    
    198
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eight Years Later
    
    
    145
    %
    
    
    178
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine Years Later
    
    
    149
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ten Years Later
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative Deficiency
(Redundancy)
    
    
    45
    %
    
    
    74
    %
    
    
    85
    %
    
    
    46
    %
    
    
    25
    %
    
    
    11
    %
    
    
    6
    %
    
    
    8
    %
    
    
    11
    %Net Loss and Loss Adjustment Cumulative Paid as
a Percentage of Initially Estimated LiabilityCumulative Amounts Paid as of :One Year Later
    
    
    45
    %
    
    
    42
    %
    
    
    55
    %
    
    
    46
    %
    
    
    36
    %
    
    
    39
    %
    
    
    37
    %
    
    
    44
    %
    
    
    52
    %
    
    
    Two Years Later
    
    
    71
    %
    
    
    87
    %
    
    
    96
    %
    
    
    76
    %
    
    
    62
    %
    
    
    64
    %
    
    
    69
    %
    
    
    78
    %
    
    
    
    
    
    
    Three Years Later
    
    
    101
    %
    
    
    122
    %
    
    
    125
    %
    
    
    109
    %
    
    
    84
    %
    
    
    91
    %
    
    
    98
    %
    
    
    
    
    
    
    
    
    
    
    Four Years Later
    
    
    121
    %
    
    
    142
    %
    
    
    152
    %
    
    
    133
    %
    
    
    103
    %
    
    
    108
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Five Years Later
    
    
    125
    %
    
    
    157
    %
    
    
    171
    %
    
    
    144
    %
    
    
    111
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six Years Later
    
    
    134
    %
    
    
    165
    %
    
    
    182
    %
    
    
    153
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Seven Years Later
    
    
    139
    %
    
    
    170
    %
    
    
    192
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eight Years Later
    
    
    143
    %
    
    
    177
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine Years Later
    
    
    147
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ten Years Later
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  As of and for the Year Ended December 31,1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007(in thousands)As Originally EstimatedNet Liability shown above
    
    
    14,965
    
    
    
    15,484
    
    
    
    20,386
    
    
    
    30,014
    
    
    
    66,041
    
    
    
    112,872
    
    
    
    159,347
    
    
    
    191,292
    
    
    
    173,520
    
    
    
    179,414Add Reinsurance Recoverables
    
    
    8,395
    
    
    
    11,571
    
    
    
    16,962
    
    
    
    26,718
    
    
    
    19,431
    
    
    
    21,329
    
    
    
    24,936
    
    
    
    28,069
    
    
    
    17,866
    
    
    
    17,691Gross Liability
    
    
    23,360
    
    
    
    27,055
    
    
    
    37,348
    
    
    
    56,732
    
    
    
    85,472
    
    
    
    134,201
    
    
    
    184,283
    
    
    
    219,361
    
    
    
    191,386
    
    
    
    197,105As Re-estimated as of December
31, 2007Net Liability Shown Above
    
    
    22,314
    
    
    
    27,613
    
    
    
    40,312
    
    
    
    38,952
    
    
    
    74,671
    
    
    
    129,786
    
    
    
    183,597
    
    
    
    207,451
    
    
    
    191,787
    
    
    
    179,414Add Reinsurance Recoverables
    
    
    17,960
    
    
    
    24,609
    
    
    
    23,259
    
    
    
    34,673
    
    
    
    20,548
    
    
    
    20,422
    
    
    
    17,772
    
    
    
    17,860
    
    
    
    14,474
    
    
    
    17,691Gross Liability
    
    
    40,274
    
    
    
    52,222
    
    
    
    63,571
    
    
    
    73,625
    
    
    
    95,219
    
    
    
    150,208
    
    
    
    201,369
    
    
    
    225,311
    
    
    
    206,261
    
    
    
    197,105
  Reinsurance
 Third Party Reinsurance Program
  19




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##### Table of Contents



ReinsuranceRecoverables/
    
    A.M. BestReceivables
    
    Rating (1)QBE Reinsurance Company
    
    $
    7,044
    
    
    
    AOdyssey America Reinsurance
    
    $
    3,771
    
    
    
    A
 
 (1)
    
    Ratings as of February 14, 2008      Mayfair Reinsurance Company Limited
   Terrorism Risk Insurance Act of 2002
  20




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##### Table of Contents



Investments
      
    
    Must not exceed 40% of policyholders surplus,
    
    Must not exceed the lower of 20% of total portfolio in convertible securities or the maximum permitted by
New Jersey insurance regulations,
    
    Investments in any one sector/industry group of the economy by reference to the S&P 500 Index must be no
more than 10% of portfolio, and
    
    Investments in American Depository Receipts or foreign stocks must not exceed a maximum of 5% of portfolio;
    
    All investments must be denominated in U.S. dollars;
    
    All fixed income investments must be rated by the National Association of Insurance Commissioners, which
we refer to as the NAIC. In addition (a) average maturity of fixed income portfolio may not exceed
10 years and the weighted average credit quality of the portfolio must be rated at least A by Moodys or
at least A by Standard & Poors Ratings Services, which we refer to as Standard & Poors, and (b) the
portfolio must have a target duration of 3.5 years, but can range between 3 and 4 years (with the
exception that the 10-15 year municipal bonds may have duration of 8.5 years); and
    
    Proformance may not make investments in (a) unincorporated businesses,
(b) guaranteed investment contracts or (c) commercial paper rated
below A-1 by Standard & Poors or P-1 by Moodys.
   21




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##### Table of Contents



2007
    
    
    2006
    
    
    2005% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofAmount
    
    
    Portfolio
    
    
    Amount
    
    
    Portfolio
    
    
    Amount
    
    
    PortfolioFixed Income Securities:U.S. Treasury securities and
obligations of U.S. Government agencies
    
    $
    196,413
    
    
    
    62.5
    %
    
    $
    196,900
    
    
    
    61.8
    %
    
    $
    168,893
    
    
    
    56.3
    %Obligations of states and
political subdivisions
    
    
    66,618
    
    
    
    21.2
    %
    
    
    74,202
    
    
    
    23.3
    %
    
    
    69,290
    
    
    
    23.1
    %Mortgage-backed securities
    
    
    5,028
    
    
    
    1.6
    %
    
    
    3,417
    
    
    
    1.1
    %
    
    
    1,219
    
    
    
    0.4
    %Corporate and other securities
    
    
    45,047
    
    
    
    14.4
    %
    
    
    41,826
    
    
    
    13.1
    %
    
    
    47,782
    
    
    
    15.9
    %Total fixed income securities
    
    
    313,106
    
    
    
    99.7
    %
    
    
    316,345
    
    
    
    99.2
    %
    
    
    287,184
    
    
    
    95.7
    %Equity Securities:Preferred stocks
    
    
    1,000
    
    
    
    0.3
    %
    
    
    504
    
    
    
    0.2
    %
    
    
    509
    
    
    
    0.2
    %Common stocks
    
    
    12
    
    
    
    0.0
    %
    
    
    1,923
    
    
    
    0.6
    %
    
    
    12,327
    
    
    
    4.1
    %Total equity securities
    
    
    1,012
    
    
    
    0.3
    %
    
    
    2,427
    
    
    
    0.8
    %
    
    
    12,836
    
    
    
    4.3
    %Total Investments
    
    $
    314,118
    
    
    
    100.0
    %
    
    $
    318,772
    
    
    
    100.0
    %
    
    $
    300,020
    
    
    
    100.0
    %
   Years ended December 31,2007
    
    2006
    
    2005Average invested assets
    
    $
    322,972
    
    
    $
    311,421
    
    
    $
    287,223Net investment income
    
    $
    17,276
    
    
    $
    16,082
    
    
    $
    12,403Net effective yield
    
    
    5.3
    %
    
    
    5.2
    %
    
    
    4.3
    %Net realized capital gains
    
    $
    72
    
    
    $
    979
    
    
    $
    411Effective yield including realized capital gains
    
    
    5.4
    %
    
    
    5.5
    %
    
    
    4.5
    %
 22




---



##### Table of Contents



Investment Results
  Composition of Fixed Income Security Portfolio by Rating
 December 31, 2007Amount
    
    
    Percent(In thousands)U.S. Government and Government Agency Fixed Income Securities
    
    $
    202,130
    
    
    
    64.6
    %Aaa/ Aa
    
    
    102,452
    
    
    
    32.7
    %A
    
    
    7,170
    
    
    
    2.3
    %Baa
    
    
    1,136
    
    
    
    0.4
    %Ba
    
    
    
    
    
    
    Total
    
    $
    312,888
    
    
    
    100
    %
    Composition of Fixed Income Security Portfolio by Maturity
 December 31, 2007Amount
    
    
    Percent(In thousands)1 year or less
    
    $
    5,902
    
    
    
    1.9
    %Over 1 year through 5 years
    
    
    25,261
    
    
    
    8.1
    %Over 5 years through 10 years
    
    
    190,617
    
    
    
    60.9
    %Over 10 years through 20 years
    
    
    85,857
    
    
    
    27.4
    %Over 20 years
    
    
    223
    
    
    
    .1
    %Mortgage-backed securities(1)
    
    
    5,028
    
    
    
    1.6
    %Total
    
    $
    312,888
    
    
    
    100.0
    %
 
 (1)
    
    Actual maturities of mortgage-backed securities may differ from
contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties. Prepayment rates are determined by a number of factors
that cannot be predicted with certainty, including the relative
sensitivity of the underlying mortgages or other collateral to
changes in interest rates, a variety of economic, geographic and
other factors, and the repayment priority of the securities in
the overall securitization structures. 23




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##### Table of Contents



Competition
     Ratings
   24




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##### Table of Contents



Properties
  Employees
  Legal Proceedings
   
    
    Transactions between an insurance company and any of its affiliates;
    
    The payment of dividends;
    
    The acquisition of an insurance company or of any company controlling an insurance company;
 25




---



##### Table of Contents




    
    Approval or filing of premium rates and policy forms;
    
    Solvency standards;
    
    Minimum amounts of capital and policyholders surplus which must be maintained;
    
    Limitations on types and amounts of investments;
    
    Restrictions on the size of risks which may be insured by a single company;
    
    Limitation of the right to cancel or non-renew policies in some lines;
    
    Regulation of the right to withdraw from markets or terminate involvement with agencies;
    
    Requirements to participate in residual markets;
    
    Licensing of insurers and agents;
    
    Deposits of securities for the benefit of policyholders;
    
    Reporting with respect to our financial condition, including the adequacy of our reserves
and provisions for unearned premiums;
    
    Unfair trade and claims practices; and
    
    The type of accounting we must use.
  Insurance Holding Company Regulation.
 Insurance Regulation Concerning Dividends.
 Acquisition of Control of a New Jersey Domiciled Insurance Company.
 26




---



##### Table of Contents



Protection against Insurer Insolvency.
 Risk-Based Capital Requirements.
 
  NAIC IRIS Ratios.
 Surplus and Capital Requirements.
 27




---



##### Table of Contents



Regulation of Investments.
 Bermuda
 Bermuda Restrictions on Dividend Payments.
 
 Item 1A. Risk Factors
  Risks Related to Our Business
 Because we are primarily a private passenger automobile insurance carrier, negative developments in
the economic, regulatory or competitive conditions in this industry could cause us to incur
additional costs and limit our flexibility in our underwriting process. This would reduce our
profitability and the impact of these changes would have a disproportionate effect on our ability
to operate profitably and successfully grow our business as compared to other more diversified
insurers.
   Because we write insurance only in New Jersey, negative developments in the regulatory,
economic, demographic, competitive and weather conditions in the New Jersey market could cause us
to incur additional costs or limit our flexibility in our underwriting process and the impact of
these changes would have a disproportionate effect on us compared to insurers that operate in
multiple states.
  28




---



##### Table of Contents



We have historically derived a substantial portion of our revenues from replacement carrier
transactions, and we may not be able to enter into those types of transactions in the future.
    We have exposure to claims related to severe weather conditions, which may result in an
increase in claims frequency and severity.
    If we are not able to attract and retain independent agents, we would be limited in our
ability to sell our insurance products.
  Established competitors with greater resources may make it difficult for us to market our
products effectively and
 29




---



##### Table of Contents



offer our products at a profit.
 
    Our failure to maintain a commercially acceptable financial strength rating would
significantly and negatively affect our ability to implement our business strategies and sell our
products.
   30




---



##### Table of Contents



If our losses and loss adjustment expenses exceed our reserves, we would have to increase our
reserves which would lower our earnings.
   31




---



##### Table of Contents



If we lose key current personnel or are unable to recruit new qualified personnel, we could be
prevented from implementing our business strategy and our ability to capitalize on market
opportunities, grow our business and operate efficiently and profitably could be negatively
affected.
  Market fluctuations and changes in interest rates could reduce the value of our investment
portfolio and our asset base which would limit our ability to underwrite more business.
  We may not be able to successfully alleviate risk through reinsurance arrangements which could
cause us to reduce our premiums written in certain lines or could result in losses and we are
subject to credit risk with respect to our reinsurers.
  32




---



##### Table of Contents



Because we continue to reduce our use of third party reinsurance, we will retain more risk, which could result in more losses.
  We rely on our information technology and telecommunication systems, and the
failure of these systems could limit our ability to operate efficiently and
cause us to lose business.
  33




---



##### Table of Contents



Risks Related to Our Industry
 As a result of cyclical changes, which may include periods of price
competition, excess capacity, high premium rates and shortages of underwriting
capacity in the personal auto insurance industry, our results may materially
fluctuate, affecting our ability to effectively market and price our products.
   We are subject to comprehensive regulation in the State of New Jersey, particularly by the New
Jersey Department of Banking and Insurance, and we must obtain prior approval to take certain
actions which may limit our ability to take advantage of profitable opportunities.
 General Regulation
  
    
    Transactions between an insurance company and any of its affiliates;
    
    The payment of dividends;
    
    The acquisition of an insurance company or of any company controlling an insurance company;
    
    Approval or filing of premium rates and policy forms;
    
    Solvency standards;
    
    Minimum amounts of capital and policyholders surplus which must be maintained;
    
    Limitations on types and amounts of investments;
    
    Restrictions on the size of risks which may be insured by a single company;
    
    Limitation of the right to cancel or non-renew policies in some lines;
    
    Regulation of the right to withdraw from markets or terminate involvement with agencies;
    
    Requirements to participate in residual markets;
    
    Licensing of insurers and agents;
    
    Deposits of securities for the benefit of policyholders;
 34




---



##### Table of Contents




    
    Reporting with respect to our financial condition, including the adequacy of our reserves and provisions
for unearned premiums;
    
    Unfair trade and claims practices; and
    
    The type of accounting we must use at Proformance in order to comply with statutory reporting requirements.
  We are subject to assessments by the New Jersey Property-Liability Insurance Guaranty
Association, which assessments would reduce the capital available to us to operate our business.
  Our failure to meet risk based capital standards could subject us to examination or
corrective action by state regulators.
   35




---



##### Table of Contents



Proformance Insurance Company
Risk-Based Capital(1)
 As of December 31,2007
    
    2006
    
    2005Total Adjusted Capital
    
    $
    125,712
    
    
    $
    128,031
    
    
    $
    104,727Company Action Level = 200% of Authorized
Control Level
    
    
    38,806
    
    
    
    36,337
    
    
    
    58,985Regulatory Action Level = 150% of Authorized
Control Level
    
    
    29,105
    
    
    
    27,253
    
    
    
    44,239Authorized Control Level = 100% of Authorized
Control Level
    
    
    19,403
    
    
    
    18,168
    
    
    
    29,493Mandatory Control Level = 70% of Authorized
Control Level
    
    $
    13,582
    
    
    $
    12,718
    
    
    $
    20,645
 
 (1)
    
    For a description of the regulatory action that may be taken at each
level, see Business  Supervision and Regulation  Risk Based
Capital Requirements. If we fail to satisfy a sufficient number of IRIS Ratios, we would be subject to regulatory
action which could negatively affect our ability to operate our business efficiently and
profitably.
  New Jersey Personal Auto Insurance Regulation
 We are subject to extensive regulation in the New Jersey personal auto insurance industry
which is subject to change, and we can give you no assurance that any changes in the regulations
would not significantly limit our ability to operate our business profitably.
    36




---



##### Table of Contents



We cannot be certain of the impact that the New Jersey Automobile Insurance
Competition & Choice Act or any future legislative initiatives will have on our business and
operations.
  We are subject to the New Jersey excess profits requirements which require us to
refund or credit excess profits to our policyholders.
  37




---



##### Table of Contents



We are subject to New Jerseys Take All Comers requirements whereby we are not
permitted to refuse to issue policies in those rating territories to certain applicants which could
negatively impact our underwriting results.
  We are subject to New Jerseys urban enterprise zone requirements. Unless we write
enough business in designated urban enterprise zones, we may be assigned business in those zones
by the State of New Jersey which could negatively impact our underwriting results.
   The continued threat of terrorism and ongoing military and other actions may result in
decreases in our net income, revenue and assets under management and may adversely affect our
investment portfolio.
   38




---



##### Table of Contents



Changes in insurance industry practices and regulatory, judicial and consumer conditions and
class action litigation are continually emerging in the automobile insurance industry, and these
new issues could adversely impact our revenues or our methods of doing business.
 Diprospero v. Penn, et. al.
  Risks Related to Our Common Stock
 We have principal shareholders who have the ability to exert significant influence over our
operations, including controlling the election of directors.
  As a holding company, NAHC is dependent on the results of operations of its operating
subsidiaries, particularly Proformance, and the ability of Proformance to pay a dividend to us is
limited by the insurance laws and regulations of New Jersey.
 
  39




---



##### Table of Contents



There are anti-takeover provisions contained in our organizational documents and in laws of
the State of New Jersey that could delay or impede the removal of our directors and management and
could make a merger, tender offer or proxy contest involving us more difficult, or could discourage
a third party from attempting to acquire control of us, even if such a transaction were beneficial
to the interest of our shareholders.
     40




---



##### Table of Contents



We may require additional capital in the future, which may not be available or may only be
available on unfavorable terms.
   Future sales of shares of our common stock by our existing shareholders, officers or employees
in the public market, or the possibility or perception of such future sales, could adversely affect
the market price of our stock.
  Because we do not intend to pay dividends, you will not receive funds without selling shares and
you will only see a return on your investment if the value of the shares appreciates.
  
 Item 1B. Unresolved Staff Comments
  41




---



##### Table of Contents



Item 2. Properties
  
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  Price Range of Common Shares
 2007
    
    2006High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    13.25
    
    
    $
    10.75
    
    
    $
    12.00
    
    
    $
    9.35Second Quarter
    
    $
    14.12
    
    
    $
    11.51
    
    
    $
    10.90
    
    
    $
    8.02Third Quarter
    
    $
    14.45
    
    
    $
    8.70
    
    
    $
    11.90
    
    
    $
    8.68Fourth Quarter
    
    $
    10.34
    
    
    $
    3.66
    
    
    $
    13.70
    
    
    $
    10.86
    42




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##### Table of Contents



(c)(a)
    
    
    
    
    
    
    Number of SecuritiesNumber of Securities
    
    
    (b)
    
    
    Remaining Available forto be Issued
    
    
    Weighted Average
    
    
    Issuance Under EquityUpon Exercise of
    
    
    Exercise Price of
    
    
    Compensation PlansOutstanding Options,
    
    
    Outstanding Options,
    
    
    (Excluding SecuritiesPlan Category
    
    Warrant and Rights
    
    
    Warrant and Rights
    
    
    Reflected in Column (a))Equity compensation plans approved by
security holders
    
    
    174,150
    
    
    $
    3.19
    
    
    
    1,000,000Equity compensation plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    174,150
    
    
    $
    3.19
    
    
    
    1,000,000
 Use of Proceeds
  Number of Shares
    
    
    AverageMaximum
    
    
    Minimum
    
    
    PriceBalance at September 30, 2007
    
    
    607,897
    
    
    
    Repurchased
    
    
    
    
    
    
    
    
    
    
    Balance at October 31, 2007
    
    
    607,897
    
    
    
    
    
    
    
    Repurchased
    
    
    7,000
    
    
    
    
    
    
    
    5.39Balance at November 30, 2007
    
    
    600,897
    
    
    
    Repurchased
    
    
    19,200
    
    
    
    
    
    
    $
    4.36Balance at December 31, 2007
    
    
    581,697
    
    
    
    
    
    
    
    
 
 Item 6. Selected Financial Data
   43




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##### Table of Contents



Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003($ in thousands, except share data)Income Statement Data:Direct written premiums
    
    $
    178,679
    
    
    $
    171,069
    
    
    $
    198,049
    
    
    $
    207,320
    
    
    $
    163,179Net written premiums
    
    
    166,210
    
    
    
    161,125
    
    
    
    189,634
    
    
    
    193,192
    
    
    
    147,045Net earned premiums
    
    
    165,220
    
    
    
    157,354
    
    
    
    172,782
    
    
    
    179,667
    
    
    
    143,156Replacement carrier revenue from related party
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,880
    
    
    
    13,298Replacement carrier revenue from unrelated party
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,089
    
    
    
    661Investment income
    
    
    17,276
    
    
    
    16,082
    
    
    
    12,403
    
    
    
    7,061
    
    
    
    4,258Net realized investment gains
    
    
    72
    
    
    
    979
    
    
    
    411
    
    
    
    1,931
    
    
    
    1,373Other income
    
    
    1,703
    
    
    
    1,441
    
    
    
    1,745
    
    
    
    2,044
    
    
    
    929Total income
    
    
    184,271
    
    
    
    175,856
    
    
    
    187,341
    
    
    
    208,672
    
    
    
    163,675Losses and loss adjustment expenses (1)
    
    
    145,085
    
    
    
    103,824
    
    
    
    132,794
    
    
    
    134,987
    
    
    
    108,123Underwriting, acquisition and insurance related expenses
    
    
    49,652
    
    
    
    48,275
    
    
    
    42,264
    
    
    
    46,771
    
    
    
    26,055Other operating and general expenses
    
    
    539
    
    
    
    2,268
    
    
    
    3,989
    
    
    
    580
    
    
    
    484Total expenses
    
    
    195,276
    
    
    
    154,367
    
    
    
    179,047
    
    
    
    182,338
    
    
    
    134,662Income (loss) before income taxes
    
    
    (11,005
    )
    
    
    21,489
    
    
    
    8,294
    
    
    
    26,334
    
    
    
    29,013Income tax (benefit) expense
    
    
    (4,811
    )
    
    
    7,107
    
    
    
    1,858
    
    
    
    8,886
    
    
    
    9,945Net (loss) income
    
    $
    (6,194
    )
    
    $
    14,382
    
    
    $
    6,436
    
    
    $
    17,448
    
    
    $
    19,068Basic (loss) earnings per share
    
    $
    (0.56
    )
    
    $
    1.28
    
    
    $
    0.70
    
    
    $
    3.53
    
    
    $
    4.29Diluted (loss) earnings per share
    
    $
    (0.56
    )
    
    $
    1.26
    
    
    $
    0.68
    
    
    $
    3.11
    
    
    $
    3.77
 As of and for the Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003($ in thousands)Balance Sheet Data:Total cash & investments
    
    $
    342,216
    
    
    $
    345,060
    
    
    $
    339,856
    
    
    $
    252,993
    
    
    $
    179,696Total assets
    
    
    449,675
    
    
    
    452,830
    
    
    
    462,736
    
    
    
    347,172
    
    
    
    266,748Unpaid losses and loss adjustment expenses
    
    
    197,105
    
    
    
    191,386
    
    
    
    219,361
    
    
    
    184,283
    
    
    
    134,201Total liabilities
    
    $
    305,499
    
    
    $
    301,942
    
    
    $
    324,527
    
    
    $
    279,333
    
    
    $
    216,961Total
stockholders equity (2)
    
    $
    144,176
    
    
    $
    150,888
    
    
    $
    138,209
    
    
    $
    67,839
    
    
    $
    49,787Statutory Data:Policyholders surplus (at period end) (2)(3)(4)
    
    $
    125,712
    
    
    $
    128,031
    
    
    $
    104,727
    
    
    $
    58,754
    
    
    $
    46,325Loss ratio (1)
    
    
    90.34
    %
    
    
    69.16
    %
    
    
    79.80
    %
    
    
    75.30
    %
    
    
    82.20
    %Expense ratio (1)
    
    
    27.13
    %
    
    
    26.93
    %
    
    
    22.30
    %
    
    
    21.80
    %
    
    
    20.40
    %Combined ratio (1)
    
    
    117.48
    %
    
    
    96.09
    %
    
    
    102.10
    %
    
    
    97.10
    %
    
    
    102.60
    %
 
 (1)
    
    The loss ratio, when calculated on a statutory basis, is the ratio of losses and loss adjustment expenses to
net earned premiums. The expense ratio, when calculated on a statutory accounting basis, is the ratio of
underwriting expenses to net written premiums. The expense ratio, when calculated on a GAAP basis, differs
from the statutory method specifically as it related to policy acquisition expenses. Policy acquisition
expenses are expensed as incurred under the statutory accounting method. However, for GAAP, policy
acquisition expenses are deferred and amortized over the period in which the related premiums are earned.
The combined ratio is the sum of the loss ratio and the expense ratio. Management considers the statutory
methods for calculating the loss, expense and combined ratios to compare our performance to benchmarks used
by rating agencies and regulatory bodies that monitor the insurance industry. 44




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##### Table of Contents



(2)
    
    On April 21, 2005, an initial public offering of 6,650,000 shares of the Companys common stock (after the
43-for-1 stock split) was completed. The company sold 5,985,000 shares resulting in net proceeds to the
Company (after deducting issuance costs and the underwriters discount) of $62,198,255. The Company
contributed $43,000,000 to Proformance, which increased its statutory surplus.(3)
    
    On May 8, 2006, the Company contributed $9,000,000 to Proformance, thereby increasing its statutory surplus.(4)
    
    On May 16, 2007, the Company contributed $4,100,000 to Proformance, thereby increasing its statutory surplus. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
  
    
    our extensive knowledge of the New Jersey insurance market and regulatory environment;
    
    our business model which is designed to align our Partner Agents interests with
management by requiring many of them to retain an ownership stake in us;
    
    our packaged product that includes private passenger automobile, homeowners, personal
excess (umbrella) and specialty property liability coverage; and
    
    our insurance related services businesses.
   45




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##### Table of Contents



PremiumModifications
    
    Percent of TotalTier Designation
    
    Factor
    
    VehiclesTier A
    
    
    0.88
    
    
    
    33.7
    %Tier One
    
    
    1.00
    
    
    
    58.9
    %Tier Two
    
    
    1.70
    
    
    
    6.6
    %Tier Three
    
    
    2.25
    
    
    
    0.2
    %Tier Four
    
    
    2.60
    
    
    
    0.69
    %
   46




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##### Table of Contents




    
    The recent rise in gasoline prices may serve to decrease the number of
miles driven by our policyholders and result in lower frequency of
automobile claims; and
    
    An evolving set of legal standards by which we are required to pay
claims may result in significant variability in our loss reserves over
time.
         47




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48




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##### Table of Contents



DiProspero v. Penn,
et al.
        49




---



##### Table of Contents



Revenues
    Expenses
  50




---



##### Table of Contents



Critical Accounting Policies
  Unpaid Losses and Loss Adjustment Expenses
      51




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National Atlantic Holdings Corporation
Breakout of Reserves by Line of Business
As of December 31, 2007
 Direct
    
    Assumed
    
    
    
    
    
    
    
    
    
    Total BalanceCase
    
    Case
    
    Direct
    
    Assumed
    
    SheetReserves
    
    Reserves
    
    IBNR
    
    IBNR
    
    Reserves(in thousands)Line of Business:Fire
    
    $
    
    
    
    $
    29
    
    
    $
    
    
    
    $
    
    
    
    $
    29Allied
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Homeowners
    
    
    6,741
    
    
    
    
    
    
    
    9,168
    
    
    
    
    
    
    
    15,909Personal Auto
    
    
    93,000
    
    
    
    5
    
    
    
    48,634
    
    
    
    
    
    
    
    141,639Commercial Auto
    
    
    10,437
    
    
    
    898
    
    
    
    13,176
    
    
    
    536
    
    
    
    25,047Other Liability
    
    
    5,815
    
    
    
    
    
    
    
    8,663
    
    
    
    
    
    
    
    14,478Total Reserves
    
    $
    115,993
    
    
    $
    935
    
    
    $
    79,641
    
    
    $
    536
    
    
    $
    197,105Reinsurance
Recoverables on
Unpaid Losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,691
    )Total Net Reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    179,414
  
    
    More effective claims processes have recently been put in place. If
the improvement in our claims handling process is better than
expected, losses could develop less than anticipated,
    
    The rate of claims settlements has increased dramatically over the
past year. A continuation of this activity could produce ultimate
losses below our current estimate.
  
    
    Claims for uninsured motorists generally have a longer development
period than other liability losses. If the frequency of uninsured
motorist claims increases beyond our current estimated levels, loss
emergence could be greater than what we projected in our loss
development analysis.
 52




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##### Table of Contents




    
    We believe that the claims department has improved its claims handling
practices with regard to claims reserving and settlement. These
improvements, if not effectively implemented, could result in adverse
loss development.
 Investment Accounting Policy  Impairment
   Insurance Ratios
  Results of Operations
  53




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##### Table of Contents



For the year ended December 31,2007
    
    
    2006
    
    
    2005Direct written premiums
    
    $
    178,679
    
    
    $
    171,069
    
    
    $
    198,049Net written premiums
    
    
    166,210
    
    
    
    161,125
    
    
    
    189,634Net premiums earned
    
    $
    165,220
    
    
    $
    157,354
    
    
    $
    172,782Investment income
    
    
    17,276
    
    
    
    16,082
    
    
    
    12,403Net realized investment gains (losses)
    
    
    72
    
    
    
    979
    
    
    
    411Other income
    
    
    1,703
    
    
    
    1,441
    
    
    
    1,745Total revenue
    
    $
    184,271
    
    
    $
    175,856
    
    
    $
    187,341Losses and loss adjustment expenses incurred
    
    $
    145,085
    
    
    $
    103,824
    
    
    $
    132,794Underwriting, acquisition and insurance
related expenses
    
    
    49,652
    
    
    
    48,275
    
    
    
    42,264Other operating and general expenses
    
    
    539
    
    
    
    2,268
    
    
    
    3,989Total expenses
    
    
    195,276
    
    
    
    154,367
    
    
    
    179,047Income (loss) before income taxes
    
    
    (11,005
    )
    
    
    21,489
    
    
    
    8,294Income taxes (benefit)
    
    
    (4,811
    )
    
    
    7,107
    
    
    
    1,858Net (loss) income
    
    $
    (6,194
    )
    
    $
    14,382
    
    
    $
    6,436
 For the year ended December 31, 2007, compared to the year ended December 31, 2006
 Direct Written Premiums.
  Net Written Premiums.
 Net Premiums Earned.
 Investment Income.
 Net Realized Investment Gains.
 54




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##### Table of Contents



Other Income.
 Losses and Loss Adjustment Expenses Incurred.
 Underwriting, Acquisition and Insurance Related Expenses.
 Other Operating and General Expenses.
 Income Tax (Benefit) Expense.
 Net (Loss) Income.
 For the year ended December 31, 2006, compared to the year ended December 31, 2005
 Direct Written Premiums.
  55




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##### Table of Contents



Net Written Premiums.
 Net Premiums Earned.
 Investment Income.
 Net Realized Investment Gains.
 Other Income.
 Losses and Loss Adjustment Expenses Incurred.
 Underwriting, Acquisition and Insurance Related Expenses.
 Other Operating and General Expenses.
 56




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##### Table of Contents



Income Tax Expense.
 Net Income.
 Liquidity and Capital Resources
      57




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58




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##### Table of Contents



For the years ended December 31,2007
    
    2006
    
    2005NAIA
    
    $
    1,110,000
    
    
    $
    714,781
    
    
    $
    1,550,000Riverview
    
    $
    450,000
    
    
    $
    188,760
    
    
    $
    950,000NAFC
    
    $
    1,000,000
    
    
    $
    
    
    
    $
    
     Year
    
    Amount2008
    
    $
    796,7992009
    
    
    545,9992010
    
    
    2011
    
    
    2012 and thereafter
    
    
    Total
    
    $
    1,342,798
     59




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##### Table of Contents



Investments
      Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)Fixed maturities:State, local government
and agencies
    
    $
    2,612,228
    
    
    $
    (3,338
    )
    
    $
    223,182
    
    
    $
    (3,682
    )
    
    $
    2,835,410
    
    
    $
    (7,020
    )Industrial and miscellaneous
    
    
    
    
    
    
    
    
    
    
    18,379,026
    
    
    
    (585,430
    )
    
    
    18,379,026
    
    
    
    (585,430
    )Total Investments -
Held-to-Maturity
    
    $
    2,612,228
    
    
    $
    (3,338
    )
    
    $
    18,602,208
    
    
    $
    (589,112
    )
    
    $
    21,214,436
    
    
    $
    (592,450
    )
   Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)Fixed maturities:U.S. Government,
government agencies
and authorities
    
    $
    12,677,756
    
    
    $
    (24,009
    )
    
    $
    8,304,808
    
    
    $
    (93,914
    )
    
    $
    20,982,564
    
    
    $
    (117,923
    )State, local government
and agencies
    
    
    2,653,290
    
    
    
    (4,296
    )
    
    
    9,651,873
    
    
    
    (43,239
    )
    
    
    12,305,163
    
    
    
    (47,535
    )Industrial and miscellaneous
    
    
    2,123,989
    
    
    
    (50,125
    )
    
    
    2,890,698
    
    
    
    (76,522
    )
    
    
    5,014,687
    
    
    
    (126,647
    )Mortgage-backed securities
    
    
    1,638,460
    
    
    
    (6,284
    )
    
    
    1,006,540
    
    
    
    (1,990
    )
    
    
    2,645,000
    
    
    
    (8,274
    )Total fixed maturities
    
    
    19,093,495
    
    
    
    (84,714
    )
    
    
    21,853,919
    
    
    
    (215,665
    )
    
    
    40,947,414
    
    
    
    (300,379
    )Other Investments:Equity securities
    
    
    12,464
    
    
    
    (1,386
    )
    
    
    
    
    
    
    
    
    
    
    12,464
    
    
    
    (1,386
    )Total Investments -
Available-for-Sale
    
    $
    19,105,959
    
    
    $
    (86,100
    )
    
    $
    21,853,919
    
    
    $
    (215,665
    )
    
    $
    40,959,878
    
    
    $
    (301,765
    )
  60




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##### Table of Contents



Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)Fixed maturities:U.S. Government,
government agencies
and authorities
    
    $
    645,084
    
    
    $
    (9,978
    )
    
    $
    5,889,375
    
    
    $
    (243,106
    )
    
    $
    6,534,459
    
    
    $
    (253,084
    )State, local government
and agencies
    
    
    2,788,654
    
    
    
    (57,768
    )
    
    
    
    
    
    
    
    
    
    
    2,788,654
    
    
    
    (57,768
    )Industrial and miscellaneous
    
    
    10,364,364
    
    
    
    (159,399
    )
    
    
    20,094,937
    
    
    
    (302,849
    )
    
    
    30,459,301
    
    
    
    (462,248
    )Total Investments -
Held-to-Maturity
    
    $
    13,798,102
    
    
    $
    (227,145
    )
    
    $
    25,984,312
    
    
    $
    (545,955
    )
    
    $
    39,782,414
    
    
    $
    (773,100
    )
   Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)Fixed maturities:U.S. Government,
government agencies
and authorities
    
    $
    36,677,390
    
    
    $
    (121,768
    )
    
    $
    142,710,619
    
    
    $
    (1,738,102
    )
    
    $
    179,388,009
    
    
    $
    (1,859,870
    )State, local government
and agencies
    
    
    17,505,739
    
    
    
    (49,894
    )
    
    
    24,555,792
    
    
    
    (241,685
    )
    
    
    42,061,531
    
    
    
    (291,579
    )Industrial and miscellaneous
    
    
    4,230,424
    
    
    
    (26,377
    )
    
    
    3,860,237
    
    
    
    (130,487
    )
    
    
    8,090,661
    
    
    
    (156,864
    )Mortgage-backed securities
    
    
    488,032
    
    
    
    (2,572
    )
    
    
    1,002,400
    
    
    
    (12,576
    )
    
    
    1,490,432
    
    
    
    (15,148
    )Total fixed maturities
    
    
    58,901,585
    
    
    
    (200,611
    )
    
    
    172,129,048
    
    
    
    (2,122,850
    )
    
    
    231,030,633
    
    
    
    (2,323,461
    )Other Investments:Equity securities
    
    
    
    
    
    
    
    
    
    
    877,488
    
    
    
    (111,057
    )
    
    
    877,488
    
    
    
    (111,057
    )Total Investments -
Available-for-Sale
    
    $
    58,901,585
    
    
    $
    (200,611
    )
    
    $
    173,006,536
    
    
    $
    (2,233,907
    )
    
    $
    231,908,121
    
    
    $
    (2,434,518
    )
   61




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i.e
       Securities in an Unrealized Loss Position for Less than 12 Months
 % ofAmortized
    
    
    
    
    
    Unrealized
    
    UnrealizedCost
    
    Fair Value
    
    Losses
    
    LossInvestment Grade Fixed Income
    
    $
    21,793,774
    
    
    $
    21,705,722
    
    
    $
    (88,052
    )
    
    
    (.40)
    %Equities
    
    $
    13,850
    
    
    $
    12,464
    
    
    $
    (1,386
    )
    
    
    (10.01)
    %
 Securities in an Unrealized Loss Position for greater than 12 months
 % ofAmortized
    
    
    
    
    
    Unrealized
    
    UnrealizedCost
    
    Fair Value
    
    Losses
    
    LossInvestment Grade Fixed Income
    
    $
    41,260,903
    
    
    $
    40,456,126
    
    
    $
    (804,777
    )
    
    
    (1.95)
    %
 62




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##### Table of Contents



Securities with a Decline in Fair Value Below Carrying Values Less than 20%
 % ofAmortized
    
    
    
    
    
    Unrealized
    
    UnrealizedCost
    
    Fair Value
    
    Losses
    
    LossInvestment Grade Fixed Income
    
    $
    63,054,677
    
    
    $
    62,161,848
    
    
    $
    (892,829
    )
    
    
    (1.42)
    %Equities
    
    $
    13,850
    
    
    $
    12,464
    
    
    $
    (1,386
    )
    
    
    (10.01)
    %
 Contractual Obligations
  Contractual Obligations and Credit-Related Commitments
 Less Than
    
    1 - 3
    
    3 - 5
    
    More Than1 Year
    
    Years
    
    Years
    
    5 Years
    
    TotalLoss and Loss Adjustment
Expenses(1)
    
    $
    102,494,478
    
    
    $
    66,030,096
    
    
    $
    25,623,619
    
    
    $
    2,956,571
    
    
    $
    197,104,764Operating Lease Obligations(2)
    
    $
    796,799
    
    
    $
    545,999
    
    
    $
    
    
    
    $
    
    
    
    $
    1,342,798
 
 (1)
    
    As of December 31, 2007 we had unpaid loss and loss adjustment
expenses of $197.1 million. The amounts and timing of these
obligations are not set contractually. Nonetheless, based on
cumulative property and casualty claims paid over the last ten years,
we anticipate that approximately 52.0% will be paid within a year, an
additional 33.5% between one and three years, 13.0% between three and
five years and 1.5% in more than five years. While we believe that
historical performance of loss payment patterns is a reasonable
source for projecting future claim payments, there is inherent
uncertainty in this payment estimate because of the potential impact
from changes in: 
    
    The legal environment whereby court decisions and changes in backlogs in the court system could influence claim payout
patterns.
    
    Our mix of business because property and first-party claims settle more quickly than bodily injury claims.
    
    Claims staffing levels  claims may be settled at a different rate based on the future staffing levels of the claim department.
    
    Reinsurance programs  changes in Proformances retention will influence the payout of the liabilities. As Proformances net
retention increases, the liabilities will take longer to settle than in past years.
    
    Loss cost trends  increases/decreases in inflationary factors (legal and economic) will influence ultimate claim payouts and
their timing.
 (2)
    
    Represents our minimum rental commitments as of December 31, 2007
pursuant to our seven-year lease agreement for the use of our office
space and equipment at 4 Paragon Way, Freehold, NJ 07728 and our
four-year lease agreement for the use of our office space and
equipment at 3 Paragon Way, Freehold, NJ 07728. Off-Balance Sheet Arrangements
  Adoption of New Accounting Pronouncements
   63




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Share-Based Payment Accounting for Stock Issued to
Employees
  64




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Item 7a. Quantitative and Qualitative Disclosures About Market Risk
 General
  Interest Rate Risk
    Fair Value-100 Basis
    
    
    
    
    
    +100 BasisPoint
    
    As of
    
    PointChange
    
    December 31, 2007
    
    Change($ in thousands)Fixed maturities and preferred stocks
    
    $
    323,026
    
    
    $
    313,888
    
    
    $
    304,750Cash and cash equivalents
    
    $
    28,098
    
    
    $
    28,098
    
    
    $
    28,098Total
    
    $
    351,124
    
    
    $
    341,987
    
    
    $
    332,848
 65




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##### Table of Contents



-100 Basis
    
    
    
    
    
    +100 BasisPoint
    
    As of
    
    PointChange
    
    December 31, 2006
    
    Change($ in thousands)Fixed maturities and preferred stocks
    
    $
    328,947
    
    
    $
    316,082
    
    
    $
    303,218Cash and cash equivalents
    
    $
    26,288
    
    
    $
    26,288
    
    
    $
    26,288Total
    
    $
    355,235
    
    
    $
    342,370
    
    
    $
    329,506
 Equity Risk
   Credit Risk
   Effects of Inflation
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of disclosure controls and procedures
  66




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Managements Report on Internal Control over Financial Reporting
 Internal Control  Integrated
Framework
  Changes to Internal Control over Financial Reporting
  
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  Code of Ethics
 www.national-atlantic.com.
 
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management
  
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
  67




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##### Table of Contents



PART IV
 
 Item 15. Exhibit and Financial Statement Schedules
  Financial statements
        Financial statement schedules required to be filed by Item 8 of this form:
         Exhibits
 3.1
    
    Form of Amended and Restated Certificate of Incorporation of the Registrant**3.2
    
    Form of Amended and Restated Bylaws of the Registrant**4.1
    
    Form of Stock Certificate for the Common Stock**10.1
    
    Form of Agency Agreements between Proformance Insurance Company and Partner
Agents of Proformance Insurance Company**10.2
    
    Form of Limited Agency Agreements between Proformance Insurance Company and
Non-Active Replacement Carrier Service Agents of Proformance Insurance
Company**10.3
    
    Replacement Carrier Agreement, dated December 18, 2001, among the
Registrant, Proformance Insurance Company and Ohio Casualty of New Jersey,
Inc.**10.4
    
    Non-Competition Agreement, dated December 18, 2001, among the Registrant,
Proformance Insurance Company, The Ohio Casualty Insurance Company and Ohio
Casualty of New Jersey**
 68




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##### Table of Contents



10.5
    
    Letter Agreement, dated July 10, 2004, among the Registrant, Proformance
Insurance Company and The Ohio Casualty Insurance Company and Ohio Casualty
of New Jersey**10.6
    
    Replacement Carrier Agreement, dated December 8, 2003, between the
Registrant and Metropolitan Property and Casualty Insurance Company**10.7
    
    Share Repurchase Agreement, dated December 8, 2003, between the Registrant
and Metropolitan Property and Casualty Insurance Company**10.8
    
    Replacement Carrier Agreement, dated March 14, 2003, between Proformance
Insurance Company and Sentry Insurance**10.9
    
    Replacement Carrier Agreement, dated May 6, 2005, between Proformance
Insurance Company and The Hartford Financial Services Group, Inc.*****10.9.1
    
    First Amendment to the Replacement Carrier Agreement, dated June 28, 2005,
between Proformance Insurance Company and The Hartford Financial Services
Group, Inc.*****10.10
    
    Limited Assignment Distribution Agreement, effective January 1, 2004, between Proformance
Insurance Company and The Clarendon National Insurance Company**10.11
    
    Limited Assignment Distribution Agreement, effective January 1, 2004, between Proformance
Insurance Company and AutoOne Insurance Company**10.12
    
    2004 Stock and Incentive Plan of the Registrant**10.13
    
    National Atlantic Holdings Corp. Annual Bonus Plan**10.14
    
    Form of Employment Agreement between the Registrant and James V. Gorman, Frank J.
Prudente, John E. Scanlan and Bruce C. Bassman**10.15
    
    Form of Employment Agreement between Proformance Insurance Company and Peter A.
Cappello, Jr.**10.16
    
    Commutation and Release Agreement, effective as of December 31, 2002, between Odyssey
America Reinsurance Corporation and Proformance Insurance Company**10.17
    
    Form of Agency Agreements between Proformance Insurance Company and Active Replacement
Carrier Service Agents of Proformance Insurance Company**10.18
    
    Form of Indemnification Agreement between the Registrant and its directors and officers**10.19
    
    Letter Agreement, dated December 7, 2004, among the Registrant, Proformance Insurance
Company, The Ohio Casualty Insurance Company and Ohio Casualty of New Jersey**10.20
    
    Commutation and Mutual Release Agreement, effective as of March 26, 2003, between
Proformance Insurance Company and Gerling Global Reinsurance Corporation of America**10.21
    
    Form of Underwriting Agreement among the Company, the Ohio Casualty Insurance Company as
Selling Shareholder and the Underwriters named therein**10.22
    
    Form of Employee Stock Option Agreement for the Companys Nonstatutory Stock Option Plan***
 69




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##### Table of Contents



10.23
    
    Form of Amendment to Employee Stock Option Agreement for Certain Options Granted to
Messrs. James V. Gorman, Peter A. Capello, Jr. and Steven V. Stallone***10.24
    
    Form of Nonstatutory Stock Option Agreement for Certain Stock Options Granted to the
Estate of Mr. Frank Campion***10.25
    
    Form of Amendment to Employment Agreement for James V. Gorman, Frank J. Prudente, John E.
Scanlan, Bruce C. Bassman and Peter A. Cappello, Jr. ****10.26
    
    Replacement Carrier Agreement, dated November 7, 2005, between Proformance Insurance Company and The Hanover Insurance Company.*****14.1
    
    Code of Ethics *21.1
    
    Subsidiaries of the Registrant**23.1
    
    Consent of Beard Miller Company LLP *23.2
    
    Consent of Deloitte & Touche LLP*31.1
    
    Certification pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act
of 1934, as amended*31.2
    
    Certification pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act
of 1934, as amended*32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002*32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002*99
    
    Reports of Independent Registered Public Accounting Firms
 
 *
    
    Filed herewith**
    
    Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-117804). Initially filed July 30, 2004.***
    
    Incorporated by reference from National Atlantic Holdings
Corporations Report on Form 8-K, filed with the SEC on September 23,
2005.****
    
    Incorporated by reference from National Atlantic Holdings
Corporations Report on Form 8-K, filed with the SEC on September 1,
2006.*****
    
    Incorporated by reference from National Atlantic Holdings
Corporations annual report for the year ended December 31, 2006. 70




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NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
INDEX
 Page(s)Consolidated Financial Statement:Reports of Independent Registered Public Accounting Firms
    
    
    F-2Consolidated Balance Sheets:
    
    
    F-3As of December 31, 2007 and 2006Consolidated Statements of Operations:For the years ended December 31, 2007, 2006 and 2005
    
    
    F-4Consolidated Statements of Comprehensive Income (Loss):For the years ended December 31, 2007, 2006 and 2005
    
    
    F-5Consolidated Statements of Changes in Stockholders Equity:For the years ended December 31, 2007, 2006 and 2005
    
    
    F-6Consolidated Statements of Cash Flows:For the years ended December 31, 2007, 2006 and 2005
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
 F-1




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Report
of Independent Registered Public Accounting Firm
 
     Internal ControlIntegrated
Framework
  
 F-2




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
  .
  DELOITTE & TOUCHE LLP
 
 F-3




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##### Table of Contents



Report
of Independent Registered Public Accounting Firm
 
 Internal Control
Integrated Framework
    Internal ControlIntegrated Framework
 F-4




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##### Table of Contents



F-5




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NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 December 31,
    
    
    December 31,2007
    
    
    2006Investments: (Note 2)Fixed maturities held-to-maturity (fair value at December 31, 2007 and 2006
    
    $
    42,130
    
    
    $
    42,168was $41,913 and $41,401, respectively)Fixed maturities available-for-sale (amortized cost at December 31, 2007 and 2006
    
    
    270,519
    
    
    
    273,724was $269,784 and $275,810, respectively)Equity securities (cost at December 31, 2007 and 2006 was $1,014 and $2,288, respectively)
    
    
    1,012
    
    
    
    2,427Short-term investments (cost at December 31, 2007 and 2006, was $457 and $453, respectively)
    
    
    457
    
    
    
    453Total investments
    
    
    314,118
    
    
    
    318,772Cash and cash equivalents
    
    
    28,098
    
    
    
    26,288Accrued investment income
    
    
    3,950
    
    
    
    4,122Premiums receivable
    
    
    47,753
    
    
    
    49,976Reinsurance recoverables and receivables (Note 4)
    
    
    20,831
    
    
    
    26,914Deferred acquisition costs
    
    
    18,934
    
    
    
    18,601Property and equipment  net (Note 7)
    
    
    3,143
    
    
    
    1,988Income taxes recoverable (Note 6)
    
    
    8,455
    
    
    
    Other assets
    
    
    4,393
    
    
    
    6,169Total assets
    
    $
    449,675
    
    
    $
    452,830Liabilities and Stockholders Equity:Liabilities:Unpaid losses and loss adjustment expenses (Note 5)
    
    $
    197,105
    
    
    $
    191,386Unearned premiums
    
    
    86,823
    
    
    
    85,523Accounts payable and accrued expenses
    
    
    2,446
    
    
    
    2,420Deferred income taxes (Note 6)
    
    
    10,829
    
    
    
    9,967Income taxes payable (Note 6)
    
    
    
    
    
    
    3,026Other liabilities
    
    
    8,296
    
    
    
    9,620Total liabilities
    
    
    305,499
    
    
    
    301,942Commitments and Contingencies: (Note 10)
    
    
    
    
    
    
    Stockholders equity:Common Stock, no par value (50,000,000 shares authorized; 11,425,790 issued, 11,007,487 outstanding
    
    
    97,820
    
    
    
    97,570as of December 31, 2007; 11,288,190 issued, 11,121,941 outstanding as of December 31, 2006, respectively)Retained earnings
    
    
    50,541
    
    
    
    56,735Accumulated other comprehensive income (loss)
    
    
    107
    
    
    
    (1,694
    )Common stock held in treasury, at cost (418,303 and 166,249 shares held as of December 31, 2007
and 2006, respectively)
    
    
    (4,292
    )
    
    
    (1,723
    )Total stockholders equity
    
    
    144,176
    
    
    
    150,888Total liabilities and stockholders equity
    
    $
    449,675
    
    
    $
    452,830
  F-6




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NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share data)
 For the years ended December 31,2007
    
    
    2006
    
    
    2005Revenue:Net premiums earned
    
    $
    165,220
    
    
    $
    157,354
    
    
    $
    172,782Net investment income
    
    
    17,276
    
    
    
    16,082
    
    
    
    12,403Net realized investment gains
    
    
    72
    
    
    
    979
    
    
    
    411Other income
    
    
    1,703
    
    
    
    1,441
    
    
    
    1,745Total revenue
    
    
    184,271
    
    
    
    175,856
    
    
    
    187,341Costs and Expenses:Loss and loss adjustment expenses incurred
    
    
    145,085
    
    
    
    103,824
    
    
    
    132,794Underwriting, acquisition and insurance
related expenses
    
    
    49,652
    
    
    
    48,275
    
    
    
    42,264Other operating and general expenses
    
    
    539
    
    
    
    2,268
    
    
    
    3,989Total costs and expenses
    
    
    195,276
    
    
    
    154,367
    
    
    
    179,047(Loss) income before income taxes
    
    
    (11,005
    )
    
    
    21,489
    
    
    
    8,294(Benefit) provision for income taxes
    
    
    (4,811
    )
    
    
    7,107
    
    
    
    1,858Net (Loss) Income
    
    $
    (6,194
    )
    
    $
    14,382
    
    
    $
    6,436Net (loss) income per share Common Stock -
Basic
    
    $
    (0.56
    )
    
    $
    1.28
    
    
    $
    0.70Net (loss) income per share Common Stock -
Diluted
    
    $
    (0.56
    )
    
    $
    1.26
    
    
    $
    0.68
  F-7




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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 (in thousands)
 For the years ended December 31,2007
    
    
    2006
    
    
    2005Net (Loss) Income
    
    $
    (6,194
    )
    
    $
    14,382
    
    
    $
    6,436Other comprehensive income (loss)  net of tax:Net holding gains (losses) arising during the
period
    
    
    1,388
    
    
    
    (462
    )
    
    
    (1,806
    )Reclassification adjustment for realized losses
included in net income
    
    
    354
    
    
    
    311
    
    
    
    22Amortization of unrealized loss recorded on
transfer
of fixed income securities to held-to-maturity
    
    
    59
    
    
    
    59
    
    
    
    Total other comprehensive income (loss)
    
    
    1,801
    
    
    
    (92
    )
    
    
    (1,784
    )Comprehensive (Loss) Income
    
    $
    (4,393
    )
    
    $
    14,290
    
    
    $
    4,652
  F-8




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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 For the years ended December 31, 2007, 2006, and 2005
 (in thousands, except share data)
 AccumulatedClass A
    
    Class B
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    Common Stock
    
    Common Stock
    
    Retained
    
    Comprehensive
    
    Treasury Stock
    
    StockholdersShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Earnings
    
    Income (Loss)
    
    Shares
    
    Amount
    
    EquityBalance at December 31, 2004
    
    
    2,747,743
    
    
    $
    3,002
    
    
    
    2,194,247
    
    
    $
    28,738
    
    
    
    
    
    
    $
    
    
    
    $
    35,917
    
    
    $
    182
    
    
    
    
    
    
    
    
    
    
    $
    67,839Issuance of Common Stock
related to IPO
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,985,000
    
    
    
    62,198
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,198Conversion of Class A and
Class B Common Stock
    
    
    (2,747,743
    )
    
    
    (3,002
    )
    
    
    (2,194,247
    )
    
    
    (28,738
    )
    
    
    4,941,990
    
    
    
    31,740
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    275,200
    
    
    
    470
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    470Amortization of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,050Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,436
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,436Other comprehensive (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,784
    )
    
    
    
    
    
    
    
    
    
    
    (1,784
    )Balance at December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,202,190
    
    
    $
    97,458
    
    
    $
    42,353
    
    
    $
    (1,602
    )
    
    
    
    
    
    
    
    
    
    $
    138,209Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86,000
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,382
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,382Other comprehensive (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92
    )
    
    
    
    
    
    
    
    
    
    
    (92
    )Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166,249
    
    
    
    (1,723
    )
    
    
    (1,723
    )Balance at December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,288,190
    
    
    $
    97,570
    
    
    $
    56,735
    
    
    
    ($1,694
    )
    
    
    166,249
    
    
    
    ($1,723
    )
    
    $
    150,888Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137,600
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,194
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,194
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,801
    
    
    
    
    
    
    
    
    
    
    
    1,801Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252,054
    
    
    
    (2,569
    )
    
    
    (2,569
    )Balance at December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,425,790
    
    
    $
    97,820
    
    
    $
    50,541
    
    
    $
    107
    
    
    
    418,303
    
    
    
    ($4,292
    )
    
    $
    144,176
  F-9




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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 For the years ended December 31,2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (6,194
    )
    
    $
    14,382
    
    
    $
    6,436Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    1,052
    
    
    
    413
    
    
    
    493Amortization of premium/discount on bonds
    
    
    908
    
    
    
    875
    
    
    
    1,079Share-based compensation expense
    
    
    (493
    )
    
    
    1,063
    
    
    
    3,050Payments on exercise of stock appreciation rights
    
    
    (445
    )
    
    
    
    
    
    
    Realized gains on investment sales
    
    
    (72
    )
    
    
    (979
    )
    
    
    (411
    )Changes in:Deferred income taxes
    
    
    (108
    )
    
    
    (1,014
    )
    
    
    (7
    )Premiums receivable
    
    
    2,223
    
    
    
    (50
    )
    
    
    (18,741
    )Reinsurance recoverables and receivables
    
    
    6,083
    
    
    
    14,143
    
    
    
    (5,913
    )Receivable from Ohio Casualty
    
    
    
    
    
    
    
    
    
    
    4,350Receivable from Sentry
    
    
    
    
    
    
    
    
    
    
    1,250Deferred acquisition costs
    
    
    (333
    )
    
    
    (1,467
    )
    
    
    (6,262
    )Accrued investment income
    
    
    172
    
    
    
    (562
    )
    
    
    (1,475
    )Income taxes recoverable
    
    
    (8,455
    )
    
    
    1,152
    
    
    
    (1,152
    )Other assets
    
    
    1,776
    
    
    
    1,820
    
    
    
    (714
    )Unpaid losses and loss adjustment expenses
    
    
    5,719
    
    
    
    (27,975
    )
    
    
    35,078Accounts payable and accrued expenses
    
    
    26
    
    
    
    (158
    )
    
    
    (4,943
    )Unearned premiums
    
    
    1,300
    
    
    
    3,977
    
    
    
    17,376Income taxes payable
    
    
    (3,026
    )
    
    
    3,026
    
    
    
    (1,601
    )Other liabilities
    
    
    (385
    )
    
    
    (1,419
    )
    
    
    211Net cash (used in) provided by operating activities
    
    
    (252
    )
    
    
    7,227
    
    
    
    28,104CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment  net
    
    
    (2,207
    )
    
    
    (339
    )
    
    
    (537
    )Purchases of fixed maturity securities  available for sale
    
    
    (150,677
    )
    
    
    (94,749
    )
    
    
    (164,897
    )Sales and maturities of fixed maturity investments  available-for-sale
    
    
    155,969
    
    
    
    56,247
    
    
    
    93,460Purchases of equity securities
    
    
    (2,828
    )
    
    
    
    
    
    
    (21,366
    )Sales of equity securities
    
    
    4,128
    
    
    
    11,327
    
    
    
    21,842(Purchases) sales of short-term investments  net
    
    
    (4
    )
    
    
    8,347
    
    
    
    5,020Net cash provided by (used in) investing activities
    
    
    4,381
    
    
    
    (19,167
    )
    
    
    (66,478
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common stocknet
    
    
    250
    
    
    
    115
    
    
    
    62,668Purchases of common stock held in treasury
    
    
    (2,569
    )
    
    
    (1,723
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (2,319
    )
    
    
    (1,608
    )
    
    
    62,668Net (decrease) increase in cash
    
    
    1,810
    
    
    
    (13,548
    )
    
    
    24,294Cash and cash equivalents  beginning of year
    
    
    26,288
    
    
    
    39,836
    
    
    
    15,542Cash and cash equivalents  end of year
    
    $
    28,098
    
    
    $
    26,288
    
    
    $
    39,836Cash paid during the year for:Income taxes
    
    $
    6,867
    
    
    $
    3,649
    
    
    $
    4,717
  F-10




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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 1. Nature of Operations and Significant Accounting Policies
          Basis of Presentation
 F-11




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##### Table of Contents



Segment Disclosure
  For the years ended December 31,2007
    
    
    2006
    
    
    2005ProformancePersonal lines insurancePersonal auto
    
    $
    103,717,243
    
    
    
    56.28
    %
    
    $
    109,854,722
    
    
    
    62.47
    %
    
    $
    140,845,822
    
    
    
    75.18
    %Homeowners
    
    
    30,270,618
    
    
    
    16.42
    %
    
    
    21,264,484
    
    
    
    12.09
    %
    
    
    16,066,193
    
    
    
    8.58
    %Commerical lines insurance
    
    
    31,232,101
    
    
    
    16.95
    %
    
    
    26,234,594
    
    
    
    14.92
    %
    
    
    15,870,049
    
    
    
    8.47
    %RiverviewMedical Case Management
    
    
    4,178,806
    
    
    
    2.27
    %
    
    
    5,638,235
    
    
    
    3.21
    %
    
    
    4,704,598
    
    
    
    2.51
    %NAIAInsurance brokerage
    
    
    2,075,896
    
    
    
    1.13
    %
    
    
    2,365,851
    
    
    
    1.35
    %
    
    
    2,230,989
    
    
    
    1.19
    %Intercompany elimination entries
    
    
    (7,663,696
    )
    
    
    (4.16
    )%
    
    
    (7,888,461
    )
    
    
    (4.49
    )%
    
    
    (6,576,113
    )
    
    
    (3.51
    )%Subtotal
    
    
    163,810,968
    
    
    
    
    
    
    
    157,469,425
    
    
    
    
    
    
    
    173,141,538Net investment income
    
    
    17,275,953
    
    
    
    9.38
    %
    
    
    16,081,895
    
    
    
    9.14
    %
    
    
    12,403,235
    
    
    
    6.62
    %Net realized investment gains
    
    
    71,877
    
    
    
    0.04
    %
    
    
    979,007
    
    
    
    0.56
    %
    
    
    410,635
    
    
    
    0.22
    %Other income
    
    
    3,112,522
    
    
    
    1.69
    %
    
    
    1,325,586
    
    
    
    0.75
    %
    
    
    1,385,588
    
    
    
    0.74
    %Total Consolidated Revenue
    
    $
    184,271,320
    
    
    
    100.00
    %
    
    $
    175,855,913
    
    
    
    100.00
    %
    
    $
    187,340,996
    
    
    
    100.00
    %
 Use of Estimates
 Cash and Cash Equivalents
 Property and Equipment
 EstimatedDescription
    
    Life (Years)Automobiles
    
    
    5Furniture and fixtures
    
    
    7Computer software and electronic data equipment
    
    
    3Leasehold improvements
    
    
    *
 
 *
    
    Amortized over the remaining life of the lease from the date placed in service. F-12




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##### Table of Contents



Investments
  Concentration of Credit Risk
 Deferred Policy Acquisition Costs
  Insurance Liabilities/Unpaid Losses and Loss Adjustment Expenses
  F-13




---



##### Table of Contents



Recognition of Premium Revenues
 Allowance for Doubtful Accounts
 Replacement Carrier Transaction Fees
 Accounting for Reinsurance Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts.
  Capitalization of Costs of Software for Internal Use Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use.
 Income Taxes
  Share-based Compensation Share-Based Payment Accounting for Stock Issued to
Employees
 F-14




---



##### Table of Contents



Adoption of New Accounting Pronouncements
      Retirement Plans
 Guaranty Fund Assessments Accounting by Insurance and Other Enterprises for Insurance Related Assessments
 F-15




---



##### Table of Contents



2. Investments
     Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueFixed maturities:U.S. Government,
government agencies
and authorities
    
    $
    6,783,210
    
    
    $
    231,889
    
    
    $
    
    
    
    $
    7,015,099State, local government
and agencies
    
    
    2,842,430
    
    
    
    
    
    
    
    (7,020
    )
    
    
    2,835,410Industrial and miscellaneous
    
    
    32,504,281
    
    
    
    143,341
    
    
    
    (585,430
    )
    
    
    32,062,192Total Investments  Held-to-Maturity
    
    $
    42,129,921
    
    
    $
    375,230
    
    
    $
    (592,450
    )
    
    $
    41,912,701
 F-16




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##### Table of Contents



Cost/
    
    
    Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueFixed maturities:U.S. Government,
government agencies
and authorities
    
    $
    189,217,646
    
    
    $
    529,936
    
    
    $
    (117,923
    )
    
    $
    189,629,659State, local government
and agencies
    
    
    63,368,016
    
    
    
    454,957
    
    
    
    (47,535
    )
    
    
    63,775,438Industrial and miscellaneous
    
    
    12,176,793
    
    
    
    35,730
    
    
    
    (126,647
    )
    
    
    12,085,876Mortgage-backed securities
    
    
    5,021,895
    
    
    
    14,154
    
    
    
    (8,274
    )
    
    
    5,027,775Total fixed maturities
    
    
    269,784,350
    
    
    
    1,034,777
    
    
    
    (300,379
    )
    
    
    270,518,748Other Investments:Short-term investments
    
    
    456,821
    
    
    
    
    
    
    
    
    
    
    
    456,821Equity securities
    
    
    1,013,850
    
    
    
    
    
    
    
    (1,386
    )
    
    
    1,012,464Total Investments  Available-for-Sale
    
    $
    271,255,021
    
    
    $
    1,034,777
    
    
    $
    (301,765
    )
    
    $
    271,988,033
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueFixed maturities:U.S. Government,
government agencies
and authorities
    
    $
    6,787,542
    
    
    $
    
    
    
    $
    (253,084
    )
    
    $
    6,534,458State, local government
and agencies
    
    
    2,846,423
    
    
    
    
    
    
    
    (57,768
    )
    
    
    2,788,655Industrial and miscellaneous
    
    
    32,533,860
    
    
    
    5,979
    
    
    
    (462,248
    )
    
    
    32,077,591Total Investments-Held-to Maturity
    
    $
    42,167,825
    
    
    $
    5,979
    
    
    $
    (773,100
    )
    
    $
    41,400,704
 F-17




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##### Table of Contents



Cost/
    
    
    Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueFixed maturities:U.S. Government,
government agencies
and authorities
    
    $
    191,929,393
    
    
    $
    42,805
    
    
    $
    (1,859,870
    )
    
    $
    190,112,328State, local government
and agencies
    
    
    71,460,810
    
    
    
    186,607
    
    
    
    (291,578
    )
    
    
    71,355,839Industrial and miscellaneous
    
    
    8,994,746
    
    
    
    979
    
    
    
    (156,865
    )
    
    
    8,838,860Mortgage-backed securities
    
    
    3,425,451
    
    
    
    6,435
    
    
    
    (15,148
    )
    
    
    3,416,738Total fixed maturities
    
    
    275,810,400
    
    
    
    236,826
    
    
    
    (2,323,461
    )
    
    
    273,723,765Other Investments:Short-term investments
    
    
    453,000
    
    
    
    
    
    
    
    
    
    
    
    453,000Equity securities
    
    
    2,287,743
    
    
    
    250,710
    
    
    
    (111,057
    )
    
    
    2,427,396Total Investments  Available-for-Sale
    
    $
    278,551,143
    
    
    $
    487,536
    
    
    $
    (2,434,518
    )
    
    $
    276,604,161
  Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)Fixed maturities:State, local government
and agencies
    
    $
    2,612,228
    
    
    $
    (3,338
    )
    
    $
    223,182
    
    
    $
    (3,682
    )
    
    $
    2,835,410
    
    
    $
    (7,020
    )Industrial and miscellaneous
    
    
    
    
    
    
    
    
    
    
    18,379,026
    
    
    
    (585,430
    )
    
    
    18,379,026
    
    
    
    (585,430
    )Total Investments 
Held-to-Maturity
    
    $
    2,612,228
    
    
    $
    (3,338
    )
    
    $
    18,602,208
    
    
    $
    (589,112
    )
    
    $
    21,214,436
    
    
    $
    (592,450
    )
  F-18




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##### Table of Contents



Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)Fixed maturities:U.S. Government,
government agencies
and authorities
    
    $
    12,677,756
    
    
    $
    (24,009
    )
    
    $
    8,304,808
    
    
    $
    (93,914
    )
    
    $
    20,982,564
    
    
    $
    (117,923
    )State, local government
and agencies
    
    
    2,653,290
    
    
    
    (4,296
    )
    
    
    9,651,873
    
    
    
    (43,239
    )
    
    
    12,305,163
    
    
    
    (47,535
    )Industrial and miscellaneous
    
    
    2,123,989
    
    
    
    (50,125
    )
    
    
    2,890,698
    
    
    
    (76,522
    )
    
    
    5,014,687
    
    
    
    (126,647
    )Mortgage-backed securities
    
    
    1,638,460
    
    
    
    (6,284
    )
    
    
    1,006,540
    
    
    
    (1,990
    )
    
    
    2,645,000
    
    
    
    (8,274
    )Total fixed maturities
    
    
    19,093,495
    
    
    
    (84,714
    )
    
    
    21,853,919
    
    
    
    (215,665
    )
    
    
    40,947,414
    
    
    
    (300,379
    )Other Investments:Equity securities
    
    
    12,464
    
    
    
    (1,386
    )
    
    
    
    
    
    
    
    
    
    
    12,464
    
    
    
    (1,386
    )Total Investments 
Available-for-Sale
    
    $
    19,105,959
    
    
    $
    (86,100
    )
    
    $
    21,853,919
    
    
    $
    (215,665
    )
    
    $
    40,959,878
    
    
    $
    (301,765
    )
   Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)Fixed maturities:U.S. Government,
government agencies
and authorities
    
    $
    645,084
    
    
    $
    (9,978
    )
    
    $
    5,889,375
    
    
    $
    (243,106
    )
    
    $
    6,534,459
    
    
    $
    (253,084
    )State, local government
and agencies
    
    
    2,788,654
    
    
    
    (57,768
    )
    
    
    
    
    
    
    
    
    
    
    2,788,654
    
    
    
    (57,768
    )Industrial and miscellaneous
    
    
    10,364,364
    
    
    
    (159,399
    )
    
    
    20,094,937
    
    
    
    (302,849
    )
    
    
    30,459,301
    
    
    
    (462,248
    )Total Investments 
Held-to-Maturity
    
    $
    13,798,102
    
    
    $
    (227,145
    )
    
    $
    25,984,312
    
    
    $
    (545,955
    )
    
    $
    39,782,414
    
    
    $
    (773,100
    )
  Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)Fixed maturities:U.S. Government,
government agencies
and authorities
    
    $
    36,677,390
    
    
    $
    (121,768
    )
    
    $
    142,710,619
    
    
    $
    (1,738,102
    )
    
    $
    179,388,009
    
    
    $
    (1,859,870
    )State, local government
and agencies
    
    
    17,505,739
    
    
    
    (49,894
    )
    
    
    24,555,792
    
    
    
    (241,684
    )
    
    
    42,061,531
    
    
    
    (291,578
    )Industrial and miscellaneous
    
    
    4,230,424
    
    
    
    (26,377
    )
    
    
    3,860,237
    
    
    
    (130,488
    )
    
    
    8,090,661
    
    
    
    (156,865
    )Mortgage-backed securities
    
    
    488,032
    
    
    
    (2,572
    )
    
    
    1,002,400
    
    
    
    (12,576
    )
    
    
    1,490,432
    
    
    
    (15,148
    )Total fixed maturities
    
    
    58,901,585
    
    
    
    (200,611
    )
    
    
    172,129,048
    
    
    
    (2,122,850
    )
    
    
    231,030,633
    
    
    
    (2,323,461
    )Other Investments:Equity securities
    
    
    
    
    
    
    
    
    
    
    877,488
    
    
    
    (111,057
    )
    
    
    877,488
    
    
    
    (111,057
    )Total Investments 
Available-for-Sale
    
    $
    58,901,585
    
    
    $
    (200,611
    )
    
    $
    173,006,536
    
    
    $
    (2,233,907
    )
    
    $
    231,908,121
    
    
    $
    (2,434,518
    )
 F-19




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##### Table of Contents



EstimatedAmortized Cost
    
    
    Fair ValueDue in five years through ten years
    
    $
    32,229,670
    
    
    $
    32,305,617Due in ten through twenty years
    
    
    9,673,388
    
    
    
    9,383,902Due in over twenty years
    
    
    226,863
    
    
    
    223,182Total
    
    $
    42,129,921
    
    
    $
    41,912,701
  EstimatedAmortized Cost
    
    
    Fair ValueDue in one year or less
    
    $
    5,908,832
    
    
    $
    5,902,303Due in one year through five years
    
    
    25,293,862
    
    
    
    25,261,089Due in five years through ten years
    
    
    157,813,032
    
    
    
    158,311,666Due in ten through twenty years
    
    
    76,203,550
    
    
    
    76,472,736Mortgage-backed securities
    
    
    5,021,895
    
    
    
    5,027,775Total
    
    $
    270,241,171
    
    
    $
    270,975,569
    For the Years Ended December 31,2007
    
    2006
    
    2005Proceeds
    
    $
    160,099,384
    
    
    $
    67,574,328
    
    
    $
    115,302,759Gross realized gains
    
    
    328,601
    
    
    
    1,091,487
    
    
    
    991,807Gross realized losses
    
    
    (256,724
    )
    
    
    (112,480
    )
    
    
    (581,172
    )
 F-20




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##### Table of Contents



For the years ended December 31,2007
    
    
    2006
    
    
    2005Investment income:Interest income
    
    $
    17,229,642
    
    
    $
    15,902,694
    
    
    $
    11,807,190Dividend income
    
    
    119,935
    
    
    
    275,190
    
    
    
    744,592Investment income
    
    
    17,349,577
    
    
    
    16,177,884
    
    
    
    12,551,782Investment expenses
    
    
    (73,624
    )
    
    
    (95,989
    )
    
    
    (148,547
    )Net investment income
    
    $
    17,275,953
    
    
    $
    16,081,895
    
    
    $
    12,403,235
 F-21




---



##### Table of Contents



3.
    
    Replacement Carrier Transactions
 Ohio Casualty
     F-22




---



##### Table of Contents



Sentry Insurance Company
   The Hartford
    Hanover Insurance Company
  F-23




---



##### Table of Contents



4.
    
    Reinsurance Activity
    For the Years Ended December 31,2007
    
    
    2006
    
    
    2005Written
    
    
    Earned
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    EarnedDirect
    
    $
    178,678,748
    
    
    $
    177,231,856
    
    
    $
    171,069,389
    
    
    $
    166,785,769
    
    
    $
    198,048,757
    
    
    $
    180,378,535Assumed
    
    
    462,998
    
    
    
    609,484
    
    
    
    1,171,615
    
    
    
    1,478,232
    
    
    
    1,913,775
    
    
    
    2,208,920Gross
    
    
    179,141,746
    
    
    
    177,841,340
    
    
    
    172,241,004
    
    
    
    168,264,001
    
    
    
    199,962,532
    
    
    
    182,587,455Ceded
    
    
    (12,931,507
    )
    
    
    (12,621,378
    )
    
    
    (11,115,747
    )
    
    
    (10,910,201
    )
    
    
    (10,328,654
    )
    
    
    (9,805,391
    )Net
    
    $
    166,210,239
    
    
    $
    165,219,962
    
    
    $
    161,125,257
    
    
    $
    157,353,800
    
    
    $
    189,633,878
    
    
    $
    172,782,064
 F-24




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##### Table of Contents



For the years ended December 31,2007
    
    2006
    
    2005QBE Reinsurance Company
    
    $
    7,044
    
    
    $
    5,663
    
    
    $
    Odyssey America Reinsurance
    
    
    3,771
    
    
    
    4,115
    
    
    
    4,022Scor Reinsurance Company
    
    
    
    
    
    
    7,673
    
    
    
    10,022Folksamerica Reinsurance Company
    
    
    
    
    
    
    2,430
    
    
    
    American Reinsurance Company
    
    
    
    
    
    
    1,170
    
    
    
    Wellington Syndicate
    
    
    
    
    
    
    1,115
    
    
    
    5,756PMA Capital Insurance Company
    
    
    
    
    
    
    640
    
    
    
    
    F-25




---



##### Table of Contents



5.
    
    Unpaid Losses and Loss Adjustment Expenses
  Years ended December 31,2007
    
    
    2006
    
    
    2005Balance as of beginning of year
    
    $
    191,386
    
    
    $
    219,361
    
    
    $
    184,283Less reinsurance recoverable on unpaid losses
    
    
    (17,866
    )
    
    
    (28,069
    )
    
    
    (24,936
    )Net balance as of beginning of year
    
    
    173,520
    
    
    
    191,292
    
    
    
    159,347Incurred related to:Current period
    
    
    125,483
    
    
    
    103,801
    
    
    
    122,728Prior period
    
    
    19,602
    
    
    
    23
    
    
    
    10,066Total incurred
    
    
    145,085
    
    
    
    103,824
    
    
    
    132,794Paid related to:Current period
    
    
    49,020
    
    
    
    38,009
    
    
    
    42,301Prior period
    
    
    90,171
    
    
    
    83,587
    
    
    
    58,548Total paid
    
    
    139,191
    
    
    
    121,596
    
    
    
    100,849Net balance as of December 31,
    
    
    179,414
    
    
    
    173,520
    
    
    
    191,292Plus reinsurance recoverable on unpaid losses
    
    
    17,691
    
    
    
    17,866
    
    
    
    28,069Balance as of December 31,
    
    $
    197,105
    
    
    $
    191,386
    
    
    $
    219,361
    F-26




---



##### Table of Contents



Environmental Reserves
   2007
    
    
    2006
    
    
    2005Environmental, Gross of ReinsuranceBeginning Reserves  including case, bulk and IBNR, and LAE
    
    $
    2,616
    
    
    $
    1,897
    
    
    $
    892Losses and LAE incurred
    
    
    2,369
    
    
    
    1,629
    
    
    
    1,734Calendar year payments for losses and LAE
    
    
    685
    
    
    
    910
    
    
    
    729Ending reserves  including case, bulk and IBNR, and LAE
    
    $
    4,300
    
    
    $
    2,616
    
    
    $
    1,897Environmental, net of reinsuranceBeginning Reserves  including case, bulk and IBNR, and LAE
    
    $
    2,066
    
    
    $
    1,552
    
    
    $
    634Losses and LAE incurred
    
    
    2,249
    
    
    
    1,405
    
    
    
    1,599Calendar year payments for losses and LAE
    
    
    694
    
    
    
    891
    
    
    
    681Ending reserves  including case, bulk and IBNR, and LAE
    
    $
    3,621
    
    
    $
    2,066
    
    
    $
    1,552
 F-27




---



##### Table of Contents



6. Income Taxes
   For the years ended December 31,2007
    
    
    2006
    
    
    2005(Benefit) taxes on (loss) income before income taxes:Current taxes
    
    $
    (4,703,158
    )
    
    $
    8,120,442
    
    
    $
    1,865,715Deferred taxes
    
    
    (107,747
    )
    
    
    (1,013,603
    )
    
    
    (7,829
    )Total
    
    $
    (4,810,905
    )
    
    $
    7,106,839
    
    
    $
    1,857,886
  December 31,2007
    
    
    2006Deferred tax assets:20% unearned premium adjustment
    
    $
    5,972,215
    
    
    $
    5,902,895Loss reserve discount
    
    
    4,579,366
    
    
    
    4,482,136Depreciation
    
    
    22,204
    
    
    
    27,386Bad debt reserve
    
    
    189,100
    
    
    
    186,847Unrealized losses on investments
    
    
    
    
    
    
    912,582Share based compensation
    
    
    302,507
    
    
    
    855,523Organizational costs
    
    
    
    
    
    
    5,084Deferred tax assets
    
    
    11,065,392
    
    
    
    12,372,453Deferred tax liabilities:Deferred acquisition costs
    
    
    6,626,749
    
    
    
    6,510,486Intangible asset
    
    
    96,455
    
    
    
    288,233Accrual of bond discount
    
    
    77,694
    
    
    
    79,987Deferred revenues  special surplus funds
    
    
    14,682,071
    
    
    
    15,130,758Prepaid expenses
    
    
    205,171
    
    
    
    301,211Unrealized gains on investments
    
    
    57,100
    
    
    
    Due & accrued dividends
    
    
    
    
    
    
    2,589Depreciation
    
    
    148,739
    
    
    
    25,841Deferred tax liabilities
    
    
    21,893,979
    
    
    
    22,339,105Net deferred tax liability
    
    $
    (10,828,587
    )
    
    $
    (9,966,652
    )
 F-28




---



##### Table of Contents



For the years ended December 31,2007
    
    
    2006
    
    
    2005(Loss) income before income taxes
    
    $
    (11,005
    )
    
    
    
    
    
    $
    21,489
    
    
    
    
    
    
    $
    8,294Income tax statutory rate
    
    
    (3,852
    )
    
    
    (35.00
    )%
    
    
    7,521
    
    
    
    35.00
    %
    
    
    2,820
    
    
    
    34.00
    %Prior years return to provision
    
    
    (351
    )
    
    
    (3.19
    )%
    
    
    (247
    )
    
    
    (1.15
    %)
    
    
    (478
    )
    
    
    (5.76
    %)Tax exempt interest
    
    
    (849
    )
    
    
    (7.71
    )%
    
    
    (804
    )
    
    
    (3.74
    %)
    
    
    (693
    )
    
    
    (8.36
    %)Dividends received deduction
    
    
    (16
    )
    
    
    (0.15
    )%
    
    
    (84
    )
    
    
    (0.39
    %)
    
    
    (34
    )
    
    
    (0.41
    %)Proration
    
    
    129
    
    
    
    1.17
    %
    
    
    133
    
    
    
    0.62
    %
    
    
    109
    
    
    
    1.31
    %Life insurance expense
    
    
    42
    
    
    
    0.38
    %
    
    
    42
    
    
    
    0.20
    %
    
    
    27
    
    
    
    0.33
    %State taxes
    
    
    122
    
    
    
    1.11
    %
    
    
    132
    
    
    
    0.61
    %
    
    
    60
    
    
    
    0.72
    %Other
    
    
    (36
    )
    
    
    (0.32
    )%
    
    
    414
    
    
    
    1.93
    %
    
    
    47
    
    
    
    0.57
    %Total income tax (benefit) expense
    
    $
    (4,811
    )
    
    
    43.71
    %
    
    $
    7,107
    
    
    
    33.07
    %
    
    $
    1,858
    
    
    
    22.40
    %
    F-29




---



##### Table of Contents



7. Property and Equipment
  As of December 31,2007
    
    
    2006Automobiles
    
    $
    539,553
    
    
    $
    591,675Computer Software
    
    
    3,670,034
    
    
    
    1,937,541Furniture & fixtures
    
    
    634,374
    
    
    
    634,374Leasehold improvements
    
    
    143,966
    
    
    
    143,966Electronic data equipment
    
    
    2,076,373
    
    
    
    1,549,4547,064,300
    
    
    
    4,857,010Less: Accumulated depreciation
    
    
    3,920,881
    
    
    
    2,868,559Net property and equipment
    
    $
    3,143,419
    
    
    $
    1,988,451
  8. Capital Transactions
      F-30




---



##### Table of Contents



9. Share-Based Compensation
 Share-Based Payment Accounting for Stock Issued to Employees Accounting for Stock-Based
Compensation
  For the year endedDecember 31,2005Net income  as reported
    
    $
    6,435,950Plus: Compensation expense recorded
against income
    
    
    3,050,057Deduct: Total stock-based employee
compensation expense determined
under fair value method for all awards,
net of related tax effects
    
    
    (3,136,602
    )Pro forma net income
    
    $
    6,349,405Net income per weighted average shareholdingBasic  as reported
    
    $
    0.70Basic  proforma
    
    $
    0.69Diluted  as reported
    
    $
    0.68Diluted  proforma
    
    $
    0.67
  F-31




---



##### Table of Contents



2005Volatility factor
    
    
    31.1
    %Risk-free interest yield
    
    
    4.0
    %Dividend yield
    
    
    0.0
    %Average life
    
    3 years
  WeightedNumber of
    
    
    AverageOptions
    
    
    Exercise PriceBalance Outstanding at January 1, 2005
    
    
    672,950
    
    
    $
    2.06Granted
    
    
    275,200
    
    
    
    1.71Exercised
    
    
    (275,200
    )
    
    
    (1.71
    )Forfeited
    
    
    (275,200
    )
    
    
    (1.71
    )Balance Outstanding at December 31, 2005
    
    
    397,750
    
    
    
    2.31Granted
    
    
    
    
    
    
    Exercised
    
    
    (86,000
    )
    
    
    (1.34
    )Forfeited
    
    
    
    
    
    
    Balance Outstanding at December 31, 2006
    
    
    311,750
    
    
    
    2.58Granted
    
    
    
    
    
    
    Exercised
    
    
    (137,600
    )
    
    
    (1.82
    )Forfeited
    
    
    
    
    
    
    Balance Outstanding at December 31, 2007
    
    
    174,150
    
    
    $
    3.19Options Available for Grant
    
    
    1,000,000
    
    
    
    
   F-32




---



##### Table of Contents



Options Outstanding
    
    
    
    
    
    Options ExercisableWeighted AverageRange of
    
    Number of Stock
    
    Contractual Life
    
    Weighted Average
    
    Intrinsic Value
    
    Number of Stock
    
    Weighted Average
    
    Intrinsic ValueExercise Prices
    
    Options
    
    (in yrs)
    
    Exercise Price
    
    of Options
    
    Options
    
    Exercise Price
    
    of Options.98 - 1.29
    
    
    36,550
    
    
    
    3.54
    
    
    
    0.98
    
    
    
    3.45
    
    
    
    36,550
    
    
    
    0.98
    
    
    
    3.452.50 - 2.89
    
    
    94,600
    
    
    
    0.80
    
    
    
    2.70
    
    
    
    1.73
    
    
    
    94,600
    
    
    
    2.70
    
    
    
    1.736.14
    
    
    43,000
    
    
    
    5.28
    
    
    
    6.14
    
    
    
    (1.71
    )
    
    
    43,000
    
    
    
    6.14
    
    
    
    (1.71
    )174,150
    
    
    
    2.48
    
    
    $
    3.19
    
    
    $
    1.24
    
    
    
    174,150
    
    
    $
    3.19
    
    
    $
    1.24
   Options Outstanding
    
    
    
    
    
    Options ExercisableWeighted AverageRange of
    
    Number of Stock
    
    Contractual Life
    
    Weighted Average
    
    Intrinsic Value
    
    Number of Stock
    
    Weighted Average
    
    Intrinsic ValueExercise Prices
    
    Options
    
    (in yrs)
    
    Exercise Price
    
    of Options
    
    Options
    
    Exercise Price
    
    of Options$0.60
    
    
    43,000
    
    
    
    5.44
    
    
    $
    0.60
    
    
    $
    11.06
    
    
    
    43,000
    
    
    $
    0.60
    
    
    $
    11.06.98 - 1.29
    
    
    47,300
    
    
    
    4.54
    
    
    
    0.98
    
    
    
    10.68
    
    
    
    47,300
    
    
    
    0.98
    
    
    
    10.682.50 - 2.89
    
    
    178,450
    
    
    
    1.26
    
    
    
    2.63
    
    
    
    9.03
    
    
    
    178,450
    
    
    
    2.63
    
    
    
    9.036.14
    
    
    43,000
    
    
    
    6.28
    
    
    
    6.14
    
    
    
    5.52
    
    
    
    43,000
    
    
    
    6.14
    
    
    
    5.52311,750
    
    
    
    3.28
    
    
    $
    2.58
    
    
    $
    9.08
    
    
    
    311,750
    
    
    $
    2.58
    
    
    $
    9.08
 F-33




---



##### Table of Contents



WeightedNumber of
    
    
    AverageSARS
    
    
    Grant PriceBalance Outstanding at January 1, 2006
    
    
    
    
    
    
    Granted
    
    
    343,000
    
    
    $
    9.94Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (5,000
    )
    
    
    (9.94
    )Balance Outstanding at December 31, 2006
    
    
    338,000
    
    
    $
    9.94Granted
    
    
    405,000
    
    
    $
    11.55Exercised
    
    
    (117,664
    )
    
    
    (9.94
    )Forfeited
    
    
    (83,334
    )
    
    
    (11.70
    )Balance Outstanding at December 31, 2007
    
    
    542,002
    
    
    $
    10.87
 F-34




---



##### Table of Contents



As ofDecember 31,2007Volatility factor
    
    
    35.83
    %Risk-free interest yield
    
    
    3.55
    %Dividend yield
    
    
    0.00
    %Average life
    
    5.9 years
  As ofDecember 31,2007Volatility factor
    
    
    35.83
    %Risk-free interest yield
    
    
    3.49
    %Dividend yield
    
    
    0.00
    %Average life
    
    5.0 years
  As of
    
    As ofDecember 31,
    
    December 31,2007
    
    2006Volatility factor
    
    
    35.83
    %
    
    
    29.56
    %Risk-free interest yield
    
    
    3.31
    %
    
    
    4.72
    %Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Average life
    
    4.0 years
    
    5.0 years
 Volatility factor
 Risk free interest yield
 Dividend yield
 Average life
 F-35




---



##### Table of Contents



10. Contingencies and Commitments
 Litigation
 Operating Leases
   Year
    
    Amount2008
    
    $
    796,7992009
    
    
    545,9992010
    
    
    2011
    
    
    2012 and thereafter
    
    
    Total
    
    $
    1,342,798
  Guaranty Funds and Assessments
 F-36




---



##### Table of Contents



For the year ended December 31,2007
    
    2006Collected
    
    $
    2,810,826
    
    
    $
    2,791,015Paid
    
    
    1,963,302
    
    
    
    3,006,527Recoverable
    
    
    1,364,237
    
    
    
    2,211,761
     F-37




---



##### Table of Contents



New Jersey Automobile Insurance Risk Exchange
   F-38




---



##### Table of Contents



11. Other Comprehensive Income (Loss)
  Before Tax
    
    
    Tax
    
    
    Net of Taxfor the year ended December 31, 2007
    
    Amount
    
    
    Effect
    
    
    AmountNet holding gains arising during the year
    
    $
    2,136
    
    
    $
    (748
    )
    
    $
    1,388Less: reclassification adjustment for net
realized losses included in net loss
    
    
    544
    
    
    
    (190
    )
    
    
    354Amortization of unrealized loss recorded on transfer
of fixed income securities to held-to-maturity
    
    
    91
    
    
    
    (32
    )
    
    
    59Other comprehensive income
    
    $
    2,771
    
    
    $
    (970
    )
    
    $
    1,801
 Before Tax
    
    
    Tax
    
    
    Net of Taxfor the year ended December 31, 2006
    
    Amount
    
    
    Effect
    
    
    AmountNet holding losses arising during the year
    
    $
    (741
    )
    
    $
    279
    
    
    $
    (462
    )Less: reclassification adjustment for net
realized losses included in net income
    
    
    469
    
    
    
    (158
    )
    
    
    311Amortization of unrealized loss recorded on transfer
of fixed income securities to held-to-maturity
    
    
    91
    
    
    
    (32
    )
    
    
    59Other comprehensive loss
    
    $
    (181
    )
    
    $
    89
    
    
    $
    (92
    )
 Before Tax
    
    
    Tax
    
    
    Net of Taxfor the year ended December 31, 2005
    
    Amount
    
    
    Effect
    
    
    AmountNet holding losses arising during the year
    
    $
    (2,736
    )
    
    $
    930
    
    
    $
    (1,806
    )Less: reclassification adjustment for net
realized losses included in net income
    
    
    33
    
    
    
    (11
    )
    
    
    22Other comprehensive loss
    
    $
    (2,703
    )
    
    $
    919
    
    
    $
    (1,784
    )
 F-39




---



##### Table of Contents



12. Statutory Surplus
    13. Dividends from Subsidiaries
  F-40




---



##### Table of Contents



14. Fair Value of Financial Instruments
 Disclosure About Fair Value of Financial Instruments
  Cash and Short Term Investments.
 Investment in Securities.
  as of December 31,2007
    
    2006Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueFixed maturity  held-to-maturity
    
    $
    42,129,921
    
    
    $
    41,912,701
    
    
    $
    42,167,825
    
    
    $
    41,400,704Fixed maturity  available-for-sale
    
    
    269,784,350
    
    
    
    270,518,748
    
    
    
    275,810,400
    
    
    
    273,723,765Short-term investments
    
    
    456,821
    
    
    
    456,821
    
    
    
    453,000
    
    
    
    453,000Equity Securities
    
    
    1,013,850
    
    
    
    1,012,464
    
    
    
    2,287,743
    
    
    
    2,427,396Cash and cash equivalents
    
    
    28,098,468
    
    
    
    28,098,468
    
    
    
    26,288,127
    
    
    
    26,288,127
 F-41




---



##### Table of Contents



15. Net (Loss) Earnings Per Share
    For the year ended December 31,2007
    
    
    2006
    
    
    2005Net (Loss) Income applicable to common
stockholders
    
    $
    (6,194,001
    )
    
    $
    14,382,394
    
    
    $
    6,435,950Weighted average common shares  basic
    
    
    11,078,064
    
    
    
    11,213,463
    
    
    
    9,166,683Effect of dilutive securities:Options
    
    
    
    
    
    
    236,623
    
    
    
    315,885Weighted average common shares  diluted
    
    
    11,078,064
    
    
    
    11,450,086
    
    
    
    9,482,568Basic (Loss) Earnings Per Share
    
    $
    (0.56
    )
    
    $
    1.28
    
    
    $
    0.70Diluted (Loss) Earnings per Share
    
    $
    (0.56
    )
    
    $
    1.26
    
    
    $
    0.68
  16. Related Party Disclosure
       F-42




---



##### Table of Contents



17. Subsequent Events
 et
seq.
        18. Quarterly Financial Information (unaudited)
 (In thousands, except per share data)First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter2007Income Statement Data:Total revenue
    
    $
    44,449
    
    
    $
    45,423
    
    
    $
    47,151
    
    
    $
    47,248Income before income taxes
    
    
    5,797
    
    
    
    1,821
    
    
    
    (14,715
    )
    
    
    (3,908
    )Net income (loss)
    
    
    3,956
    
    
    
    1,175
    
    
    
    (9,190
    )
    
    
    (2,135
    )Per Share Data:Net income (loss)  Basic
    
    $
    0.36
    
    
    $
    0.11
    
    
    $
    (0.83
    )
    
    $
    (0.19
    )Net income (loss)  Diluted
    
    $
    0.35
    
    
    $
    0.10
    
    
    $
    (0.83
    )
    
    $
    (0.19
    )2006Income Statement Data:Total revenue
    
    $
    43,191
    
    
    $
    42,999
    
    
    $
    44,425
    
    
    $
    45,241Income before income taxes
    
    
    5,967
    
    
    
    4,598
    
    
    
    6,078
    
    
    
    4,846Net income
    
    
    3,985
    
    
    
    3,027
    
    
    
    4,381
    
    
    
    2,989Per Share Data:Net income  Basic
    
    $
    0.36
    
    
    $
    0.27
    
    
    $
    0.39
    
    
    $
    0.27Net income  Diluted
    
    $
    0.35
    
    
    $
    0.26
    
    
    $
    0.38
    
    
    $
    0.262005Income Statement Data:Total revenue
    
    $
    50,330
    
    
    $
    45,218
    
    
    $
    47,228
    
    
    $
    44,565Income before income taxes
    
    
    6,461
    
    
    
    2,315
    
    
    
    (2,245
    )
    
    
    1,763Net income (loss)
    
    
    4,373
    
    
    
    1,565
    
    
    
    (1,638
    )
    
    
    2,136Per Share Data:Net income (loss)  Basic
    
    $
    0.88
    
    
    $
    0.16
    
    
    $
    (0.15
    )
    
    $
    0.19Net income (loss)  Diluted
    
    $
    0.78
    
    
    $
    0.15
    
    
    $
    (0.15
    )
    
    $
    0.19
 F-43




---



##### Table of Contents



Report
of Independent Registered Public Accounting Firm
 
   
 F-44




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  
 F-45




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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS  OTHER THAN INVESTMENTS IN AFFILIATES
 As of December 31, 2007Amount atAmortized
    
    
    
    
    
    
    which shownType of Investment
    
    Cost
    
    
    Fair Value
    
    
    on Balance SheetFixed MaturitiesU.S Government, government agencies
and authorities
    
    $
    6,783,210
    
    
    $
    7,015,099
    
    
    $
    6,783,210State, local government and agencies
    
    
    2,842,430
    
    
    
    2,835,410
    
    
    
    2,842,430Industrial and miscellaneous
    
    
    32,504,281
    
    
    
    32,062,192
    
    
    
    32,504,281Total fixed maturities
    
    
    42,129,921
    
    
    
    41,912,701
    
    
    
    42,129,921Total Investments  Held-to-Maturity
    
    $
    42,129,921
    
    
    $
    41,912,701
    
    
    $
    42,129,921
 As of December 31, 2007Cost/
    
    
    
    
    
    
    Amount atAmortized
    
    
    
    
    
    
    which shownType of Investment
    
    Cost
    
    
    Fair Value
    
    
    on Balance SheetFixed MaturitiesU.S Government, government agencies
and authorities
    
    $
    189,217,646
    
    
    $
    189,629,659
    
    
    $
    189,629,659State, local government and agencies
    
    
    63,368,016
    
    
    
    63,775,438
    
    
    
    63,775,438Industrial and miscellaneous
    
    
    12,176,793
    
    
    
    12,085,876
    
    
    
    12,085,876Mortgage-backed securities
    
    
    5,021,895
    
    
    
    5,027,775
    
    
    
    5,027,775Total fixed maturities
    
    
    269,784,350
    
    
    
    270,518,748
    
    
    
    270,518,748Equity SecuritiesCommon and preferred stock
    
    
    1,013,850
    
    
    
    1,012,464
    
    
    
    1,012,464Total equity securities
    
    
    1,013,850
    
    
    
    1,012,464
    
    
    
    1,012,464Other InvestmentsShort-term investments
    
    
    456,821
    
    
    
    456,821
    
    
    
    456,821Total other investments
    
    
    456,821
    
    
    
    456,821
    
    
    
    456,821Total Investments  Available-for-Sale
    
    $
    271,255,021
    
    
    $
    271,988,033
    
    
    $
    271,988,033
 S-1




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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS  OTHER THAN INVESTMENTS IN AFFILIATES
 As of December 31, 2006Amount atAmortized
    
    
    
    
    
    
    which shownType of Investment
    
    Cost
    
    
    Fair Value
    
    
    on Balance SheetFixed MaturitiesU.S Government, government agencies
and authorities
    
    $
    6,787,542
    
    
    $
    6,534,458
    
    
    $
    6,787,542State, local government and agencies
    
    
    2,846,423
    
    
    
    2,788,655
    
    
    
    2,846,423Industrial and miscellaneous
    
    
    32,533,860
    
    
    
    32,077,591
    
    
    
    32,533,860Total fixed maturities
    
    
    42,167,825
    
    
    
    41,400,704
    
    
    
    42,167,825Total Investments  Held-to-Maturity
    
    $
    42,167,825
    
    
    $
    41,400,704
    
    
    $
    42,167,825
 As of December 31, 2006Cost/
    
    
    
    
    
    
    Amount atAmortized
    
    
    
    
    
    
    which shownType of Investment
    
    Cost
    
    
    Fair Value
    
    
    on Balance SheetFixed MaturitiesU.S Government, government agencies
and authorities
    
    $
    191,929,393
    
    
    $
    190,112,328
    
    
    $
    190,112,328State, local government and agencies
    
    
    71,460,810
    
    
    
    71,355,839
    
    
    
    71,355,839Industrial and miscellaneous
    
    
    8,994,746
    
    
    
    8,838,860
    
    
    
    8,838,860Mortgage-backed securities
    
    
    3,425,451
    
    
    
    3,416,738
    
    
    
    3,416,738Total fixed maturities
    
    
    275,810,400
    
    
    
    273,723,765
    
    
    
    273,723,765Equity SecuritiesCommon and preferred stock
    
    
    2,287,743
    
    
    
    2,427,396
    
    
    
    2,427,396Total equity securities
    
    
    2,287,743
    
    
    
    2,427,396
    
    
    
    2,427,396Other InvestmentsShort-term investments
    
    
    453,000
    
    
    
    453,000
    
    
    
    453,000Total other investments
    
    
    453,000
    
    
    
    453,000
    
    
    
    453,000Total Investments  Available-for-Sale
    
    $
    278,551,143
    
    
    $
    276,604,161
    
    
    $
    276,604,161
 S-2




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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(in thousands)
 As of December 31, 20072007
    
    
    2006Assets:Cash and cash equivalents
    
    $
    624
    
    
    $
    7,675Investment in subsidiaries
    
    
    144,965
    
    
    
    145,827Deferred tax asset
    
    
    292
    
    
    
    843Fixed assets, net of depreciation
    
    
    3
    
    
    
    5Taxes recoverable
    
    
    8,579
    
    
    
    Intercompany receivable
    
    
    
    
    
    
    574Total assets
    
    $
    154,463
    
    
    $
    154,924Liabilities and stockholders equity:Accounts payable
    
    $
    434
    
    
    $
    1,051Taxes payable
    
    
    
    
    
    
    2,984Intercompany payable
    
    
    9,853
    
    
    
    Total liabilities
    
    
    10,287
    
    
    
    4,035Stockholders equity:Common stock, no par value
    
    
    97,820
    
    
    
    97,570Retained earnings
    
    
    50,541
    
    
    
    56,735Accumulated other comprehensive income (loss)
    
    
    107
    
    
    
    (1,694
    )Common stock held in treasury
    
    
    (4,292
    )
    
    
    (1,723
    )Total stockholders equity
    
    
    144,176
    
    
    
    150,888Total liabilitites and stockholders equity
    
    $
    154,463
    
    
    $
    154,924
  S-3




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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
(in thousands)
 Years ended December 31,2007
    
    
    2006
    
    
    2005IncomeOther Income
    
    $
    179
    
    
    $
    677
    
    
    $
    542Total Income
    
    
    179
    
    
    
    677
    
    
    
    542Cost and Expenses:Salary Expense
    
    
    1,158
    
    
    
    1,458
    
    
    
    302Professional fees
    
    
    680
    
    
    
    926
    
    
    
    789Other expenses
    
    
    556
    
    
    
    2,103
    
    
    
    3,833Total expenses
    
    
    2,394
    
    
    
    4,487
    
    
    
    4,925Loss before federal income taxes and equity in net
(Loss) income of subsidiaries
    
    
    (2,215
    )
    
    
    (3,810
    )
    
    
    (4,383
    )Income tax (benefit)
    
    
    (1,094
    )
    
    
    (1,309
    )
    
    
    (1,388
    )Loss before equity in net income of subsidiaries
    
    
    (1,121
    )
    
    
    (2,501
    )
    
    
    (2,995
    )Equity in net (loss) income of subsidiaries
    
    
    (5,073
    )
    
    
    16,884
    
    
    
    9,431Net (loss) income
    
    $
    (6,194
    )
    
    $
    14,382
    
    
    $
    6,436
 S-4




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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS
(in thousands)
 Years ended December 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net (loss)  earnings
    
    $
    (6,194
    )
    
    $
    14,382
    
    
    $
    6,436Undistributed net loss (income) of subsidiaries
    
    
    5,073
    
    
    
    (16,884
    )
    
    
    (9,431
    )Amortization of share options
    
    
    
    
    
    
    (3
    )
    
    
    3,050Changes in current assets and liabilities  net
    
    
    (1,201
    )
    
    
    1,198
    
    
    
    (1,309
    )Net cash used in operating activities
    
    
    (2,322
    )
    
    
    (1,307
    )
    
    
    (1,254
    )Cash flows from investing activities:Capital contributions to subsidiaries
    
    
    (4,970
    )
    
    
    (11,451
    )
    
    
    (43,866
    )Dividends received
    
    
    2,560
    
    
    
    904
    
    
    
    2,500Net cash used in investing activities
    
    
    (2,410
    )
    
    
    (10,547
    )
    
    
    (41,366
    )Cash flows from financing activities:Sale of stock
    
    
    250
    
    
    
    115
    
    
    
    62,668Stock repurchase
    
    
    (2,569
    )
    
    
    (1,723
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (2,319
    )
    
    
    (1,608
    )
    
    
    62,668Net (decrease) increase in cash
    
    
    (7,051
    )
    
    
    (13,462
    )
    
    
    20,048Cash, beginning of year
    
    
    7,675
    
    
    
    21,137
    
    
    
    1,089Cash, end of year
    
    $
    624
    
    
    $
    7,675
    
    
    $
    21,137
 S-5




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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)
 Reservesfor
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AmortizationUnpaid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Losses and
    
    
    ofLosses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Losses and
    
    
    DeferredDeferred
    
    
    and Loss
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    Adjustment
    
    
    Policy
    
    
    
    
    
    
    NetAcquisition
    
    
    Adjustment
    
    
    Unearned
    
    
    Earned
    
    
    Investment
    
    
    Expenses
    
    
    Acquisition
    
    
    Other
    
    
    WrittenCosts
    
    
    Expense
    
    
    Premiums
    
    
    Premiums
    
    
    Income
    
    
    Incurred
    
    
    Costs
    
    
    Expenses
    
    
    Premiumsat December 31, 2007Property and Casualty
    
    $
    18,934
    
    
    $
    197,105
    
    
    $
    86,823
    
    
    $
    165,220
    
    
    $
    17,276
    
    
    $
    145,085
    
    
    $
    43,894
    
    
    $
    6,297
    
    
    $
    166,210Consolidated
    
    $
    18,934
    
    
    $
    197,105
    
    
    $
    86,823
    
    
    $
    165,220
    
    
    $
    17,276
    
    
    $
    145,085
    
    
    $
    43,894
    
    
    $
    6,297
    
    
    $
    166,210at December 31, 2006Property and Casualty
    
    $
    18,601
    
    
    $
    191,386
    
    
    $
    85,523
    
    
    $
    157,354
    
    
    $
    16,082
    
    
    $
    103,824
    
    
    $
    40,406
    
    
    $
    10,133
    
    
    $
    161,125Consolidated
    
    $
    18,601
    
    
    $
    191,386
    
    
    $
    85,523
    
    
    $
    157,354
    
    
    $
    16,082
    
    
    $
    103,824
    
    
    $
    40,406
    
    
    $
    10,133
    
    
    $
    161,125at December 31, 2005Property and Casualty
    
    $
    17,134
    
    
    $
    219,361
    
    
    $
    81,546
    
    
    $
    172,782
    
    
    $
    12,403
    
    
    $
    132,794
    
    
    $
    34,506
    
    
    $
    11,747
    
    
    $
    189,634Consolidated
    
    $
    17,134
    
    
    $
    219,361
    
    
    $
    81,546
    
    
    $
    172,782
    
    
    $
    12,403
    
    
    $
    132,794
    
    
    $
    34,506
    
    
    $
    11,747
    
    
    $
    189,634at December 31, 2004Property and Casualty
    
    $
    10,872
    
    
    $
    184,283
    
    
    $
    64,170
    
    
    $
    179,667
    
    
    $
    7,061
    
    
    $
    134,987
    
    
    $
    39,586
    
    
    $
    7,766
    
    
    $
    193,192Consolidated
    
    $
    10,872
    
    
    $
    184,283
    
    
    $
    64,170
    
    
    $
    179,667
    
    
    $
    7,061
    
    
    $
    134,987
    
    
    $
    39,586
    
    
    $
    7,766
    
    
    $
    193,192at December 31, 2003Property and Casualty
    
    $
    9,788
    
    
    $
    134,201
    
    
    $
    51,813
    
    
    $
    143,156
    
    
    $
    4,258
    
    
    $
    108,123
    
    
    $
    25,547
    
    
    $
    992
    
    
    $
    147,045Consolidated
    
    $
    9,788
    
    
    $
    134,201
    
    
    $
    51,813
    
    
    $
    143,156
    
    
    $
    4,258
    
    
    $
    108,123
    
    
    $
    25,547
    
    
    $
    992
    
    
    $
    147,045at December 31, 2002Property and Casualty
    
    $
    8,778
    
    
    $
    85,472
    
    
    $
    46,018
    
    
    $
    75,654
    
    
    $
    1,593
    
    
    $
    69,491
    
    
    $
    14,887
    
    
    $
    3,605
    
    
    $
    110,626Consolidated
    
    $
    8,778
    
    
    $
    85,472
    
    
    $
    46,018
    
    
    $
    75,654
    
    
    $
    1,593
    
    
    $
    69,491
    
    
    $
    14,887
    
    
    $
    3,605
    
    
    $
    110,626
 S-6




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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE IV
REINSURANCE
(in thousands)
 PercentageCeded to
    
    
    Assumed
    
    
    
    
    
    
    of AmountGross
    
    
    Other
    
    
    From Other
    
    
    Net
    
    
    Assumed toAmount
    
    
    Companies
    
    
    Companies
    
    
    Amount
    
    
    NetFor the year ended ended December 31,
2007Property and casualty insurance premiums
    
    $
    177,232
    
    
    $
    12,621
    
    
    $
    609
    
    
    $
    165,220
    
    
    
    0.37
    %Total Premiums
    
    $
    177,232
    
    
    $
    12,621
    
    
    $
    609
    
    
    $
    165,220
    
    
    
    0.37
    %For the year ended ended December 31,
2006Property and casualty insurance premiums
    
    $
    166,786
    
    
    $
    10,910
    
    
    $
    1,478
    
    
    $
    157,354
    
    
    
    0.94
    %Total Premiums
    
    $
    166,786
    
    
    $
    10,910
    
    
    $
    1,478
    
    
    $
    157,354
    
    
    
    0.94
    %For the year ended ended December 31,
2005Property and casualty insurance premiums
    
    $
    180,378
    
    
    $
    9,805
    
    
    $
    2,209
    
    
    $
    172,782
    
    
    
    1.28
    %Total Premiums
    
    $
    180,378
    
    
    $
    9,805
    
    
    $
    2,209
    
    
    $
    172,782
    
    
    
    1.28
    %
 S-7




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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
 As of December 31, 2007
 Charged toBalance at
    
    costs and
    
    
    
    
    
    
    
    
    
    Balance at endDescription
    
    beginning of period
    
    expenses
    
    Charged to other accounts -describe
    
    Deductions - describe
    
    of periodValuation Allowance for State Receivable
    
    $
    500
    
    
    $
    
    
    
    NY State Receivable
    
    $
    
    
    
    $
    500Allowance for Doubtful Accounts
    
    
    34
    
    
    
    6
    
    
    Premiums Receivable
    
    
    
    
    
    
    40Valuation Allowance for Reinsurance
    
    
    
    
    
    
    
    
    
    Reinsurance Recoverable
    
    
    
    
    
    
    Valuation Allowance for Notes Receivable
    
    
    
    
    
    
    
    
    
    Notes Receivable
    
    
    
    
    
    
    $
    534
    
    
    $
    6
    
    
    
    
    
    
    $
    
    
    
    $
    540
 As of December 31, 2006
 Charged toBalance at
    
    costs and
    
    
    
    
    
    
    
    
    
    Balance at endDescription
    
    beginning of period
    
    expenses
    
    Charged to other accounts -describe
    
    Deductions - describe
    
    of periodValuation Allowance for State Receivable
    
    $
    500
    
    
    $
    
    
    
    NY State Receivable
    
    $
    
    
    
    $
    500Allowance for Doubtful Accounts
    
    
    34
    
    
    
    
    
    
    Premiums Receivable
    
    
    
    
    
    
    34Valuation Allowance for Reinsurance
    
    
    
    
    
    
    
    
    
    Reinsurance Recoverable
    
    
    
    
    
    
    Valuation Allowance for Notes Receivable
    
    
    227
    
    
    
    
    
    
    Notes Receivable
    
    
    227
    
    
    
    $
    761
    
    
    $
    
    
    
    
    
    
    
    $
    227
    
    
    $
    534
 S-8




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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE VI
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY
AND CASUALTY INSURANCE OPERATIONS
(in thousands)
 Losses and Loss
    
    Paid LossesAdjustment Expenses
    
    and LossIncurred Related to:
    
    AdjustmentCurrent Year
    
    Prior Years
    
    ExpensesYears ended December 31,2007
    
    $
    125,483
    
    
    $
    19,602
    
    
    $
    139,1912006
    
    $
    103,801
    
    
    $
    23
    
    
    $
    121,5962005
    
    $
    122,728
    
    
    $
    10,066
    
    
    $
    100,849
 S-9




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##### Table of Contents



SIGNATURES
  NATIONAL ATLANTIC HOLDINGS
CORPORATIONBy:
    /s/ James V. GormanName:
    James V. GormanTitle:
    Chairman of the Board of Directors and Chief Executive Officer   Signature
    
    Title
    
    Date/s/ James V. Gorman

James V. Gorman
    
    Chairman of the
Board of Directors
and Chief Executive
Officer (Principle Executive
Officer)
    
    March 17, 2008/s/ Frank J. Prudente

Frank J. Prudente
    
    Executive Vice
President ,
Treasurer and Chief  Financial
Officer
    
    March 17, 2008/s/ Peter A. Cappello, Jr.

Peter A. Cappello, Jr.
    
    Director
    
    March 17, 2008/s/ Martin I. Krupnick, Psy. D

Martin I. Krupnick, Psy. D
    
    Director
    
    March 17, 2008/s/ Thomas M. Mulhare

Thomas M. Mulhare
    
    Director
    
    March 17, 2008/s/ Thomas J. Sharkey, Sr.

Thomas J. Sharkey, Sr.
    
    Director
    
    March 17, 2008/s/ Steven V. Stallone

Steven V. Stallone
    
    Director
    
    March 17, 2008/s/ Candace L. Straight

Candace L. Straight
    
    Director
    
    March 17, 2008