##### 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, 2005                                                 
|  
|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                                                         |  | 22-3316586                              
|(State or other jurisdiction of
    incorporation or organization) |  | (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 Registered
|                                     |  |                                          
|Common Stock, no par value per share |  | Nasdaq National Market                   

Securities Registered pursuant to Section 12(g) of the
Act:


None


o þ


o þ


þ o


S-K 10-K 10-K. o




o o þ


12b-2). o þ






DOCUMENTS INCORPORATED BY REFERENCE












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Table of Contents


|         |  |                                                                                                                      |  |        |    | 
|-------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|         |  |                                                                                                                      |  | Page   |   
|         |  |                                                                                                                      |  | Number |   
|         |  |                                                                                                                      |  |        |   
|         |  | PART I                                                                                                               |  |        |    | 
|Item 1.  |  | Business                                                                                                             |  |        | 2  | 
|Item 1A. |  | Risk Factors                                                                                                         |  |        | 31 | 
|Item 1B. |  | Unresolved Staff Comments                                                                                            |  |        | 46 | 
|Item 2.  |  | Properties                                                                                                           |  |        | 46 | 
|Item 3.  |  | Legal Proceedings                                                                                                    |  |        | 46 | 
|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |        | 46 | 
|        
|PART II 
|Item 5.  |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |        | 47 | 
|Item 6.  |  | Selected Financial Data                                                                                              |  |        | 48 | 
|Item 7.  |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |        | 50 | 
|Item 7a. |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |        | 72 | 
|Item 8.  |  | Financial Statements and Supplementary
    Data                                                                      |  |        | 74 | 
|Item 9.  |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |        | 74 | 
|Item 9A. |  | Controls and Procedures                                                                                              |  |        | 74 | 
|Item 9B. |  | Other Information                                                                                                    |  |        | 75 | 
|        
|PART III
|Item 10. |  | Directors and Executive Officers of the
    Registrant                                                               |  |        | 76 | 
|Item 11. |  | Executive Compensation                                                                                               |  |        | 76 | 
|Item 12. |  | Security Ownership of Certain Beneficial
    Owners and Management                                                   |  |        | 76 | 
|Item 13. |  | Certain Relationships and Related
    Transactions                                                                   |  |        | 76 | 
|Item 14. |  | Principal Accountant Fees and Services                                                                               |  |        | 76 | 
|        
|PART IV 
|Item 15. |  | Exhibit and Financial Statement
    Schedules                                                                        |  |        | 77 | 



i



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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.


10-K 10-K) 10-K 10-K 10-K,







|        |         
|------- | --------
|Item 1. | Business

Overview








2



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| |   |                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

3



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| |   |                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.





Net Income and Revenues


|                                         |  |                  |        |   |              |   |        |              |  |   |              |   |  |              |         |   |              |   |         |   |  |   |         |  
|---------------------------------------- |  | ---------------- | ------ | - | ------------ | - | ------ | ------------ |  | - | ------------ | - |  | ------------ | ------- | - | ------------ | - | ------- | - |  | - | ------- | -
|                                         |  | Net Income       |        |   | Revenues     |  
|                                         |  |                  |        |   |              |  
|                                         |  | Year Ended       |        |   | Year Ended   |   |        | Year Ended   |  |   | Year Ended   |   |  | Year Ended   |         |   | Year Ended   |  
|                                         |  | December 31,     |        |   | December 31, |   |        | December 31, |  |   | December 31, |   |  | December 31, |         |   | December 31, |  
|                                         |  | 2005             |        |   | 2004         |   |        | 2003         |  |   | 2005         |   |  | 2004         |         |   | 2003         |  
|                                         |  |                  |        |   |              |   |        |              |  |   |              |   |  |              |         |   |              |  
|                                         |  | ($ in thousands) |       
|Proformance Insurance Company            |  | $                | 8,530  |   |              | $ | 15,799 |              |  | $ | 18,304       |   |  | $            | 186,277 |   |              | $ | 208,023 |   |  | $ | 163,566 |  
|Riverview Professional Services, Inc.    |  |                  | 485    |   |              |   | 777    |              |  |   | 846          |   |  |              | 4,713   |   |              |   | 4,893   |   |  |   | 3,695   |  
|National Atlantic Insurance Agency, Inc. |  |                  | 830    |   |              |   | 2,141  |              |  |   | 1,209        |   |  |              | 2,234   |   |              |   | 4,067   |   |  |   | 2,574   |  
|Mayfair Reinsurance Company Limited      |  |                  | (414   | ) |              |   | (31    | )            |  |   |             |   |  |              | 152     |   |              |   | 105     |   |  |   | 26      |  
|National Atlantic Holdings Corporation   |  |                  | (2,995 | ) |              |   | (1,238 | )            |  |   | (1,292       | ) |  |              | 541     |   |              |   | 2       |   |  |   | 5       |  
|Less intercompany eliminations           |  |                  |       |   |              |   |       |              |  |   |             |   |  |              | (6,576  | ) |              |   | (8,418  | ) |  |   | (6,191  | )
|                                         |  |                  |        |   |              |   |        |              |  |   |              |   |  |              |         |   |              |  
|Total                                    |  | $                | 6,436  |   |              | $ | 17,448 |              |  | $ | 19,068       |   |  | $            | 187,341 |   |              | $ | 208,672 |   |  | $ | 163,675 |  
|                                         |  |                  |        |   |              |   |        |              |  |   |              |   |  |              |         |   |              |  



Our Growth Strategies






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Focusing on the New Jersey Market. We will continue to
    focus our business in the New Jersey property and casualty
    insurance market where we believe we are able to achieve a
    competitive advantage through our knowledge and expertise of the
    market and regulatory environment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Capturing a Larger Share of Our Agents Business. We
    intend to maintain and further develop our strong independent
    agent relationships by providing our agents with a broader
    portfolio of insurance products and technology services to
    enable us to capture a growing share of the total insurance
    business written by our agents. Based upon reports given to us
    by our Partner Agents, we believe they write an aggregate of
    approximately $2.9 billion of New Jersey property and
    casualty premiums per annum, of which approximately
    1.9 billion is commercial lines. As of December 31,
    2005, we estimate that we write approximately 5.0% of the
    aggregate business placed by our Partner Agents. We intend to
    expand that percentage. In particular, we intend to increase the
    amount of commercial lines business we write for small to medium
    business mainstreet policyholders by capturing a
    larger share of this business written by our Partner Agents.
|
| | Converting Single Coverage Policies into Our Packaged
    Policies and Opportunistically Growing Our Business through
    Replacement Carrier Transactions. We intend to continue to
    grow our homeowners                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | and non-auto businesses, principally by endorsing these
    additional coverages on policies which currently cover only
    automobile insurance, such as the policies transferred to us as
    part of the replacement carrier transactions, thereby converting
    those policies into our packaged High Proformance Policies. In
    addition, as opportunities arise we will enter into replacement
    carrier and other transactions which we determine are consistent
    with our objectives.                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | Marketing the Services of Our Non-Insurance Subsidiaries to
    Third Parties. We intend to selectively market and sell to
    third parties the services provided by Riverview. We believe
    Riverview provides a unique approach to maintaining
    cost-efficient medical service and the management of medical
    treatment to reduce frivolous and potentially fraudulent claims.
    We believe the services of Riverview are especially marketable
    to those insurers with small New Jersey books of business who do
    not have access to these claims and cost-reduction services. We
    will market the services of NAIA to our agents who, in exchange
    for NAIAs services to the designated policyholders of that
    agent, will receive a commission from Proformance lower than our
    normal commission. These services will generate fee income to
    these non-insurance subsidiaries.

Other Subsidiaries






| |                                      
| | -------------------------------------
| | Riverview Professional Services, Inc.









| |                                         
| | ----------------------------------------
| | National Atlantic Insurance Agency, Inc.



5



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| |                                    
| | -----------------------------------
| | Mayfair Reinsurance Company Limited







| |                                      
| | -------------------------------------
| | Niagara Atlantic Holdings Corporation



The New Jersey Property and Casualty Insurance Market




| |                       
| | ----------------------
| | Regulatory Environment

10-K.




| |                                                                 
| | ----------------------------------------------------------------
| | New Jersey Market for Private Passenger Automobile
    Insurance



6



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| |                                
| | -------------------------------
| | Recent and Proposed Legislation











| |                                                             
| | ------------------------------------------------------------
| | New Jersey Automobile Insurance Competition &
    Choice Act



Rate Increases.


Excess Profits.


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Take All Comers Requirement.


Tier Rating.


Unsatisfied Claim and Judgment Fund.


Insurance Fraud Detection Reward Program.


Insurance Scenarios.




| |                                                   
| | --------------------------------------------------
| | Automobile Insurance Urban Enterprise Zone Program



8



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| |                                   
| | ----------------------------------
| | Personal Automobile Insurance Plan









| |                                     
| | ------------------------------------
| | Commercial Automobile Insurance Plan







| |                                              
| | ---------------------------------------------
| | New Jersey Automobile Insurance Risk Exchange



9



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Recent Transactions




| |                                              
| | ---------------------------------------------
| | Ohio Casualty Replacement Carrier Transaction



premium-to premium-to premium-to


10



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premium-to




| |                                                 
| | ------------------------------------------------
| | Sentry Insurance Replacement Carrier Transaction



11



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premium-to premium-to






| |                                                                       
| | ----------------------------------------------------------------------
| | Metropolitan Property and Casualty Replacement Carrier
    Transaction









| |                                                                                
| | -------------------------------------------------------------------------------
| | The Hartford Financial Services Group, Inc. Replacement
    Carrier Transaction







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| |                                                            
| | -----------------------------------------------------------
| | 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.                                                                                                                                                                                         







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| |               
| | --------------
| | Other Products







|                       |       |                          |         |         |      |  |      |       |   |   |         |         |  |  |      |       |   |   |         |         |  |  |      |       |  
|---------------------- | ----- | ------------------------ | ------- | ------- | ---- |  | ---- | ----- | - | - | ------- | ------- |  |  | ---- | ----- | - | - | ------- | ------- |  |  | ---- | ----- | -
|                       |       | Years Ended December 31, |        
|                       |       |                          |        
|Direct Written Premium |       | 2005                     |         |         | 2004 |  |      | 2003  |  
|                       |       |                          |         |         |      |  |      |       |  
|                       |       | ($ in thousands)         |        
|Private passenger auto |       | $                        | 152,482 |         |      |  | 77.0 | %     |   | $ | 175,940 |         |  |  | 84.9 | %     |   | $ | 135,859 |         |  |  | 83.3 | %    
|Commercial auto        |       |                          | 17,921  |         |      |  | 9.0  |       |   |   | 14,665  |         |  |  | 7.1  |       |   |   | 14,402  |         |  |  | 8.8  |      
|Homeowners             |       |                          | 20,925  |         |      |  | 10.6 |       |   |   | 14,667  |         |  |  | 7.0  |       |   |   | 9,579   |         |  |  | 5.9  |      
|Other liability        |       |                          | 6,721   |         |      |  | 3.4  |       |   |   | 2,048   |         |  |  | 1.0  |       |   |   | 3,338   |         |  |  | 2.0  |      
|                       | Total |                          | $       | 198,049 |      |  |      | 100.0 | % |   | $       | 207,320 |  |  |      | 100.0 | % |   | $       | 163,179 |  |  |      | 100.0 | %



Distribution




| |                                
| | -------------------------------
| | Independent Agent Relationships





| |               
| | --------------
| | Partner Agents





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| |                                   
| | ----------------------------------
| | Replacement Carrier Service Agents







| |                  
| | -----------------
| | Agency Agreements





| |                      
| | ---------------------
| | Peer Review Committee



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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, 2005,
    approximately 92% 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.                                                                                                      

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| |                    
| | -------------------
| | Service and Support



Underwriting




| |        
| | -------
| | General





| |                             
| | ----------------------------
| | Agent Underwriting Authority







| |                        
| | -----------------------
| | Use of Credit Scoring







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Claims


1-800








Reserves










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|                                                                                |                |                  |         |         |              |   |         |              |   |   |         |         | 
|------------------------------------------------------------------------------- | -------------- | ---------------- | ------- | ------- | ------------ | - | ------- | ------------ | - | - | ------- | ------- | 
|                                                                                |                | Year Ended       |         |         | Year Ended   |   |         | Year Ended   |  
|                                                                                |                | December 31,     |         |         | December 31, |   |         | December 31, |  
|                                                                                |                | 2005             |         |         | 2004         |   |         | 2003         |  
|                                                                                |                |                  |         |         |              |   |         |              |  
|                                                                                |                | ($ in thousands) |        
|Reserves for losses and loss adjustment expenses, beginning
    period          |                | $                | 184,283 |         |              | $ | 134,201 |              |   | $ | 85,472  |        
|Less reinsurance recoverable on unpaid losses and loss
    adjustment expenses  |                |                  | (24,936 | )       |              |   | (21,329 | )            |   |   | (19,431 | )      
|Net reserves for losses and loss adjustment expenses, beginning
    of period   |                |                  | 159,347 |         |              |   | 112,872 |              |   |   | 66,041  |        
|Incurred losses and loss adjustment expenses, related to:                       |                |                  |         |         |              |   |         |              |   |   |         |        
|                                                                                | Current period |                  |         | 122,728 |              |   |         | 135,659      |   |   |         | 108,047 | 
|                                                                                | Prior period   |                  |         | 10,066  |              |   |         | (672         | ) |   |         | 76      | 
|Total incurred losses and loss adjustment expenses                              |                |                  | 132,794 |         |              |   | 134,987 |              |   |   | 108,123 |        
|Paid losses and loss adjustment expenses related to:                            |                |                  |         |         |              |   |         |              |   |   |         |        
|                                                                                | Current period |                  |         | 42,301  |              |   |         | 44,899       |   |   |         | 37,594  | 
|                                                                                | Prior period   |                  |         | 58,548  |              |   |         | 43,613       |   |   |         | 23,698  | 
|Total paid losses and loss adjustment expenses                                  |                |                  | 100,849 |         |              |   | 88,512  |              |   |   | 61,292  |        
|Net reserves for losses and loss adjustment expenses, end of
    period         |                |                  | 191,292 |         |              |   | 159,347 |              |   |   | 112,872 |        
|Plus reinsurance recoverables on unpaid losses and loss
    adjustment expenses |                |                  | 28,069  |         |              |   | 24,936  |              |   |   | 21,329  |        
|Reserves for losses and loss adjustment expenses, end of period                 |                | $                | 219,361 |         |              | $ | 184,283 |              |   | $ | 134,201 |        



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|                                        |  |                                       |       |  |      |  |       |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|--------------------------------------- |  | ------------------------------------- | ----- |  | ---- |  | ----- | ---- |  |  | ------ |  |  | ---- | ------ |  | ---- |  | ------ | ---- |  |  | ------ |  |  | ---- | ------ |  | ---- |  | ------ | ---- |  |  | ------- |  |  |  | ------- |  |  |  | ------- | 
|                                        |  | As of for the Year Ended December 31, |      
|                                        |  |                                       |      
|                                        |  | 1995                                  |       |  | 1996 |  |       | 1997 |  |  | 1998   |  |  | 1999 |        |  | 2000 |  |        | 2001 |  |  | 2002   |  |  | 2003 |        |  | 2004 |  |        | 2005 | 
|                                        |  |                                       |       |  |      |  |       |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |      | 
|                                        |  | ($ in thousands)                      |      
|As Originally Estimated                 |  |                                       | 780   |  |      |  | 3,893 |      |  |  | 10,928 |  |  |      | 14,965 |  |      |  | 15,484 |      |  |  | 20,386 |  |  |      | 30,014 |  |      |  | 66,041 |      |  |  | 112,872 |  |  |  | 159,347 |  |  |  | 191,292 | 
|As Re-estimated as of December 31, 2005 |  |                                       | 1,323 |  |      |  | 7,514 |      |  |  | 16,291 |  |  |      | 21,725 |  |      |  | 26,880 |      |  |  | 37,614 |  |  |      | 43,875 |  |      |  | 82,583 |      |  |  | 125,591 |  |  |  | 169,414 |  |  |  | 191,292 | 
|Liability Re-estimated as of:           |  |                                       |       |  |      |  |       |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|One Year Later                          |  |                                       | 775   |  |      |  | 4,387 |      |  |  | 12,017 |  |  |      | 15,261 |  |      |  | 17,901 |      |  |  | 25,588 |  |  |      | 32,028 |  |      |  | 74,671 |      |  |  | 112,200 |  |  |  | 169,414 |  |  |  |         | 
|Two Years Later                         |  |                                       | 949   |  |      |  | 5,881 |      |  |  | 12,888 |  |  |      | 16,530 |  |      |  | 21,201 |      |  |  | 29,484 |  |  |      | 38,952 |  |      |  | 74,981 |      |  |  | 125,591 |  |  |  |         |  |  |  |         | 
|Three Years Later                       |  |                                       | 1,096 |  |      |  | 6,578 |      |  |  | 13,562 |  |  |      | 18,471 |  |      |  | 23,740 |      |  |  | 33,720 |  |  |      | 40,999 |  |      |  | 82,583 |      |  |  |         |  |  |  |         |  |  |  |         | 
|Four Years Later                        |  |                                       | 1,271 |  |      |  | 6,694 |      |  |  | 14,762 |  |  |      | 20,203 |  |      |  | 25,797 |      |  |  | 35,905 |  |  |      | 43,875 |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|Five Years Later                        |  |                                       | 1,284 |  |      |  | 7,294 |      |  |  | 15,870 |  |  |      | 20,924 |  |      |  | 26,324 |      |  |  | 37,614 |  |  |      |        |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|Six Years Later                         |  |                                       | 1,273 |  |      |  | 7,391 |      |  |  | 15,587 |  |  |      | 21,339 |  |      |  | 26,880 |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|Seven Years Later                       |  |                                       | 1,277 |  |      |  | 7,331 |      |  |  | 16,203 |  |  |      | 21,725 |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|Eight Years Later                       |  |                                       | 1,277 |  |      |  | 7,467 |      |  |  | 16,291 |  |  |      |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|Nine Years Later                        |  |                                       | 1,323 |  |      |  | 7,514 |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|Cumulative Deficiency (Redundancy)      |  |                                       | 543   |  |      |  | 3,621 |      |  |  | 5,363  |  |  |      | 6,760  |  |      |  | 11,396 |      |  |  | 17,228 |  |  |      | 13,861 |  |      |  | 16,542 |      |  |  | 12,719  |  |  |  | 10,067  |  |  |  |         | 
|Cumulative Amounts Paid as of:          |  |                                       |       |  |      |  |       |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|One Year Later                          |  |                                       | 478   |  |      |  | 1,334 |      |  |  | 6,123  |  |  |      | 6,770  |  |      |  | 6,437  |      |  |  | 11,147 |  |  |      | 13,819 |  |      |  | 23,695 |      |  |  | 44,398  |  |  |  | 58,541  |  |  |  |         | 
|Two Years Later                         |  |                                       | 510   |  |      |  | 4,013 |      |  |  | 9,194  |  |  |      | 10,554 |  |      |  | 13,511 |      |  |  | 19,591 |  |  |      | 22,766 |  |      |  | 40,764 |      |  |  | 72,551  |  |  |  |         |  |  |  |         | 
|Three Years Later                       |  |                                       | 947   |  |      |  | 5,333 |      |  |  | 10,999 |  |  |      | 15,178 |  |      |  | 18,926 |      |  |  | 25,518 |  |  |      | 32,609 |  |      |  | 55,683 |      |  |  |         |  |  |  |         |  |  |  |         | 
|Four Years Later                        |  |                                       | 1,125 |  |      |  | 5,919 |      |  |  | 13,437 |  |  |      | 18,050 |  |      |  | 21,944 |      |  |  | 30,969 |  |  |      | 40,054 |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|Five Years Later                        |  |                                       | 1,219 |  |      |  | 6,857 |      |  |  | 14,535 |  |  |      | 18,722 |  |      |  | 24,282 |      |  |  | 34,808 |  |  |      |        |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|Six Years Later                         |  |                                       | 1,245 |  |      |  | 6,953 |      |  |  | 14,844 |  |  |      | 20,091 |  |      |  | 25,498 |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|Seven Years Later                       |  |                                       | 1,272 |  |      |  | 7,107 |      |  |  | 15,579 |  |  |      | 20,778 |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|Eight Years Later                       |  |                                       | 1,264 |  |      |  | 7,219 |      |  |  | 16,002 |  |  |      |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 
|Nine Years Later                        |  |                                       | 1,273 |  |      |  | 7,462 |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |      |  |  |         |  |  |  |         |  |  |  |         | 

20



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|                                                                                                  |                   |                                       |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  |  | 
|------------------------------------------------------------------------------------------------- | ----------------- | ------------------------------------- | -- | --- | ---- |  | -- | ---- | - |  | ---- | --- | - | ---- | -- | --- | ---- |  | -- | ---- | - |  | ---- | --- | - | ---- | -- | --- | ---- |  | -- | ---- | - |  | -- | --- | - |  | - | --- | - |  |  |  | 
|                                                                                                  |                   | As of for the Year Ended December 31, |   
|                                                                                                  |                   |                                       |   
|                                                                                                  |                   | 1995                                  |    |     | 1996 |  |    | 1997 |   |  | 1998 |     |   | 1999 |    |     | 2000 |  |    | 2001 |   |  | 2002 |     |   | 2003 |    |     | 2004 |  |    | 2005 |  
|                                                                                                  |                   |                                       |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |  
|                                                                                                  |                   | ($ in thousands)                      |   
|Percentage of Initially Estimated Liability                                                       |                   |                                       |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  | 
|Liability Re-estimated as of:                                                                     |                   |                                       |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  | 
|                                                                                                  | One Year Later    |                                       |    | 99  | %    |  |    | 113  | % |  |      | 110 | % |      |    | 102 | %    |  |    | 116  | % |  |      | 126 | % |      |    | 107 | %    |  |    | 113  | % |  |    | 99  | % |  |   | 106 | % |  |  |  | 
|                                                                                                  | Two Years Later   |                                       |    | 122 | %    |  |    | 151  | % |  |      | 118 | % |      |    | 110 | %    |  |    | 137  | % |  |      | 145 | % |      |    | 130 | %    |  |    | 114  | % |  |    | 111 | % |  |   |     |   |  |  |  | 
|                                                                                                  | Three Years Later |                                       |    | 141 | %    |  |    | 169  | % |  |      | 124 | % |      |    | 123 | %    |  |    | 153  | % |  |      | 165 | % |      |    | 137 | %    |  |    | 125  | % |  |    |     |   |  |   |     |   |  |  |  | 
|                                                                                                  | Four Years Later  |                                       |    | 163 | %    |  |    | 172  | % |  |      | 135 | % |      |    | 135 | %    |  |    | 167  | % |  |      | 176 | % |      |    | 146 | %    |  |    |      |   |  |    |     |   |  |   |     |   |  |  |  | 
|                                                                                                  | Five Years Later  |                                       |    | 165 | %    |  |    | 187  | % |  |      | 145 | % |      |    | 140 | %    |  |    | 170  | % |  |      | 185 | % |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  |  | 
|                                                                                                  | Six Years Later   |                                       |    | 163 | %    |  |    | 190  | % |  |      | 143 | % |      |    | 143 | %    |  |    | 174  | % |  |      |     |   |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  |  | 
|                                                                                                  | Seven Years Later |                                       |    | 164 | %    |  |    | 188  | % |  |      | 148 | % |      |    | 145 | %    |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  |  | 
|                                                                                                  | Eight Years Later |                                       |    | 164 | %    |  |    | 192  | % |  |      | 149 | % |      |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  |  | 
|                                                                                                  | Nine Years Later  |                                       |    | 170 | %    |  |    | 193  | % |  |      |     |   |      |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  |  | 
|Cumulative Deficiency (Redundancy)                                                                |                   |                                       | 70 | %   |      |  | 93 | %    |   |  | 49   | %   |   |      | 45 | %   |      |  | 74 | %    |   |  | 85   | %   |   |      | 46 | %   |      |  | 25 | %    |   |  | 11 | %   |   |  | 6 | %   |   |  |  | 
|Net Loss and Loss Adjustment Cumulative Paid as a Percentage
    of Initially Estimated Liability |                   |                                       |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  | 
|Cumulative Amounts Paid as of:                                                                    |                   |                                       |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  | 
|                                                                                                  | One Year Later    |                                       |    | 61  | %    |  |    | 34   | % |  |      | 56  | % |      |    | 45  | %    |  |    | 42   | % |  |      | 55  | % |      |    | 46  | %    |  |    | 36   | % |  |    | 39  | % |  |   | 37  | % |  |  |  | 
|                                                                                                  | Two Years Later   |                                       |    | 65  | %    |  |    | 103  | % |  |      | 84  | % |      |    | 71  | %    |  |    | 87   | % |  |      | 96  | % |      |    | 76  | %    |  |    | 62   | % |  |    | 64  | % |  |   |     |   |  |  |  | 
|                                                                                                  | Three Years Later |                                       |    | 121 | %    |  |    | 137  | % |  |      | 101 | % |      |    | 101 | %    |  |    | 122  | % |  |      | 125 | % |      |    | 109 | %    |  |    | 84   | % |  |    |     |   |  |   |     |   |  |  |  | 
|                                                                                                  | Four Years Later  |                                       |    | 144 | %    |  |    | 152  | % |  |      | 123 | % |      |    | 121 | %    |  |    | 142  | % |  |      | 152 | % |      |    | 133 | %    |  |    |      |   |  |    |     |   |  |   |     |   |  |  |  | 
|                                                                                                  | Five Years Later  |                                       |    | 156 | %    |  |    | 176  | % |  |      | 133 | % |      |    | 125 | %    |  |    | 157  | % |  |      | 171 | % |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  |  | 
|                                                                                                  | Six Years Later   |                                       |    | 160 | %    |  |    | 179  | % |  |      | 136 | % |      |    | 134 | %    |  |    | 165  | % |  |      |     |   |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  |  | 
|                                                                                                  | Seven Years Later |                                       |    | 163 | %    |  |    | 183  | % |  |      | 143 | % |      |    | 139 | %    |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  |  | 
|                                                                                                  | Eight Years Later |                                       |    | 162 | %    |  |    | 185  | % |  |      | 146 | % |      |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  |  | 
|                                                                                                  | Nine Years Later  |                                       |    | 163 | %    |  |    | 192  | % |  |      |     |   |      |    |     |      |  |    |      |   |  |      |     |   |      |    |     |      |  |    |      |   |  |    |     |   |  |   |     |   |  |  |  | 



|                                        |                              |                                       |   |       |      |  |   |        |  |  |      |        |  |      |   |        |      |  |   |        |  |  |      |        |  |      |   |        |      |  |   |        |  |  |   |         |  |  |   |         |  |  |   |         | 
|--------------------------------------- | ---------------------------- | ------------------------------------- | - | ----- | ---- |  | - | ------ |  |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                        |                              | As of for the Year Ended December 31, |  
|                                        |                              |                                       |  
|                                        |                              | 1995                                  |   |       | 1996 |  |   | 1997   |  |  | 1998 |        |  | 1999 |   |        | 2000 |  |   | 2001   |  |  | 2002 |        |  | 2003 |   |        | 2004 |  |   | 2005   | 
|                                        |                              |                                       |   |       |      |  |   |        |  |  |      |        |  |      |   |        |      |  |   |        |  |  |      |        |  |      |   |        |      |  |   |        | 
|                                        |                              | ($ in thousands)                      |  
|As Originally Estimated                 |                              |                                       |   |       |      |  |   |        |  |  |      |        |  |      |   |        |      |  |   |        |  |  |      |        |  |      |   |        |      |  |   |        |  |  |   |         |  |  |   |         |  |  |   |        
|                                        | Net Liability Shown Above    |                                       | $ | 780   |      |  | $ | 3,893  |  |  | $    | 10,928 |  |      | $ | 14,965 |      |  | $ | 15,484 |  |  | $    | 20,386 |  |      | $ | 30,014 |      |  | $ | 66,041 |  |  | $ | 112,872 |  |  | $ | 159,347 |  |  | $ | 191,292 | 
|                                        | Add Reinsurance Recoverables |                                       |   | 423   |      |  |   | 2,210  |  |  |      | 6,122  |  |      |   | 8,395  |      |  |   | 11,571 |  |  |      | 16,962 |  |      |   | 26,718 |      |  |   | 19,431 |  |  |   | 21,329  |  |  |   | 24,936  |  |  |   | 28,069  | 
|                                        | Gross Liability              |                                       |   | 1,203 |      |  |   | 6,103  |  |  |      | 17,050 |  |      |   | 23,360 |      |  |   | 27,055 |  |  |      | 37,348 |  |      |   | 56,732 |      |  |   | 85,472 |  |  |   | 134,201 |  |  |   | 184,283 |  |  |   | 219,361 | 
|As Re-estimated as of December 31, 2005 |                              |                                       |   |       |      |  |   |        |  |  |      |        |  |      |   |        |      |  |   |        |  |  |      |        |  |      |   |        |      |  |   |        |  |  |   |         |  |  |   |         |  |  |   |        
|                                        | Net Liability Shown Above    |                                       |   | 1,323 |      |  |   | 7,514  |  |  |      | 16,291 |  |      |   | 21,725 |      |  |   | 26,880 |  |  |      | 37,614 |  |      |   | 38,952 |      |  |   | 74,671 |  |  |   | 125,591 |  |  |   | 169,414 |  |  |   | 191,292 | 
|                                        | Add Reinsurance Recoverables |                                       |   | 1,039 |      |  |   | 6,583  |  |  |      | 12,510 |  |      |   | 18,598 |      |  |   | 25,193 |  |  |      | 25,077 |  |      |   | 36,272 |      |  |   | 23,323 |  |  |   | 25,815  |  |  |   | 26,376  |  |  |   | 28,069  | 
|                                        | Gross Liability              |                                       |   | 2,362 |      |  |   | 14,097 |  |  |      | 28,801 |  |      |   | 40,323 |      |  |   | 52,073 |  |  |      | 62,691 |  |      |   | 75,224 |      |  |   | 97,994 |  |  |   | 151,406 |  |  |   | 195,790 |  |  |   | 219,361 | 



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Reinsurance




| |                                
| | -------------------------------
| | Third Party Reinsurance Program





|                     |  |                  |        |  |           |  |   |   
|-------------------- |  | ---------------- | ------ |  | --------- |  | - | --
|                     |  | Reinsurance      |        |  |          
|                     |  | Recoverables/    |        |  | A.M. Best | 
|                     |  | Receivables      |        |  | Rating(1) | 
|                     |  |                  |        |  |           | 
|                     |  | ($ in thousands) |       
|Scor Re              |  |                  | 10,022 |  |           |  | B | ++
|OdysseyRe            |  |                  | 4,022  |  |           |  | A |   
|American Reinsurance |  |                  | 5,756  |  |           |  | A |   






|    |                                  
|--- | ---------------------------------
|(1) | Ratings are as of March 29, 2006.













| |                                    
| | -----------------------------------
| | Mayfair Reinsurance Company Limited



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##### Table of Contents







| |                                     
| | ------------------------------------
| | Terrorism Risk Insurance Act of 2002



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

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| |   |                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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.                                                                                                             



|                                                                         |                               |                    |         |         |           |  |      |        |      |   |           |         |  |        |       |      |           |   |         |         |  |  |       |      | 
|------------------------------------------------------------------------ | ----------------------------- | ------------------ | ------- | ------- | --------- |  | ---- | ------ | ---- | - | --------- | ------- |  | ------ | ----- | ---- | --------- | - | ------- | ------- |  |  | ----- | ---- | 
|                                                                         |                               | As of December 31, |        
|                                                                         |                               |                    |        
|                                                                         |                               | 2005               |         |         | 2004      |  |      | 2003   |     
|                                                                         |                               |                    |         |         |           |  |      |        |     
|                                                                         |                               |                    |         | % of    |           |  |      |        | % of |   |           |         |  | % of   |      
|                                                                         |                               | Amount             |         |         | Portfolio |  |      | Amount |      |   | Portfolio |         |  | Amount |       |      | Portfolio |  
|                                                                         |                               |                    |         |         |           |  |      |        |      |   |           |         |  |        |       |      |           |  
|                                                                         |                               | ($ in thousands)   |        
|Fixed Income Securities:                                                 |                               |                    |         |         |           |  |      |        |      |   |           |         |  |        |       |      |           |   |         |         |  |  |       |     
|U.S. Treasury securities and obligations of
    U.S. Government agencies |                               | $                  | 168,893 |         |           |  | 56.3 | %      |      | $ | 113,788   |         |  |        | 47.9  | %    |           | $ | 61,206  |         |  |  | 35.9  | %   
|Obligations of states and political subdivisions                         |                               |                    | 69,290  |         |           |  | 23.1 |        |      |   | 47,768    |         |  |        | 20.1  |      |           |   | 42,139  |         |  |  | 24.7  |     
|Mortgage-backed securities                                               |                               |                    | 1,219   |         |           |  | 0.4  |        |      |   | 1,114     |         |  |        | 0.5   |      |           |   | 4,991   |         |  |  | 2.9   |     
|Corporate and other securities                                           |                               |                    | 47,782  |         |           |  | 15.9 |        |      |   | 61,980    |         |  |        | 26.1  |      |           |   | 53,643  |         |  |  | 31.4  |     
|                                                                         |                               |                    |         |         |           |  |      |        |      |   |           |         |  |        |       |      |           |  
|                                                                         | Total fixed income securities |                    |         | 287,184 |           |  |      | 95.7   |      |   |           | 224,650 |  |        |       | 94.6 |           |   |         | 161,979 |  |  |       | 94.9 | 
|Equity Securities:                                                       |                               |                    |         |         |           |  |      |        |      |   |           |         |  |        |       |      |           |   |         |         |  |  |       |     
|Preferred stocks                                                         |                               |                    | 509     |         |           |  | 0.2  |        |      |   | 1,759     |         |  |        | 0.7   |      |           |   | 2,308   |         |  |  | 1.4   |     
|Common stocks                                                            |                               |                    | 12,327  |         |           |  | 4.1  |        |      |   | 11,042    |         |  |        | 4.7   |      |           |   | 6,285   |         |  |  | 3.7   |     
|                                                                         |                               |                    |         |         |           |  |      |        |      |   |           |         |  |        |       |      |           |  
|                                                                         | Total equity securities       |                    |         | 12,836  |           |  |      | 4.3    |      |   |           | 12,801  |  |        |       | 5.4  |           |   |         | 8,593   |  |  |       | 5.1  | 
|Total Investments                                                        |                               |                    | 300,020 |         |           |  | 100  | %      |      | $ | 237,451   |         |  |        | 100.0 | %    |           | $ | 170,572 |         |  |  | 100.0 | %   
|                                                                         |                               |                    |         |         |           |  |      |        |      |   |           |         |  |        |       |      |           |  





Investment Results


|                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                          |  | Year Ended December 31, |        
|                                                          |  |                         |        
|                                                          |  | 2005                    |         |   | 2004 |   |         | 2003 | 
|                                                          |  |                         |         |   |      |   |         |      | 
|                                                          |  | ($ in thousands)        |        
|Average invested assets                                   |  | $                       | 287,223 |   |      | $ | 221,394 |      |  | $ | 136,828 |  
|Net investment income                                     |  | $                       | 12,403  |   |      | $ | 7,061   |      |  | $ | 4,258   |  
|Net effective yield                                       |  |                         | 4.3     | % |      |   | 3.2     | %    |  |   | 3.0     | %
|Net realized capital gains (losses)                       |  | $                       | 411     |   |      | $ | 1,931   |      |  | $ | 1,373   |  
|Effective yield including realized capital gains (losses) |  |                         | 4.5     | % |      |   | 4.1     | %    |  |   | 4.0     | %

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Composition of Fixed Income Security Portfolio by Rating


|                                                                  |       |                   |         |         |         |  |       |     |  
|----------------------------------------------------------------- | ----- | ----------------- | ------- | ------- | ------- |  | ----- | --- | -
|                                                                  |       | December 31, 2005 |        
|                                                                  |       |                   |        
|                                                                  |       | Amount            |         |         | Percent | 
|                                                                  |       |                   |         |         |         | 
|                                                                  |       | (In thousands)    |        
|U.S. Government and Government Agency Fixed Income
    Securities |       | $                 | 178,913 |         |         |  | 62.30 | %  
|Aaa/ Aa                                                           |       |                   | 100,888 |         |         |  | 35.13 | %  
|A                                                                 |       |                   | 7,383   |         |         |  | 2.57  | %  
|Baa                                                               |       |                   |        |         |         |  |      |    
|Ba                                                                |       |                   |        |         |         |  |      |    
|                                                                  |       |                   |         |         |         | 
|                                                                  | Total |                   | $       | 287,184 |         |  |       | 100 | %
|                                                                  |       |                   |         |         |         | 







Composition of Fixed Income Security Portfolio by Maturity


|                               |       |                   |         |         |         |  |      |       |  
|------------------------------ | ----- | ----------------- | ------- | ------- | ------- |  | ---- | ----- | -
|                               |       | December 31, 2005 |        
|                               |       |                   |        
|                               |       | Amount            |         |         | Percent | 
|                               |       |                   |         |         |         | 
|                               |       | (In thousands)    |        
|1 year or less                 |       | $                 | 14,888  |         |         |  | 5.2  | %    
|Over 1 year through 5 years    |       |                   | 51,191  |         |         |  | 17.8 | %    
|Over 5 years through 10 years  |       |                   | 149,942 |         |         |  | 52.2 | %    
|Over 10 years through 20 years |       |                   | 69,200  |         |         |  | 24.1 | %    
|Over 20 years                  |       |                   | 744     |         |         |  | 0.3  | %    
|Mortgage-backed securities(1)  |       |                   | 1,219   |         |         |  | 0.4  | %    
|                               |       |                   |         |         |         | 
|                               | Total |                   | $       | 287,184 |         |  |      | 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.

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Competition










Ratings




26



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Properties




Employees




Legal Proceedings




27



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| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                           
|
| |  | 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. 12-month


28



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Acquisition of Control of a New Jersey Domiciled Insurance
Company.


Protection against Insurer Insolvency.


Risk-Based Capital Requirements.




29



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NAIC IRIS Ratios.


Surplus and Capital Requirements.


Regulation of Investments.




| |        
| | -------
| | Bermuda

Bermuda Restrictions on Dividend Payments.


30



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

10-K


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.






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.




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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 offer
our products at a profit.




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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.






33



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##### 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.






34



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Our management and independent registered public
accounting firm have determined that there are material
weaknesses in our internal controls over financial reporting. If
we fail to maintain an effective system of internal controls
over financial reporting, we may not be able to accurately
report our financial results.










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.




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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.










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| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | 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.



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.



37



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##### Table of Contents





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;                                                                           
|
| |  | 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.


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Our failure to meet risk based capital standards could
subject us to examination or corrective action by state
regulators.






Proformance Insurance Company


Risk-Based Capital(1)


|                                                            |  |                         |         |  |              |   |        |          |  |    |             |  |  |   |        | 
|----------------------------------------------------------- |  | ----------------------- | ------- |  | ------------ | - | ------ | -------- |  | -- | ----------- |  |  | - | ------ | 
|                                                            |  | As of December 31, 2003 |        
|                                                            |  |                         |        
|                                                            |  | As of                   |         |  | As of        |   |        |         
|                                                            |  | December 31,            |         |  | December 31, |   |        |          |  | As |            
|                                                            |  | 2005                    |         |  | 2004         |   |        | As Filed |  |    | Adjusted(2) | 
|                                                            |  |                         |         |  |              |   |        |          |  |    |             | 
|                                                            |  | ($ in thousands)        |        
|Total Adjusted Capital                                      |  | $                       | 104,727 |  |              | $ | 61,931 |          |  | $  | 58,245      |  |  | $ | 57,071 | 
|Company Action Level = 200% of Authorized Control Level     |  | $                       | 58,985  |  |              | $ | 67,065 |          |  | $  | 33,785      |  |  | $ | 35,540 | 
|Regulatory Action Level = 150% of Authorized Control Level  |  | $                       | 44,239  |  |              | $ | 50,298 |          |  | $  | 25,339      |  |  | $ | 26,655 | 
|Authorized Control Level = 100% of Authorized Control Level |  | $                       | 29,493  |  |              | $ | 33,532 |          |  | $  | 16,893      |  |  | $ | 17,770 | 
|Mandatory Control Level = 70% of Authorized Control Level   |  | $                       | 20,645  |  |              | $ | 23,473 |          |  | $  | 11,825      |  |  | $ | 12,439 | 






|    |                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.


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| |   |                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Two-Year Reserve Development to Policyholder
    Surplus  In addition to measuring the accuracy
    with which reserves were established in the second prior year,
    the ratio of two-year reserve development to surplus as it
    relates to policyholders provides an indirect indication of
    managements opinion of the adequacy of surplus.
|
| |  | Gross Change in Policyholders Surplus  The
    change in surplus as regards policyholders is, in a sense, the
    ultimate measure of the improvement or deterioration in the
    companys financial condition during the year.                                                                                                                      
|
| |  | Net Change in Adjusted Policyholder Surplus 
    This ratio measures the improvement or deterioration in the
    insurers financial condition during the year and
    concentrates on the effect of operational results.                                                                                                                             





| |                                              
| | ---------------------------------------------
| | 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.








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##### 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.


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


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##### Table of Contents



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.






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##### 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.




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.




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##### Table of Contents







12-month


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.






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##### Table of Contents



14A:10A-5




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




12-month


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.


S-8 S-8 S-8


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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








|        |           
|------- | ----------
|Item 2. | Properties








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








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



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##### Table of Contents






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|      |                |                |   |       |     |  |   |       | 
|----- | -------------- | -------------- | - | ----- | --- |  | - | ----- | 
|      |                | Price Range of |  
|      |                | Common Shares  |  
|      |                |                |  
|Year  |                | High           |   |       | Low | 
|      |                |                |   |       |     | 
|2005: |                |                |   |       |     |  |   |      
|      | Second Quarter |                | $ | 12.15 |     |  | $ | 9.75  | 
|      | Third Quarter  |                |   | 13.40 |     |  |   | 10.79 | 
|      | Fourth Quarter |                | $ | 12.00 |     |  | $ | 9.92  | 









|                                                           |  |                      |         |  |                      |     |                      |                          |  |  |           | 
|---------------------------------------------------------- |  | -------------------- | ------- |  | -------------------- | --- | -------------------- | ------------------------ |  |  | --------- | 
|                                                           |  |                      |         |  |                      | (c) |                     
|                                                           |  | (a)                  |         |  |                      |     | Number of Securities |                         
|                                                           |  | Number of Securities |         |  | (b)                  |     |                      | Remaining Available for  | 
|                                                           |  | to be Issued         |         |  | Weighted Average     |     |                      | Issuance Under Equity    | 
|                                                           |  | Upon Exercise of     |         |  | Exercise Price of    |     |                      | Compensation Plans       | 
|                                                           |  | Outstanding Options, |         |  | Outstanding Options, |     |                      | (Excluding Securities    | 
|Plan Category                                              |  | Warrant and Rights   |         |  | Warrant and Rights   |     |                      | Reflected in Column (a)) | 
|                                                           |  |                      |         |  |                      |     |                      |                          | 
|Equity compensation plans approved by security holders     |  |                      | 397,750 |  |                      | $   | 2.31                 |                          |  |  | 1,000,000 | 
|                                                           |  |                      |         |  |                      |     |                      |                          | 
|Equity compensation plans not approved by security holders |  |                      |        |  |                      |     |                     |                          |  |  |          | 
|                                                           |  |                      |         |  |                      |     |                      |                          | 
|Total                                                      |  |                      | 397,750 |  |                      | $   | 2.31                 |                          |  |  | 1,000,000 | 
|                                                           |  |                      |         |  |                      |     |                      |                          | 

47



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##### Table of Contents



Use of Proceeds


S-1, 333-117804),













|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



10-K


48



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##### Table of Contents



|                                                         |                            |                                         |         |         |      |   |         |         |  |   |         |         |  |      |         |        |  |   |         |        |  
|-------------------------------------------------------- | -------------------------- | --------------------------------------- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | ---- | ------- | ------ |  | - | ------- | ------ | -
|                                                         |                            | Year Ended December 31,                 |        
|                                                         |                            |                                         |        
|                                                         |                            | 2005                                    |         |         | 2004 |   |         | 2003    |  |   | 2002    |         |  | 2001 |        
|                                                         |                            |                                         |         |         |      |   |         |         |  |   |         |         |  |      |        
|                                                         |                            | ($ in thousands, except per share data) |        
|Income Statement Data:                                   |                            |                                         |         |         |      |   |         |         |  |   |         |         |  |      |         |        |  |   |         |       
|Direct written premiums(1)                               |                            | $                                       | 198,049 |         |      | $ | 207,320 |         |  | $ | 163,179 |         |  | $    | 114,624 |        |  | $ | 49,757  |       
|Net written premiums(1)                                  |                            |                                         | 189,634 |         |      |   | 193,192 |         |  |   | 147,045 |         |  |      | 110,626 |        |  |   | 25,499  |       
|Net earned premiums(1)                                   |                            |                                         | 172,782 |         |      |   | 179,667 |         |  |   | 143,156 |         |  |      | 75,654  |        |  |   | 25,432  |       
|Replacement carrier revenue from related party(2)        |                            |                                         |        |         |      |   | 13,880  |         |  |   | 13,298  |         |  |      | 21,683  |        |  |   |        |       
|Replacement carrier revenue from unrelated party         |                            |                                         |        |         |      |   | 4,089   |         |  |   | 661     |         |  |      |        |        |  |   |        |       
|Investment income                                        |                            |                                         | 12,403  |         |      |   | 7,061   |         |  |   | 4,258   |         |  |      | 1,593   |        |  |   | 1,085   |       
|Net realized investment gains (losses)                   |                            |                                         | 411     |         |      |   | 1,931   |         |  |   | 1,373   |         |  |      | (55     | )      |  |   | 346     |       
|                                                         | Other income               |                                         |         | 1,745   |      |   |         | 2,044   |  |   |         | 929     |  |      |         | 564    |  |   |         | 212    |  
|                                                         |                            |                                         |         |         |      |   |         |         |  |   |         |         |  |      |        
|                                                         | Total income               |                                         |         | 187,341 |      |   |         | 208,672 |  |   |         | 163,675 |  |      |         | 99,439 |  |   |         | 27,075 |  
|Losses and loss adjustment expenses(3)                   |                            |                                         | 132,794 |         |      |   | 134,987 |         |  |   | 108,123 |         |  |      | 69,491  |        |  |   | 28,338  |       
|Underwriting, acquisition and insurance related expenses |                            |                                         | 42,264  |         |      |   | 46,771  |         |  |   | 26,055  |         |  |      | 18,048  |        |  |   | 8,740   |       
|                                                         |                            |                                         |         |         |      |   |         |         |  |   |         |         |  |      |        
|Other operating and general expenses                     |                            |                                         | 3,989   |         |      |   | 580     |         |  |   | 484     |         |  |      | 444     |        |  |   | 467     |       
|                                                         |                            |                                         |         |         |      |   |         |         |  |   |         |         |  |      |        
|                                                         | Total expenses             |                                         |         | 179,047 |      |   |         | 182,338 |  |   |         | 134,662 |  |      |         | 87,983 |  |   |         | 37,545 |  
|Income (loss) before income taxes                        |                            |                                         | 8,294   |         |      |   | 26,334  |         |  |   | 29,013  |         |  |      | 11,456  |        |  |   | (10,470 | )     
|Income tax expense (benefit)                             |                            |                                         | 1,858   |         |      |   | 8,886   |         |  |   | 9,945   |         |  |      | 2,822   |        |  |   | (3,606  | )     
|                                                         |                            |                                         |         |         |      |   |         |         |  |   |         |         |  |      |        
|                                                         | Net income (loss)(6)       |                                         | $       | 6,436   |      |   | $       | 17,448  |  |   | $       | 19,068  |  |      | $       | 8,634  |  |   | $       | (6,864 | )
|                                                         |                            |                                         |         |         |      |   |         |         |  |   |         |         |  |      |        
|                                                         | Basic Earnings per Share   |                                         | $       | .70     |      |   | $       | 3.53    |  |   | $       | 4.29    |  |      | $       | 1.96   |  |   | $       | (1.93  | )
|                                                         |                            |                                         |         |         |      |   |         |         |  |   |         |         |  |      |        
|                                                         | Diluted Earnings per Share |                                         | $       | .68     |      |   | $       | 3.11    |  |   | $       | 3.77    |  |      | $       | 1.74   |  |   | $       | (1.93  | )
|                                                         |                            |                                         |         |         |      |   |         |         |  |   |         |         |  |      |        

|                    |                                              |                                           |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |        |  
|------------------- | -------------------------------------------- | ----------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - | ---- | - | ------- | - |  | - | ------ | -
|                    |                                              | As of and for the Year Ended December 31, |  
|                    |                                              |                                           |  
|                    |                                              | 2005                                      |   |         | 2004 |  |   | 2003    |   |  | 2002 |         |   | 2001 |  
|                    |                                              |                                           |   |         |      |  |   |         |   |  |      |         |   |      |  
|                    |                                              | ($ in thousands)                          |  
|Balance Sheet Data: |                                              |                                           |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |       
|                    | Total cash & investments                     |                                           | $ | 339,856 |      |  | $ | 252,993 |   |  | $    | 179,696 |   |      | $ | 92,352  |   |  | $ | 22,853 |  
|                    | Total assets                                 |                                           |   | 462,736 |      |  |   | 347,172 |   |  |      | 266,748 |   |      |   | 161,184 |   |  |   | 78,260 |  
|                    | Losses and loss adjustment expenses reserves |                                           |   | 219,361 |      |  |   | 184,283 |   |  |      | 134,201 |   |      |   | 85,472  |   |  |   | 56,733 |  
|                    | Debt(4)                                      |                                           |   |        |      |  |   |        |   |  |      |        |   |      |   |        |   |  |   | 5,683  |  
|                    |                                              |                                           |   |         |      |  |   |         |   |  |      |         |   |      |  
|                    | Total liabilities                            |                                           | $ | 324,527 |      |  | $ | 279,333 |   |  | $    | 216,961 |   |      | $ | 143,050 |   |  | $ | 82,276 |  
|                    | Total shareholders equity(5)(6)             |                                           | $ | 138,209 |      |  | $ | 67,839  |   |  | $    | 49,787  |   |      | $ | 18,134  |   |  | $ | (4,015 | )
|Statutory Data:     |                                              |                                           |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |       
|                    | Policyholders surplus (at period end)(8)    |                                           | $ | 104,727 |      |  | $ | 58,754  |   |  | $    | 46,325  |   |      | $ | 17,549  |   |  | $ | 2,974  |  
|                    | Loss ratio(3)                                |                                           |   | 79.8    | %    |  |   | 75.3    | % |  |      | 82.2    | % |      |   | 93.1    | % |  |   | 111.4  | %
|                    | Expense ratio(3)                             |                                           |   | 22.3    |      |  |   | 21.8    |   |  |      | 20.4    |   |      |   | 21.5    |   |  |   | 28.6   |  
|                    |                                              |                                           |   |         |      |  |   |         |   |  |      |         |   |      |  
|                    | Combined ratio(3)                            |                                           |   | 102.1   | %    |  |   | 97.1    | % |  |      | 102.6   | % |      |   | 114.6   | % |  |   | 140.0  | %
|                    |                                              |                                           |   |         |      |  |   |         |   |  |      |         |   |      |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The primary driver for a significant portion of our growth from
    2002 through 2003 was an agreement entered into on
    December 18, 2001 with OCIC, and OCNJ, to become a
    replacement carrier pursuant to which OCNJ would transfer to
    Proformance the obligation to offer renewals for all of
    OCNJs New Jersey private passenger automobile
    business effective March 18, 2002. Primarily as a result of
    this

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | transaction our direct written premiums, net written premiums
    and net earned premiums increased from $49.8 million,
    $25.5 million and $25.4 million, respectively, for the
    year ended December 31, 2001, to $163.2 million,
    $147.0 million and $143.2 million, respectively, for
    the year ended December 31, 2003. In addition total assets,
    losses and loss adjustment expense reserves, as well as total
    shareholders equity, increased from $78.3 million,
    $56.7 million and $(4.0) million, respectively as of
    December 31, 2001 to $266.7 million,
    $134.2 million and $49.8 million, respectively as of
    December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(2) | We recorded replacement carrier revenue related to the OCIC
    agreement referred to above in the amount of $21.7 million
    and $12.7 million for the years ended December 31,
    2002 and 2003, respectively which contributed to increasing
    total shareholders equity from $(4.0) million as of
    December 31, 2002 to $49.8 million for the year ended
    December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(3) | 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.                                                                                                                                                                                                                      
|   
|(4) | In 1997, we entered into two separate loan agreements. In March
    of 2002, one of the loans was paid in full and in December of
    2002 the remaining loan was paid in full.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(5) | On October 21, 2003 and December 8, 2003,
    respectively, we entered into two additional replacement carrier
    agreements with Sentry Insurance and Met P&C, whereby we
    agreed to become the replacement carrier for the personal lines
    business of each entity in New Jersey. We received
    $0.9 million and have received an additional
    $2.6 million in 2004 and $0 in 2005 from Sentry Insurance,
    $2.8 million of which has been recorded as deferred revenue
    as of December 31, 2003 and $0.7 million recorded as
    replacement carrier revenue for the year ended December 31,
    2003. We received $20.1 million ($9.5 million recorded
    as deferred revenue as of December 31, 2003,
    $0.6 million recorded as replacement carrier revenue from a
    related party for the year ended December 31, 2003, and
    $10.0 million in the form of a capital contribution) from
    Met P&C in 2004 and $0 in 2005. In connection with these
    transactions we recorded $0 million of replacement carrier
    transaction revenue for the year ended December 31, 2005 as
    we continued the process of fulfilling our obligations under the
    terms of each of these respective contracts.
|   
|(6) | In connection with the financial reporting as of and for the
    year ended December 31, 2001, certain adjustments were made
    to reduce net income and shareholders equity as of
    January 1, 2001 by $1.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(7) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

10-K.




10-K


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10-K 10-K 10-K,


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.                                                                                                                       





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|                 |  |               |      |  |            |  |      |  
|---------------- |  | ------------- | ---- |  | ---------- |  | ---- | -
|                 |  | Premium       |      |  | Percent of | 
|                 |  | Modifications |      |  | Total      | 
|Tier Designation |  | Factor        |      |  | Vehicles   | 
|                 |  |               |      |  |            | 
|Tier A           |  |               | 0.88 |  |            |  | 20.9 | %
|Tier One         |  |               | 1.00 |  |            |  | 68.3 | %
|Tier Two         |  |               | 1.70 |  |            |  | 9.4  | %
|Tier Three       |  |               | 2.25 |  |            |  | .6   | %
|Tier Four        |  |               | 2.60 |  |            |  | .8   | %



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| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                 













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premium-to


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premium-to premium-to




DiProspero v. Penn, et al.








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| |         
| | --------
| | Revenues









| |         
| | --------
| | Expenses



56



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Critical Accounting Policies






| |                                                  
| | -------------------------------------------------
| | Unpaid Loss and Loss Adjustment Expenses Reserves









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i.e


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National Atlantic Holdings Corporation


Breakout of Reserves by Line of Business


As of December 31, 2005


|                                                |  |                  |        |  |          |   |       |        |  |       |         |         |  |          |       |  |  |   |         | 
|----------------------------------------------- |  | ---------------- | ------ |  | -------- | - | ----- | ------ |  | ----- | ------- | ------- |  | -------- | ----- |  |  | - | ------- | 
|                                                |  |                  |        |  |          |   |       |        |  | Total |        
|                                                |  | Direct           |        |  | Assumed  |   |       |        |  |       |         | Balance | 
|                                                |  | Case             |        |  | Case     |   |       | Direct |  |       | Assumed |         |  | Sheet    |      
|                                                |  | Reserves         |        |  | Reserves |   |       | IBNR   |  |       | IBNR    |         |  | Reserves |      
|                                                |  |                  |        |  |          |   |       |        |  |       |         |         |  |          |      
|                                                |  | ($ in thousands) |       
|Line of Business:                               |  |                  |        |  |          |   |       |        |  |       |         |         |  |          |       |  |  |   |         | 
|Fire                                            |  |                  |       |  |          | $ | 23    |        |  |       |        |         |  |          |      |  |  | $ | 23      | 
|Allied                                          |  |                  |       |  |          |   | 3     |        |  |       |        |         |  |          |      |  |  |   | 3       | 
|Homeowners                                      |  |                  | 4,137  |  |          |   |      |        |  |       | 6,404   |         |  |          |      |  |  |   | 10,541  | 
|Personal Auto                                   |  |                  | 71,104 |  |          |   | 6     |        |  |       | 101,672 |         |  |          |      |  |  |   | 172,782 | 
|Commercial Auto                                 |  |                  | 10,171 |  |          |   | 1,308 |        |  |       | 17,167  |         |  |          | 1,338 |  |  |   | 29,984  | 
|Other Liability                                 |  |                  | 2,132  |  |          |   |      |        |  |       | 3,896   |         |  |          |      |  |  |   | 6,028   | 
|                                                |  |                  |        |  |          |   |       |        |  |       |         |         |  |          |      
|Total Reserves                                  |  |                  | 87,544 |  |          |   | 1,340 |        |  |       | 129,139 |         |  |          | 1,338 |  |  |   | 219,361 | 
|                                                |  |                  |        |  |          |   |       |        |  |       |         |         |  |          |      
|Less: Reinsurance Recoverables on Unpaid Losses |  |                  |        |  |          |   |       |        |  |       |         |         |  |          |       |  |  |   | 28,069  | 
|                                                |  |                  |        |  |          |   |       |        |  |       |         |         |  |          |      
|Total Net Reserves                              |  |                  |        |  |          |   |       |        |  |       |         |         |  |          |       |  |  | $ | 191,292 | 
|                                                |  |                  |        |  |          |   |       |        |  |       |         |         |  |          |      





| |   |                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The amount of reported losses and reported claim frequency for
    the accident year 2005 are at a lower rate than prior periods,
    especially for personal auto liability. If this development
    continues, reserves for accident year 2005 could be redundant.                                     
|
| |  | We believe that the claims department has improved its claims
    handling practices during the past two years with regard to
    claims reserving and settlement. These improvements could result
    in lower loss development factors than those which currently
    underlie our actuarial estimates.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Loss trends (both frequency and severity) have been declining in
    recent years in the New Jersey personal auto insurance market.
    If loss trends become unfavorable, our reserves could be
    deficient. In addition, the Diprospero v. Penn.
    decision of the New Jersey Supreme Court, discussed above, which
    potentially increases a claimants right to sue for serious
    injury, could impact future claims frequency.
|
| |  | 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.                                                                                                                               



| |                                          
| | -----------------------------------------
| | Investment Accounting Policy  Impairment

115-1),


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03-1, 03-1) 03-1. EITF-03-1,




Insurance Ratios




Results of Operations




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re-underwriting




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|                                                 |  |                         |         |  |      |  |         |      |  |  |         | 
|------------------------------------------------ |  | ----------------------- | ------- |  | ---- |  | ------- | ---- |  |  | ------- | 
|                                                 |  | Year Ended December 31, |        
|                                                 |  |                         |        
|                                                 |  | 2005                    |         |  | 2004 |  |         | 2003 | 
|                                                 |  |                         |         |  |      |  |         |      | 
|                                                 |  | ($ in thousands)        |        
|Direct written premiums                          |  |                         | 198,049 |  |      |  | 207,320 |      |  |  | 163,179 | 
|Net written premiums                             |  |                         | 189,634 |  |      |  | 193,192 |      |  |  | 147,045 | 
|Net earned premiums                              |  |                         | 172,782 |  |      |  | 179,667 |      |  |  | 143,156 | 
|Replacement carrier revenue from related party   |  |                         |        |  |      |  | 13,880  |      |  |  | 13,298  | 
|Replacement carrier revenue from unrelated party |  |                         |        |  |      |  | 4,089   |      |  |  | 661     | 
|Investment income                                |  |                         | 12,403  |  |      |  | 7,061   |      |  |  | 4,258   | 
|Net realized investment gains (losses)           |  |                         | 411     |  |      |  | 1,931   |      |  |  | 1,373   | 
|Other income                                     |  |                         | 1,745   |  |      |  | 2,044   |      |  |  | 929     | 
|                                                 |  |                         |         |  |      |  |         |      | 
|Total revenue                                    |  |                         | 187,341 |  |      |  | 208,672 |      |  |  | 163,675 | 

|                                                         |  |                         |         |  |      |  |         |      |  |  |         | 
|-------------------------------------------------------- |  | ----------------------- | ------- |  | ---- |  | ------- | ---- |  |  | ------- | 
|                                                         |  | Year Ended December 31, |        
|                                                         |  |                         |        
|                                                         |  | 2005                    |         |  | 2004 |  |         | 2003 | 
|                                                         |  |                         |         |  |      |  |         |      | 
|                                                         |  | ($ in thousands)        |        
|Losses and loss adjustment expenses                      |  |                         | 132,794 |  |      |  | 134,987 |      |  |  | 108,123 | 
|Underwriting, acquisition and insurance related expenses |  |                         | 42,264  |  |      |  | 46,771  |      |  |  | 26,055  | 
|Other Operating and general expenses                     |  |                         | 3,989   |  |      |  | 580     |      |  |  | 484     | 
|Total expenses                                           |  |                         | 179,047 |  |      |  | 182,338 |      |  |  | 134,662 | 
|Income before income taxes                               |  |                         | 8,294   |  |      |  | 26,334  |      |  |  | 29,013  | 
|Income tax expense                                       |  |                         | 1,858   |  |      |  | 8,886   |      |  |  | 9,945   | 
|Net (loss) income                                        |  |                         | 6,436   |  |      |  | 17,448  |      |  |  | 19,068  | 



| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | For the Twelve months ended December 31, 2005
    Compared to the Twelve months ended December 31,
    2004

Direct Written Premiums.


Net Written Premiums.


Net Earned Premiums.


Replacement Carrier Revenue.


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Investment Income.


Net Realized Investment Gain (Loss).


Other Income.


Losses and Loss Adjustment Expenses. (No-fault)


Underwriting, Acquisition and Insurance Related Expenses..
Underwriting,


Other Operating and General Expenses.


Income Tax Expense.


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Net Income.




| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003

Direct Written Premiums.


Net Written Premiums.


Net Earned Premiums.


Replacement Carrier Revenue.


Investment Income.


Net Realized Investment Gain (Loss).


Other Income.


Losses and Loss Adjustment Expenses.


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Underwriting, Acquisition and Insurance Related Expenses.


Other Operating and General Expenses.


Income Tax Expense.


Net Income.


Liquidity and Capital Resources








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43-for-1










12-month


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|          |  |      |           |  |      |   |           |      |  |   |           | 
|--------- |  | ---- | --------- |  | ---- | - | --------- | ---- |  | - | --------- | 
|          |  | 2005 |           |  | 2004 |   |           | 2003 | 
|          |  |      |           |  |      |   |           |      | 
|NAIA      |  | $    | 1,550,000 |  |      | $ | 1,650,000 |      |  | $ | 1,167,937 | 
|Riverview |  | $    | 950,000   |  |      | $ | 1,000,000 |      |  | $ | 500,000   | 









|                    |  |        |           | 
|------------------- |  | ------ | --------- | 
|Year                |  | Amount |          
|                    |  |        |          
|2006                |  |        | 867,599   | 
|2007                |  |        | 867,599   | 
|2008                |  |        | 796,799   | 
|2009 and thereafter |  |        | 545,999   | 
|Total               |  | $      | 3,077,996 | 
|                    |  |        |          



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| |            
| | -----------
| | Investments











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i.e










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Securities in an Unrealized Loss Position for Less than 6
Months


|                              |          |           |             |           |       |  |             |            |  |   |            |         |   |  |       |       |   
|----------------------------- | -------- | --------- | ----------- | --------- | ----- |  | ----------- | ---------- |  | - | ---------- | ------- | - |  | ----- | ----- | --
|                              |          |           |             |           |       |  |             | % of       | 
|                              |          | Amortized |             |           | Fair  |  |             | Unrealized |  |   | Unrealized |        
|                              |          | Cost      |             |           | Value |  |             | Losses     |  |   | Loss       |        
|                              |          |           |             |           |       |  |             |            |  |   |            |        
|Investment Grade Fixed Income |          | $         | 164,918,871 |           |       |  | 163,415,704 |            |  | $ | (1,503,167 | )       |   |  | (0.91 | )%   
|                              | Equities |           | $           | 2,000,000 |       |  | $           | 1,901,000  |  |   | $          | (99,000 | ) |  |       | (4.95 | )%

Securities in an Unrealized Loss Position for 6 to 12
Months


|                              |          |           |            |           |       |   |            |            |  |   |            |          |   |  |       |        |   
|----------------------------- | -------- | --------- | ---------- | --------- | ----- | - | ---------- | ---------- |  | - | ---------- | -------- | - |  | ----- | ------ | --
|                              |          |           |            |           |       |   |            | % of       | 
|                              |          | Amortized |            |           | Fair  |   |            | Unrealized |  |   | Unrealized |         
|                              |          | Cost      |            |           | Value |   |            | Losses     |  |   | Loss       |         
|                              |          |           |            |           |       |   |            |            |  |   |            |         
|Investment Grade Fixed Income |          | $         | 21,328,186 |           |       | $ | 21,057,398 |            |  | $ | (270,788   | )        |   |  | (1.27 | )%    
|                              | Equities |           | $          | 1,158,230 |       |   | $          | 1,001,740  |  |   | $          | (156,490 | ) |  |       | (13.51 | )%

Securities in an Unrealized Loss Position for greater than 12
Months


|                              |          |           |            |         |       |   |            |            |  |   |            |         |   |  |       |       |   
|----------------------------- | -------- | --------- | ---------- | ------- | ----- | - | ---------- | ---------- |  | - | ---------- | ------- | - |  | ----- | ----- | --
|                              |          |           |            |         |       |   |            | % of       | 
|                              |          | Amortized |            |         | Fair  |   |            | Unrealized |  |   | Unrealized |        
|                              |          | Cost      |            |         | Value |   |            | Losses     |  |   | Loss       |        
|                              |          |           |            |         |       |   |            |            |  |   |            |        
|Investment Grade Fixed Income |          | $         | 52,099,152 |         |       | $ | 50,811,392 |            |  | $ | (1,287,760 | )       |   |  | (2.47 | )%   
|                              | Equities |           | $          | 887,195 |       |   | $          | 816,865    |  |   | $          | (70,330 | ) |  |       | (7.93 | )%

Securities with a Decline in Market Value Below Carrying
Values Less than 20%


|                              |          |           |             |           |       |   |             |            |  |   |            |          |   |  |       |       |   
|----------------------------- | -------- | --------- | ----------- | --------- | ----- | - | ----------- | ---------- |  | - | ---------- | -------- | - |  | ----- | ----- | --
|                              |          |           |             |           |       |   |             | % of       | 
|                              |          | Amortized |             |           | Fair  |   |             | Unrealized |  |   | Unrealized |         
|                              |          | Cost      |             |           | Value |   |             | Losses     |  |   | Loss       |         
|                              |          |           |             |           |       |   |             |            |  |   |            |         
|Investment Grade Fixed Income |          | $         | 238,346,209 |           |       | $ | 235,284,494 |            |  | $ | (3,061,715 | )        |   |  | (1.28 | )%   
|                              | Equities |           | $           | 3,600,380 |       |   | $           | 3,415,605  |  |   | $          | (184,775 | ) |  |       | (5.13 | )%

Securities with a Decline in Market Value below Carrying
Values of 20%-50%


|                              |          |           |   |         |       |  |   |            |  |  |            |          |   |  |   |        |   
|----------------------------- | -------- | --------- | - | ------- | ----- |  | - | ---------- |  |  | ---------- | -------- | - |  | - | ------ | --
|                              |          |           |   |         |       |  |   | % of       | 
|                              |          | Amortized |   |         | Fair  |  |   | Unrealized |  |  | Unrealized |         
|                              |          | Cost      |   |         | Value |  |   | Losses     |  |  | Loss       |         
|                              |          |           |   |         |       |  |   |            |  |  |            |         
|Investment Grade Fixed Income |          |           |  |         |       |  |  |            |  |  |           |          |   |  |  |       
|                              | Equities |           |   | 445,045 |       |  |   | 304,000    |  |  | $          | (141,045 | ) |  |   | (31.69 | )%

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Securities with a Decline in Market Value Below Carrying
Values Greater than 50%


|                              |          |           |   |   |       |  |   |            |  |  |            |   |  |  |   |   | 
|----------------------------- | -------- | --------- | - | - | ----- |  | - | ---------- |  |  | ---------- | - |  |  | - | - | 
|                              |          |           |   |   |       |  |   | % of       | 
|                              |          | Amortized |   |   | Fair  |  |   | Unrealized |  |  | Unrealized |  
|                              |          | Cost      |   |   | Value |  |   | Losses     |  |  | Loss       |  
|                              |          |           |   |   |       |  |   |            |  |  |            |  
|Investment Grade Fixed Income |          |           |  |   |       |  |  |            |  |  |           |   |  |  |  |  
|                              | Equities |           |   |  |       |  |   |           |  |  |            |  |  |  |   |  | 



| |                        
| | -----------------------
| | Contractual Obligations



Contractual Obligations and Credit-Related Commitments


|                                     |  |           |            |  |       |   |             |       |  |   |            |  |  |       |           |  |  |   |             | 
|------------------------------------ |  | --------- | ---------- |  | ----- | - | ----------- | ----- |  | - | ---------- |  |  | ----- | --------- |  |  | - | ----------- | 
|                                     |  | Less Than |            |  | 1 - 3 |   |             | 3 - 5 |  |   | More Than  |  |  |      
|                                     |  | 1 Year    |            |  | Years |   |             | Years |  |   | 5 Years    |  |  | Total |          
|                                     |  |           |            |  |       |   |             |       |  |   |            |  |  |       |          
|Loss and Loss Adjustment Expenses(1) |  | $         | 73,266,692 |  |       | $ | 106,390,257 |       |  | $ | 36,194,623 |  |  | $     | 3,509,782 |  |  | $ | 219,361,354 | 
|Operating Lease Obligations(2)       |  | $         | 867,599    |  |       | $ | 1,664,398   |       |  | $ | 545,999    |  |  | $     |          |  |  | $ | 3,077,995   | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As of December 31, 2005 we had property and casualty
    reserves of $219.4 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 33.4% will be paid
    within a year, an additional 48.5% between one and three years,
    16.5% between three and five years and 1.6% 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, 2005 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



71



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115-1), 03-1, 03-1) 03-1. EITF-03-1,


Share-Based Payment Accounting for Stock-Based
Compensation Accounting for Stock Issued to
Employees.


05-6). 05-6


05-1).







|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7a. | Quantitative and Qualitative Disclosures About Market
    Risk

General




72



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Interest Rate Risk








|                                      |       |                  |         |         |            |   |            |         |  |   |         |         | 
|------------------------------------- | ----- | ---------------- | ------- | ------- | ---------- | - | ---------- | ------- |  | - | ------- | ------- | 
|                                      |       | Fair Value       |        
|                                      |       |                  |        
|                                      |       | -100 Basis       |         |         |            |   | +100 Basis |        
|                                      |       | Point            |         |         | As of      |   |            | Point   | 
|                                      |       | Change           |         |         | 12/31/2005 |   |            | Change  | 
|                                      |       |                  |         |         |            |   |            |         | 
|                                      |       | ($ in thousands) |        
|Fixed maturities and preferred stocks |       | $                | 295,709 |         |            | $ | 278,892    |         |  | $ | 262,076 |        
|Cash and cash equivalents             |       | $                | 39,836  |         |            | $ | 39,836     |         |  | $ | 39,836  |        
|                                      |       |                  |         |         |            |   |            |         | 
|                                      | Total |                  | $       | 335,545 |            |   | $          | 318,728 |  |   | $       | 301,912 | 

|                                      |       |                  |         |         |            |   |            |         |  |   |         |         | 
|------------------------------------- | ----- | ---------------- | ------- | ------- | ---------- | - | ---------- | ------- |  | - | ------- | ------- | 
|                                      |       | Fair Value       |        
|                                      |       |                  |        
|                                      |       | -100 Basis       |         |         |            |   | +100 Basis |        
|                                      |       | Point            |         |         | As of      |   |            | Point   | 
|                                      |       | Change           |         |         | 12/31/2004 |   |            | Change  | 
|                                      |       |                  |         |         |            |   |            |         | 
|                                      |       | ($ in thousands) |        
|Fixed maturities and preferred stocks |       | $                | 200,684 |         |            | $ | 212,589    |         |  | $ | 222,494 |        
|Cash and cash equivalents             |       |                  | 15,542  |         |            |   | 15,542     |         |  |   | 15,542  |        
|                                      |       |                  |         |         |            |   |            |         | 
|                                      | Total |                  | $       | 216,226 |            |   | $          | 228,131 |  |   | $       | 240,036 | 

Equity Risk




73



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##### Table of Contents





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

13a-15 13a-15(e) 15d-15(e)




| |                                          
| | -----------------------------------------
| | Internal Control over Financial Reporting





74



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##### Table of Contents









| |   |                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we designated Frank J. Prudente as our Chief Accounting Officer
    and gave him authority and responsibility with respect to all
    accounting matters to enhance proper
    end-of-period reporting
    and data quality issues;                                                                                     
|
| |  | we hired Bruce C. Bassman as Senior Vice President and Chief
    Actuarial Officer, which we believe has enhanced our ability to
    report end-of-period
    balances;                                                                                                                                                 
|
| |  | we hired an internal audit manager;                                                                                                                                                                                                                                                                                     
|
| |  | we replaced our director of GAAP financial reporting;                                                                                                                                                                                                                                                                   
|
| |  | during the period ended September 30, 2005, we hired a new
    director of information technology reporting directly to Bruce
    C. Bassman;                                                                                                                                                                           
|
| |  | we are in the process of completing the implementation of a new
    reinsurance accounting system which is addressing the material
    weaknesses in our reinsurance accounting by eliminating our use
    of manual spreadsheets; and which is expected to be operational
    by the end of the second quarter of 2006.
|
| |  | we have upgraded our systems for accounting for premiums
    receivable by working with the vendor for that system, who has
    performed a diagnostic on that system, which has enhanced our
    ability to properly record premium receivable balances at the
    end of reporting periods.                           

end-of









|         |                  
|-------- | -----------------
|Item 9B. | Other Information



75



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##### Table of Contents






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



Code of Ethics


S-K www.national-atlantic.com. 8-K,







|         |                       
|-------- | ----------------------
|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



76



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##### Table of Contents






PART IV







|         |                                          
|-------- | -----------------------------------------
|Item 15. | Exhibit and Financial Statement Schedules





| |                                   
| | ----------------------------------
| | 1. Financial statements           
|
| | Report of Independent Accountants.



| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Consolidated Balance Sheet as of December 31, 2005 and 2004.                                                           
|
| | Consolidated Statement of Operations and Comprehensive Income
    for the years ended December 31, 2005, 2004 and 2003.
|
| | Consolidated Statement of Cash Flows for the years ended
    December 31, 2005, 2004 and 2003.                         
|
| | Consolidated Statement of Changes in Shareholders Equity
    for the years ended December 31, 2005, 2004 and 2003.    
|
| | Notes to Consolidated Financial Statements.                                                                            



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | 2. Financial statement schedules required to be filed by
    Item 8 of this form:



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Report of Independent Accountants on Financial Statement
    Schedules  Deloitte & Touche LLP.
|
| | Condensed Financial Information of Registrant.                                                 
|
| | Supplementary Insurance Information.                                                           
|
| | Valuation and Qualifying Accounts.                                                             



| |            
| | -----------
| | 3. 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**
|
| | 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 September 27, 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.*             

77



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##### Table of Contents



| |    |     |  |                                                                                                                                                                                
| | -- | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 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, Cynthia L. Codella
    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***                                                                                
|
| | 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***                                                        
|
| | 21 | .1  |  | Subsidiaries of the Registrant**                                                                                                                                               
|
| | 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*                                                






| |   |               
| | - | --------------
| | * | 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.

78



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


INDEX


|                                  |                                                                 |                                                      |  |     |     | 
|--------------------------------- | --------------------------------------------------------------- | ---------------------------------------------------- |  | --- | --- | 
|                                  |                                                                 | Page(s)                                              | 
|                                  |                                                                 |                                                      | 
|Consolidated Financial Statement: |                                                                 |                                                      |  |    
|                                  | Report of Independent Registered Public
    Accounting Firm     |                                                      |  | F-2 |    
|                                  | Consolidated Balance Sheets:                                    |                                                      |  |     |    
|                                  |                                                                 | As of December 31, 2005 and 2004                     |  |     | F-3 | 
|                                  | Consolidated Statements of Income:                              |                                                      |  |     |    
|                                  |                                                                 | For the years ended December 31, 2005, 2004 and 2003 |  |     | F-4 | 
|                                  | Consolidated Statements of Comprehensive
    Income:            |                                                      |  |     |    
|                                  |                                                                 | For the years ended December 31, 2005, 2004 and 2003 |  |     | F-5 | 
|                                  | Consolidated Statements of Changes in
    Stockholders Equity: |                                                      |  |     |    
|                                  |                                                                 | For the years ended December 31, 2005, 2004 and 2003 |  |     | F-6 | 
|                                  | Consolidated Statements of Cash Flows:                          |                                                      |  |     |    
|                                  |                                                                 | For the years ended December 31, 2005, 2004 and 2003 |  |     | F-7 | 
|                                  | Notes to Consolidated Financial
    Statements                  |                                                      |  | F-8 |    

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




















F-2



---



##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


(in thousands, except share data)


|                                                                                                                                                        |                                                                                                                                    |                            |         |         |         |   |         |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                                                                                        |                                                                                                                                    | December 31,               |        
|                                                                                                                                                        |                                                                                                                                    |                            |        
|                                                                                                                                                        |                                                                                                                                    | 2005                       |         |         | 2004    |  
|                                                                                                                                                        |                                                                                                                                    |                            |         |         |         |  
|Investments: (Note 2)                                                                                                                                   |                                                                                                                                    |                            |         |         |         |   |         |        
|                                                                                                                                                        | Fixed maturities available-for-sale (amortized cost at
    December 31, 2005 and 2004 was $281,010 and $210,636,
    respectively) |                            | $       | 278,384 |         |   | $       | 210,830 |        
|                                                                                                                                                        | Equity securities (cost at December 31, 2005 and 2004 was
    $12,636 and $12,719, respectively)                                   |                            |         | 12,836  |         |   |         | 12,801  |        
|                                                                                                                                                        | Short-term investments (cost at December 31, 2005 and 2004,
    was $8,800 and $13,820, respectively)                              |                            |         | 8,800   |         |   |         | 13,820  |        
|                                                                                                                                                        |                                                                                                                                    |                            |         |         |         |  
|                                                                                                                                                        |                                                                                                                                    | Total investments          |         |         | 300,020 |   |         |         | 237,451 | 
|Cash and cash equivalents                                                                                                                               |                                                                                                                                    |                            | 39,836  |         |         |   | 15,542  |        
|Accrued investment income                                                                                                                               |                                                                                                                                    |                            | 3,560   |         |         |   | 2,085   |        
|Premiums receivable  net (allowance for doubtful
    accounts at December 31, 2005 and 2004 was $34 and $10,
    respectively)                         |                                                                                                                                    |                            | 49,926  |         |         |   | 31,185  |        
|Reinsurance recoverables and receivables (Note 4)                                                                                                       |                                                                                                                                    |                            | 41,057  |         |         |   | 35,144  |        
|Receivable from Ohio Casualty, a related party                                                                                                          |                                                                                                                                    |                            |        |         |         |   | 4,350   |        
|Receivable from Sentry                                                                                                                                  |                                                                                                                                    |                            |        |         |         |   | 1,250   |        
|Deferred acquisition costs                                                                                                                              |                                                                                                                                    |                            | 17,134  |         |         |   | 10,872  |        
|Property and equipment  Net (Note 7)                                                                                                                   |                                                                                                                                    |                            | 2,062   |         |         |   | 2,021   |        
|Income taxes recoverable (Note 6)                                                                                                                       |                                                                                                                                    |                            | 1,152   |         |         |   |        |        
|Other assets                                                                                                                                            |                                                                                                                                    |                            | 7,989   |         |         |   | 7,272   |        
|                                                                                                                                                        |                                                                                                                                    |                            |         |         |         |  
|Total assets                                                                                                                                            |                                                                                                                                    | $                          | 462,736 |         |         | $ | 347,172 |        
|                                                                                                                                                        |                                                                                                                                    |                            |         |         |         |  
|                                                                                                                                                       
|Liabilities and Stockholders Equity:                                                                                                                  
|Liabilities:                                                                                                                                            |                                                                                                                                    |                            |         |         |         |   |         |        
|Unpaid losses and loss adjustment expenses (Note 5)                                                                                                     |                                                                                                                                    |                            | 219,361 |         |         | $ | 184,283 |        
|Unearned premiums                                                                                                                                       |                                                                                                                                    |                            | 81,546  |         |         |   | 64,170  |        
|Accounts payable and accrued expenses                                                                                                                   |                                                                                                                                    |                            | 2,578   |         |         |   | 7,521   |        
|Deferred income taxes (Note 6)                                                                                                                          |                                                                                                                                    |                            | 11,069  |         |         |   | 11,995  |        
|Income taxes payable (Note 6)                                                                                                                           |                                                                                                                                    |                            |        |         |         |   | 1,601   |        
|Other liabilities                                                                                                                                       |                                                                                                                                    |                            | 9,973   |         |         |   | 9,763   |        
|                                                                                                                                                        |                                                                                                                                    |                            |         |         |         |  
|                                                                                                                                                        |                                                                                                                                    | Total liabilities          |         |         | 324,527 |   |         |         | 279,333 | 
|                                                                                                                                                        |                                                                                                                                    |                            |         |         |         |  
|Commitments and Contingencies: (Note 10)                                                                                                                |                                                                                                                                    |                            |        |         |         |   |        |        
|                                                                                                                                                        |                                                                                                                                    |                            |         |         |         |  
|Stockholders equity:                                                                                                                                   |                                                                                                                                    |                            |         |         |         |   |         |        
|Common stock, Class A, no par value (4,300,000 shares
    authorized; 0 and 2,747,743 shares issued as of
    December 31, 2005 and 2004, respectively) |                                                                                                                                    |                            |        |         |         |   | 3,002   |        
|Common stock, Class B, no par value (4,300,000 shares
    authorized; 0 and 2,194,247 shares issued as of
    December 31, 2005 and 2004, respectively) |                                                                                                                                    |                            |        |         |         |   | 28,738  |        
|Common Stock, $0.01 par value (50,000,000 shares
    authorized; 11,202,190, and 0 shares issued as of
    December 31, 2005 and 2004, respectively)    |                                                                                                                                    |                            | 97,458  |         |         |   |        |        
|Retained earnings                                                                                                                                       |                                                                                                                                    |                            | 42,353  |         |         |   | 35,917  |        
|Accumulated other comprehensive (loss) income (Note 11)                                                                                                 |                                                                                                                                    |                            | (1,602  | )       |         |   | 182     |        
|                                                                                                                                                        |                                                                                                                                    |                            |         |         |         |  
|                                                                                                                                                        |                                                                                                                                    | Total stockholders equity |         |         | 138,209 |   |         |         | 67,839  | 
|                                                                                                                                                        |                                                                                                                                    |                            |         |         |         |  
|Total liabilities and stockholders equity                                                                                                              |                                                                                                                                    | $                          | 462,736 |         |         | $ | 347,172 |        
|                                                                                                                                                        |                                                                                                                                    |                            |         |         |         |  



F-3



---



##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME


(in thousands, except earnings per share data)


|                                            |                                                          |                                  |         |         |         |   |         |         |         |   |         |         |         | 
|------------------------------------------- | -------------------------------------------------------- | -------------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                            |                                                          | For the Years Ended December 31, |        
|                                            |                                                          |                                  |        
|                                            |                                                          | 2005                             |         |         | 2004    |   |         | 2003    |        
|                                            |                                                          |                                  |         |         |         |   |         |         |        
|Revenue:                                    |                                                          |                                  |         |         |         |   |         |         |         |   |         |        
|Net premiums earned                         |                                                          | $                                | 172,782 |         |         | $ | 179,667 |         |         | $ | 143,156 |        
|                                            | Net investment income                                    |                                  |         | 12,403  |         |   |         | 7,061   |         |   |         | 4,258   |        
|                                            | Realized gains (losses) on investments  net             |                                  |         | 411     |         |   |         | 1,931   |         |   |         | 1,373   |        
|                                            | Replacement carrier revenue from related party           |                                  |         |        |         |   |         | 13,880  |         |   |         | 13,298  |        
|                                            | Replacement carrier revenue from Sentry                  |                                  |         |        |         |   |         | 4,089   |         |   |         | 661     |        
|                                            | Other income                                             |                                  |         | 1,745   |         |   |         | 2,044   |         |   |         | 929     |        
|                                            |                                                          |                                  |         |         |         |   |         |         |        
|                                            |                                                          | Total revenue                    |         |         | 187,341 |   |         |         | 208,672 |   |         |         | 163,675 | 
|                                            |                                                          |                                  |         |         |         |   |         |         |        
|Costs and Expenses:                         |                                                          |                                  |         |         |         |   |         |         |         |   |         |        
|                                            | Loss and loss adjustment expenses incurred               |                                  |         | 132,794 |         |   |         | 134,987 |         |   |         | 108,123 |        
|                                            | Underwriting, acquisition and insurance related expenses |                                  |         | 42,264  |         |   |         | 46,771  |         |   |         | 26,055  |        
|                                            | Other operating and general expenses                     |                                  |         | 3,989   |         |   |         | 580     |         |   |         | 484     |        
|                                            |                                                          |                                  |         |         |         |   |         |         |        
|                                            |                                                          | Total costs and expenses         |         |         | 179,047 |   |         |         | 182,338 |   |         |         | 134,662 | 
|                                            |                                                          |                                  |         |         |         |   |         |         |        
|Income before income taxes                  |                                                          |                                  | 8,294   |         |         |   | 26,334  |         |         |   | 29,013  |        
|Provision for income taxes                  |                                                          |                                  | 1,858   |         |         |   | 8,886   |         |         |   | 9,945   |        
|                                            |                                                          |                                  |         |         |         |   |         |         |        
|Net Income                                  |                                                          | $                                | 6,436   |         |         | $ | 17,448  |         |         | $ | 19,068  |        
|                                            |                                                          |                                  |         |         |         |   |         |         |        
|Net income per share Common Stock  Basic   |                                                          | $                                | 0.70    |         |         | $ | 3.53    |         |         | $ | 4.29    |        
|Net income per share Common Stock  Diluted |                                                          | $                                | 0.68    |         |         | $ | 3.11    |         |         | $ | 3.77    |        



F-4



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(in thousands)


|                                         |                                                                                    |                                         |       |        |        |   |        |      |     |   |        |      |      |  
|---------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------------- | ----- | ------ | ------ | - | ------ | ---- | --- | - | ------ | ---- | ---- | -
|                                         |                                                                                    | For the Years Ended December 31,        |      
|                                         |                                                                                    |                                         |      
|                                         |                                                                                    | 2005                                    |       |        | 2004   |   |        | 2003 |    
|                                         |                                                                                    |                                         |       |        |        |   |        |      |    
|Net Income                               |                                                                                    | $                                       | 6,436 |        |        | $ | 17,448 |      |     | $ | 19,068 |     
|Other comprehensive income  net of tax: |                                                                                    |                                         |       |        |        |   |        |      |     |   |        |     
|                                         | Net holding (losses) gains arising during the year                                 |                                         |       | (1,806 | )      |   |        | 451  |     |   |        | 63   |     
|                                         | Reclassification adjustment for realized losses
    (gains) included in net income |                                         |       | 22     |        |   |        | (326 | )   |   |        | (354 | )   
|                                         |                                                                                    |                                         |       |        |        |   |        |      |    
|                                         |                                                                                    | Total other comprehensive (loss) income |       |        | (1,784 | ) |        |      | 125 |   |        |      | (291 | )
|                                         |                                                                                    |                                         |       |        |        |   |        |      |    
|Comprehensive Income                     |                                                                                    | $                                       | 4,652 |        |        | $ | 17,573 |      |     | $ | 18,777 |     
|                                         |                                                                                    |                                         |       |        |        |   |        |      |    



F-5



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY


For the periods ended December 31, 2005, 2004, and
2003


(in thousands, except share data)


|                             |                                                |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            |           |  |   |               |        |  |        |        |        |  |   |        |        |   |   |         |        |  
|---------------------------- | ---------------------------------------------- | ------------ | --------- | ---------- | ------------ | - | ----- | ------------ | - |  | --------- | ----------- | ----- | ------------- | ------ | ------- | ------------- |  | ---------- | --------- |  | - | ------------- | ------ |  | ------ | ------ | ------ |  | - | ------ | ------ | - | - | ------- | ------ | -
|                             |                                                | Class A      |           |            | Class B      |   |       |              |   |  |           | Accumulated |       |               |       
|                             |                                                | Common Stock |           |            | Common Stock |   |       | Common Stock |   |  |           |             | Other |               |        | Total   |              
|                             |                                                |              |           |            |              |   |       |              |   |  | Retained  |             |       | Comprehensive |        |         | Stockholders | 
|                             |                                                | Shares       |           |            | Amount       |   |       | Shares       |   |  | Amount    |             |       | Shares        |        |         | Amount        |  |            | Earnings  |  |   | Income (Loss) |        |  | Equity |       
|                             |                                                |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            |           |  |   |               |        |  |        |       
|Balance at December 31, 2002 |                                                |              | 2,747,743 |            |              |   | 3,002 |              |   |  | 1,656,747 |             |       |               | 15,382 |         |               |  |            |           |  |   |               |        |  |        | (598   | )      |  |   | 348    |        |   |   | 18,134  |       
|                             | Issuance of Class B Common Stock               |              |           |            |              |   |       |              |   |  |           | 537,500     |       |               |        | 12,457  |               |  |            |           |  |   |               |        |  |        |        |        |  |   |        |        |   |   |         | 12,457 |  
|                             | Issuance of Stock Options                      |              |           |            |              |   |       |              |   |  |           |             |       |               |        | 736     |               |  |            |           |  |   |               |        |  |        |        |        |  |   |        |        |   |   |         | 736    |  
|                             | Unamortized deferred compensation              |              |           |            |              |   |       |              |   |  |           |             |       |               |        | (552    | )             |  |            |           |  |   |               |        |  |        |        |        |  |   |        |        |   |   |         | (552   | )
|                             | Amortization of 2002 options                   |              |           |            |              |   |       |              |   |  |           |             |       |               |        | 235     |               |  |            |           |  |   |               |        |  |        |        |        |  |   |        |        |   |   |         | 235    |  
|                             | Net Income                                     |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            |           |  |   |               |        |  |        |        | 19,068 |  |   |        |        |   |   |         | 19,068 |  
|                             | Other comprehensive loss                       |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            |           |  |   |               |        |  |        |        |        |  |   |        | (291   | ) |   |         | (291   | )
|                             |                                                |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            |           |  |   |               |        |  |        |       
|Balance at December 31, 2003 |                                                |              | 2,747,743 |            |              |   | 3,002 |              |   |  | 2,194,247 |             |       |               | 28,258 |         |               |  |            |           |  |   |               |        |  |        | 18,470 |        |  |   | 57     |        |   |   | 49,787  |       
|                             | Amortization of 2002 and 2003 options          |              |           |            |              |   |       |              |   |  |           |             |       |               |        | 480     |               |  |            |           |  |   |               |        |  |        |        |        |  |   |        |        |   |   |         | 480    |  
|                             | Net Income                                     |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            |           |  |   |               |        |  |        |        | 17,448 |  |   |        |        |   |   |         | 17,448 |  
|                             | Other comprehensive income                     |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            |           |  |   |               |        |  |        |        |        |  |   |        | 125    |   |   |         | 125    |  
|                             |                                                |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            |           |  |   |               |        |  |        |       
|Balance at December 31, 2004 |                                                |              | 2,747,743 |            |              | $ | 3,002 |              |   |  | 2,194,247 |             |       | $             | 28,738 |         |               |  |            |           |  |   |               |        |  | $      | 35,917 |        |  | $ | 182    |        |   | $ | 67,839  |       
|                             | Issuance of Common Stock related to IPO        |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            | 5,985,000 |  |   |               | 62,198 |  |        |        |        |  |   |        |        |   |   |         | 62,198 |  
|                             | Conversion of Class A and Class B common stock |              |           | (2,747,743 | )            |   | $     | (3,002       | ) |  |           | (2,194,247  | )     |               | $      | (28,738 | )             |  |            | 4,941,990 |  |   |               | 31,740 |  |        |        |        |  |   |        |        |   |   |         |       |  
|                             | Execution of stock options                     |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            | 275,200   |  |   |               | 470    |  |        |        |        |  |   |        |        |   |   |         | 470    |  
|                             | Amortization of options                        |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            |           |  |   |               | 3,050  |  |        |        |        |  |   |        |        |   |   |         | 3,050  |  
|                             | Net Income                                     |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            |           |  |   |               |        |  |        |        | 6,436  |  |   |        |        |   |   |         | 6,436  |  
|                             | Other comprehensive (loss)                     |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            |           |  |   |               |        |  |        |        |        |  |   |        | (1,784 | ) |   |         | (1,784 | )
|                             |                                                |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            |           |  |   |               |        |  |        |       
|Balance at December 31, 2005 |                                                |              |          |            |              |   |      |              |   |  |          |             |       |               |       |         |               |  | 11,202,190 |           |  | $ | 97,458        |        |  | $      | 42,353 |        |  | $ | (1,602 | )      |   | $ | 138,209 |       
|                             |                                                |              |           |            |              |   |       |              |   |  |           |             |       |               |        |         |               |  |            |           |  |   |               |        |  |        |       



F-6



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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,          |                                           
|                                                                                            |                                                  |                                           |                                           
|                                                                                            |                                                  | 2005                                      |                                            |                                           | 2004  |         |         | 2003     |       
|                                                                                            |                                                  |                                           |                                            |                                           |       |         |         |          |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                       |                                                  |                                           |                                            |                                           |       |         |         |          |        |         |         |         
|Net income                                                                                  |                                                  | $                                         | 6,436                                      |                                           |       | $       | 17,448  |          |        | $       | 19,068  |         
|Adjustment to reconcile net income to net cash provided (used
    in) operating activities: |                                                  |                                           |                                            |                                           |       |         |         |          |        |         |         |         
|                                                                                            |                                                  | Depreciation and amortization             |                                            |                                           | 493   |         |         |          | 428    |         |         |          | 312    |        
|                                                                                            |                                                  | Amortization of premium/discount on bonds |                                            |                                           | 1,079 |         |         |          | 1,090  |         |         |          | 837    |        
|                                                                                            |                                                  | Realized (gains) on investment sales      |                                            |                                           | (411  | )       |         |          | (1,931 | )       |         |          | (1,373 | )      
|                                                                                            |                                                  | Changes in:                               |                                            |                                           |      |         |         |          |       |         |         |          |       |        
|                                                                                            |                                                  |                                           | Deferred income taxes                      |                                           |       | (7      | )       |          |        | 3,932   |         |          |        | 9,487   |        
|                                                                                            |                                                  |                                           | Premiums receivable                        |                                           |       | (18,741 | )       |          |        | (7,966  | )       |          |        | (1,364  | )      
|                                                                                            |                                                  |                                           | Reinsurance recoverables and receivables   |                                           |       | (5,913  | )       |          |        | 2,886   |         |          |        | (12,957 | )      
|                                                                                            |                                                  |                                           | Receivable from Ohio Casualty              |                                           |       | 4,350   |         |          |        | 2,470   |         |          |        | (53     | )      
|                                                                                            |                                                  |                                           | Receivable from Sentry                     |                                           |       | 1,250   |         |          |        | 1,375   |         |          |        | (2,625  | )      
|                                                                                            |                                                  |                                           | Deferred acquisition costs                 |                                           |       | (6,262  | )       |          |        | (1,084  | )       |          |        | (1,010  | )      
|                                                                                            |                                                  |                                           | Accrued interest income                    |                                           |       | (1,475  | )       |          |        | (184    | )       |          |        | (1,051  | )      
|                                                                                            |                                                  |                                           | Income taxes recoverable                   |                                           |       | (1,152  | )       |          |        | 2,168   |         |          |        | (2,168  | )      
|                                                                                            |                                                  |                                           | Other assets                               |                                           |       | (714    | )       |          |        | (5,856  | )       |          |        | 1,173   |        
|                                                                                            |                                                  |                                           | Unpaid losses and loss adjustment expenses |                                           |       | 35,078  |         |          |        | 50,082  |         |          |        | 48,729  |        
|                                                                                            |                                                  |                                           | Stock options                              |                                           |       | 3,050   |         |          |        | 480     |         |          |        | 419     |        
|                                                                                            |                                                  |                                           | Accounts payable and accrued expenses      |                                           |       | (4,943  | )       |          |        | 1,971   |         |          |        | 4,665   |        
|                                                                                            |                                                  |                                           | Deferred revenue                           |                                           |       |        |         |          |        | (12,369 | )       |          |        | 6,453   |        
|                                                                                            |                                                  |                                           | Unearned premiums                          |                                           |       | 17,376  |         |          |        | 12,357  |         |          |        | 5,795   |        
|                                                                                            |                                                  |                                           | Income taxes payable                       |                                           |       | (1,601  | )       |          |        | 1,202   |         |          |        | 394     |        
|                                                                                            |                                                  |                                           | Other liabilities                          |                                           |       | 211     |         |          |        | 5,132   |         |          |        | 535     |        
|                                                                                            |                                                  |                                           |                                            |                                           |       |         |         |          |       
|                                                                                            |                                                  |                                           |                                            | Net cash provided by operating activities |       |         | 28,104  |          |        |         | 73,631  |          |        |         | 75,266  |  
|                                                                                            |                                                  |                                           |                                            |                                           |       |         |         |          |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                       |                                                  |                                           |                                            |                                           |       |         |         |          |        |         |         |         
|                                                                                            | Purchases of property and equipment              |                                           |                                            | (537                                      | )     |         |         | (1,367   | )      |         |         | (474     | )     
|                                                                                            | Purchases of fixed maturity investments          |                                           |                                            | (164,897                                  | )     |         |         | (215,882 | )      |         |         | (131,225 | )     
|                                                                                            | Sales and maturities of fixed income investments |                                           |                                            | 93,460                                    |       |         |         | 135,410  |        |         |         | 68,326   |       
|                                                                                            | Purchases of equity securities                   |                                           |                                            | (21,366                                   | )     |         |         | (21,779  | )      |         |         | (14,282  | )     
|                                                                                            | Sales of equity securities                       |                                           |                                            | 21,842                                    |       |         |         | 18,650   |        |         |         | 7,664    |       
|                                                                                            | Purchases of short-term investments  net        |                                           |                                            | 5,020                                     |       |         |         | 17,755   |        |         |         | (26,984  | )     
|                                                                                            |                                                  |                                           |                                            |                                           |       |         |         |          |       
|                                                                                            |                                                  |                                           |                                            | Net cash (used in) investing activities   |       |         | (66,478 | )        |        |         | (67,213 | )        |        |         | (96,975 | )
|                                                                                            |                                                  |                                           |                                            |                                           |       |         |         |          |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                       |                                                  |                                           |                                            |                                           |       |         |         |          |        |         |         |         
|                                                                                            | Proceeds from issuance of common stock  net     |                                           |                                            | 62,668                                    |       |         |         |         |        |         |         | 12,457   |       
|                                                                                            |                                                  |                                           |                                            |                                           |       |         |         |          |       
|Net cash provided by financing activities                                                   |                                                  |                                           | 62,668                                     |                                           |       |         |        |          |        |         | 12,457  |         
|                                                                                            |                                                  |                                           |                                            |                                           |       |         |         |          |       
|Net increase in cash                                                                        |                                                  |                                           | 24,294                                     |                                           |       |         | 6,418   |          |        |         | (9,252  | )       
|Cash and cash equivalents  beginning of period                                             |                                                  |                                           | 15,542                                     |                                           |       |         | 9,124   |          |        |         | 18,376  |         
|                                                                                            |                                                  |                                           |                                            |                                           |       |         |         |          |       
|Cash and cash equivalents  end of period                                                   |                                                  | $                                         | 39,836                                     |                                           |       | $       | 15,542  |          |        | $       | 9,124   |         
|                                                                                            |                                                  |                                           |                                            |                                           |       |         |         |          |       
|Cash paid during the period for:                                                            |                                                  |                                           |                                            |                                           |       |         |         |          |        |         |         |         
|                                                                                            | Income taxes paid                                |                                           |                                            | 4,717                                     |       |         |         | 1,692    |        |         |         | 2,227    |       
|                                                                                            |                                                  |                                           |                                            |                                           |       |         |         |          |       



F-7



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003




|   |                                                         
|-- | --------------------------------------------------------
|1. | Nature of Operations and Significant Accounting Policies













43-for-1


F-8



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Basis of Presentation


Segment Disclosure




|                                       |                                                  |                                  |             |            |             |  |             |            |             |  |             |            |             | 
|-------------------------------------- | ------------------------------------------------ | -------------------------------- | ----------- | ---------- | ----------- |  | ----------- | ---------- | ----------- |  | ----------- | ---------- | ----------- | 
|                                       |                                                  | For the Years Ended December 31, |            
|                                       |                                                  |                                  |            
|                                       |                                                  | 2005                             |             |            | 2004        |  |             | 2003       |            
|                                       |                                                  |                                  |             |            |             |  |             |            |            
|Proformance                            |                                                  |                                  |             |            |             |  |             |            |             |  |             |           
|                                       | Personal lines insurance                         |                                  |             |            |             |  |             |            |             |  |             |            |            
|                                       |                                                  | Personal auto                    |             |            | 140,845,822 |  |             |            | 154,943,058 |  |             |            | 119,883,921 | 
|                                       |                                                  | Homeowners                       |             |            | 16,066,193  |  |             |            | 10,738,933  |  |             |            | 6,961,430   | 
|                                       | Commerical lines insurance                       |                                  |             | 15,870,049 |             |  |             | 13,984,730 |             |  |             | 16,310,572 |            
|                                       | Replacement carrier revenue from related party   |                                  |             |           |             |  |             | 13,880,303 |             |  |             | 13,297,593 |            
|                                       | Replacement carrier revenue from unrelated party |                                  |             |           |             |  |             | 4,088,889  |             |  |             | 661,111    |            
|Riverview                              |                                                  |                                  |             |            |             |  |             |            |             |  |             |           
|                                       | Medical Case Management                          |                                  |             | 4,704,598  |             |  |             | 4,882,171  |             |  |             | 3,688,114  |            
|NAIA                                   |                                                  |                                  |             |            |             |  |             |            |             |  |             |           
|                                       | Insurance brokerage                              |                                  |             | 2,230,989  |             |  |             | 4,061,520  |             |  |             | 2,572,129  |            
|Mayfair                                |                                                  |                                  |             |            |             |  |             |            |             |  |             |           
|                                       | Reinsurance                                      |                                  |             |           |             |  |             |           |             |  |             |           |            
|NAHC                                   |                                                  |                                  |            |            |             |  |            |            |             |  |            |           
|Intercompany elimination entries       |                                                  |                                  | (6,576,113  | )          |             |  | (8,417,604  | )          |             |  | (6,190,977  | )         
|                                       |                                                  |                                  |             |            |             |  |             |            |            
|Subtotal                               |                                                  |                                  | 173,141,538 |            |             |  | 198,162,000 |            |             |  | 157,183,893 |           
|                                       |                                                  |                                  |             |            |             |  |             |            |            
|Net Investment Income                  |                                                  |                                  | 12,403,235  |            |             |  | 7,061,161   |            |             |  | 4,257,672   |           
|Net realized investment gains (losses) |                                                  |                                  | 410,635     |            |             |  | 1,931,258   |            |             |  | 1,372,557   |           
|Other income                           |                                                  |                                  | 1,385,588   |            |             |  | 1,517,823   |            |             |  | 860,379     |           
|                                       |                                                  |                                  |             |            |             |  |             |            |            
|Total Consolidated Revenue             |                                                  |                                  | 187,340,996 |            |             |  | 208,672,242 |            |             |  | 163,674,501 |           
|                                       |                                                  |                                  |             |            |             |  |             |            |            

F-9



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Use of Estimates


Cash and Cash Equivalents


Property and Equipment


|                                                |  |              |   | 
|----------------------------------------------- |  | ------------ | - | 
|                                                |  | Estimated    |  
|Description                                     |  | Life (Years) |  
|                                                |  |              |  
|Automobiles                                     |  |              | 5 | 
|Furniture and fixtures                          |  |              | 7 | 
|Computer software and electronic data equipment |  |              | 3 | 
|Leasehold improvements                          |  |              | * | 






|  |                                                                                    
|- | -----------------------------------------------------------------------------------
|* | Amortized over the remaining life of the lease from the date
    placed in service.



Investments




Concentration of Credit Risk


F-10



---



##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Deferred Policy Acquisition Costs




Insurance Liabilities/Reserves for Losses and Loss Adjustment
Expenses




Recognition of Premium Revenues


Allowance for Doubtful Accounts


Recognition of Replacement Carrier Revenue


Replacement Carrier Transaction Fees


Accounting for Reinsurance Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts.


F-11



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Capitalization of Costs of Software for Internal
Use


Income Taxes




Stock Options Accounting
for Stock-Based Compensation Accounting for Stock
Issued to Employees


Reclassifications


F-12



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                              |                       |                                  |            |      |      |   |            |      |  |   |            |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | -------------------------------- | ---------- | ---- | ---- | - | ---------- | ---- |  | - | ---------- | ---- | 
|                                                                                                                                              |                       | For the Years Ended December 31, |           
|                                                                                                                                              |                       |                                  |           
|                                                                                                                                              |                       | 2005                             |            |      | 2004 |   |            | 2003 | 
|                                                                                                                                              |                       |                                  |            |      |      |   |            |      | 
|Net income  as reported                                                                                                                      |                       | $                                | 6,435,950  |      |      | $ | 17,448,050 |      |  | $ | 19,067,575 |     
|Plus: Compensation expense recorded against income                                                                                            |                       |                                  | 3,050,057  |      |      |   | 480,773    |      |  |   | 419,000    |     
|Deduct: Total stock-based employee compensation expense
    determined under fair value method for all awards, net of
    related tax effects |                       |                                  | (3,136,602 | )    |      |   | (492,596   | )    |  |   | (418,559   | )   
|                                                                                                                                              |                       |                                  |            |      |      |   |            |      | 
|Pro forma net income                                                                                                                          |                       | $                                | 6,349,405  |      |      | $ | 17,436,227 |      |  | $ | 19,068,016 |     
|                                                                                                                                              |                       |                                  |            |      |      |   |            |      | 
|Net income per weighted average shareholding                                                                                                  |                       |                                  |            |      |      |   |            |      |  |   |            |     
|                                                                                                                                              | Basic  as reported   |                                  | $          | 0.70 |      |   | $          | 3.53 |  |   | $          | 4.29 | 
|                                                                                                                                              | Basic  proforma      |                                  | $          | 0.69 |      |   | $          | 3.53 |  |   | $          | 4.29 | 
|                                                                                                                                              | Diluted  as reported |                                  | $          | 0.68 |      |   | $          | 3.11 |  |   | $          | 3.77 | 
|                                                                                                                                              | Diluted  proforma    |                                  | $          | 0.67 |      |   | $          | 3.11 |  |   | $          | 3.77 | 



|                         |  |      |          |  |      |  |          |      |  |  |          | 
|------------------------ |  | ---- | -------- |  | ---- |  | -------- | ---- |  |  | -------- | 
|                         |  | 2005 |          |  | 2004 |  |          | 2003 | 
|                         |  |      |          |  |      |  |          |      | 
|Volatility factor        |  |      | 31.1%    |  |      |  | 0.0%     |      |  |  | 0.0%     | 
|Risk-free interest yield |  |      | 4.0%     |  |      |  | 4.0%     |      |  |  | 4.6%     | 
|Dividend yield           |  |      | 0.0%     |  |      |  | 0.0%     |      |  |  | 0.0%     | 
|Average life             |  |      | 3  Years |  |      |  | 3  Years |      |  |  | 3  Years | 







| |                                          
| | -----------------------------------------
| | Adoption of New Accounting Pronouncements

Share-Based Payment Accounting for Stock-Based
Compensation Accounting for Stock Issued to Employees.


F-13



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




115-1), 03-1, 03-1) 03-1. EITF-03-1,


05-6). 05-6




Retirement Plans


Guaranty Fund Assessments Statement of Position 97-3


F-14



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


97-3








|   |            
|-- | -----------
|2. | Investments



|                       |                                                      |           |             |             |            |   |         |            |  |   |            |            |   |   |             |             | 
|---------------------- | ---------------------------------------------------- | --------- | ----------- | ----------- | ---------- | - | ------- | ---------- |  | - | ---------- | ---------- | - | - | ----------- | ----------- | 
|                       |                                                      | Cost/     |             |             | Gross      |   |         | Gross      |  |   | Estimated  |           
|                       |                                                      | Amortized |             |             | Unrealized |   |         | Unrealized |  |   | Market     |           
|                       |                                                      | Cost      |             |             | Gains      |   |         | (Losses)   |  |   | Value      |           
|                       |                                                      |           |             |             |            |   |         |            |  |   |            |           
|Fixed maturities:      |                                                      |           |             |             |            |   |         |            |  |   |            |            |   |   |             |            
|                       | U.S. Government, government agencies and authorities |           | $           | 170,627,486 |            |   | $       | 21,928     |  |   | $          | (1,756,164 | ) |   |             | 168,893,250 | 
|                       | State, local government and agencies                 |           |             | 69,462,854  |            |   |         | 283,797    |  |   |            | (456,673   | ) |   |             | 69,289,978  | 
|                       | Industrial and miscellaneous                         |           |             | 39,691,216  |            |   |         | 124,113    |  |   |            | (834,448   | ) |   |             | 38,980,881  | 
|                       | Mortgage-backed securities                           |           |             | 1,228,665   |            |   |         | 5,157      |  |   |            | (14,430    | ) |   |             | 1,219,392   | 
|                       |                                                      |           |             |             |            |   |         |            |  |   |            |           
|Total fixed maturities |                                                      |           | 281,010,221 |             |            |   | 434,995 |            |  |   | (3,061,715 | )          |   |   | 278,383,501 |            
|Other Investments:     |                                                      |           |             |             |            |   |         |            |  |   |            |            |   |   |             |            
|                       | Short-term investments                               |           |             | 8,800,000   |            |   |         |           |  |   |            |           |   |   |             | 8,800,000   | 
|                       | Equity securities                                    |           |             | 12,636,230  |            |   |         | 525,887    |  |   |            | (325,820   | ) |   |             | 12,836,297  | 
|                       |                                                      |           |             |             |            |   |         |            |  |   |            |           
|Total Investments      |                                                      | $         | 302,446,451 |             |            | $ | 960,882 |            |  | $ | (3,387,535 | )          |   | $ | 300,019,798 |            
|                       |                                                      |           |             |             |            |   |         |            |  |   |            |           



F-15



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                       |                                                      |           |             |             |            |   |           |            |  |   |            |          |   |   |             |             | 
|---------------------- | ---------------------------------------------------- | --------- | ----------- | ----------- | ---------- | - | --------- | ---------- |  | - | ---------- | -------- | - | - | ----------- | ----------- | 
|                       |                                                      | Cost/     |             |             | Gross      |   |           | Gross      |  |   | Estimated  |         
|                       |                                                      | Amortized |             |             | Unrealized |   |           | Unrealized |  |   | Market     |         
|                       |                                                      | Cost      |             |             | Gains      |   |           | (Losses)   |  |   | Value      |         
|                       |                                                      |           |             |             |            |   |           |            |  |   |            |         
|Fixed maturities:      |                                                      |           |             |             |            |   |           |            |  |   |            |          |   |   |             |            
|                       | U.S. Government, government agencies and authorities |           | $           | 113,849,983 |            |   | $         | 167,336    |  |   | $          | (229,199 | ) |   |             | 113,788,120 | 
|                       | State, local government and agencies                 |           |             | 47,447,514  |            |   |           | 471,383    |  |   |            | (151,091 | ) |   |             | 47,767,806  | 
|                       | Industrial and miscellaneous                         |           |             | 48,235,166  |            |   |           | 445,482    |  |   |            | (520,779 | ) |   |             | 48,159,869  | 
|                       | Mortgage backed securities                           |           |             | 1,103,325   |            |   |           | 13,733     |  |   |            | (2,786   | ) |   |             | 1,114,272   | 
|                       |                                                      |           |             |             |            |   |           |            |  |   |            |         
|Total fixed maturities |                                                      |           | 210,635,988 |             |            |   | 1,097,934 |            |  |   | (903,855   | )        |   |   | 210,830,067 |            
|Other Investments:     |                                                      |           |             |             |            |   |           |            |  |   |            |          |   |   |             |            
|                       | Short-term investments                               |           |             | 13,820,488  |            |   |           |           |  |   |            |         |   |   |             | 13,820,488  | 
|                       | Equity securities                                    |           |             | 12,718,656  |            |   |           | 178,670    |  |   |            | (96,790  | ) |   |             | 12,800,536  | 
|                       |                                                      |           |             |             |            |   |           |            |  |   |            |         
|Total Investments      |                                                      | $         | 237,175,132 |             |            | $ | 1,276,604 |            |  | $ | (1,000,645 | )        |   | $ | 237,451,091 |            
|                       |                                                      |           |             |             |            |   |           |            |  |   |            |         















F-16



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                    |  |           |             |  |            |   |             | 
|----------------------------------- |  | --------- | ----------- |  | ---------- | - | ----------- | 
|                                    |  | Amortized |             |  | Estimated  |  
|                                    |  | Cost      |             |  | Fair Value |  
|                                    |  |           |             |  |            |  
|Due in one year or less             |  | $         | 6,121,936   |  |            | $ | 6,087,927   | 
|Due in one year through five years  |  |           | 51,614,019  |  |            |   | 51,190,917  | 
|Due in five years through ten years |  |           | 151,522,578 |  |            |   | 149,941,500 | 
|Due in ten through twenty years     |  |           | 69,779,822  |  |            |   | 69,199,914  | 
|Due in over twenty years            |  |           | 743,201     |  |            |   | 743,850     | 
|Mortgage-Backed securities          |  |           | 1,228,665   |  |            |   | 1,219,393   | 
|                                    |  |           |             |  |            |  
|Total                               |  | $         | 281,010,221 |  |            | $ | 278,383,501 | 









|                      |  |                                  |             |   |      |   |             |      |  |   |            |  
|--------------------- |  | -------------------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ---------- | -
|                      |  | For the Years Ended December 31, |            
|                      |  |                                  |            
|                      |  | 2005                             |             |   | 2004 |   |             | 2003 | 
|                      |  |                                  |             |   |      |   |             |      | 
|Proceeds              |  | $                                | 115,302,759 |   |      | $ | 154,060,505 |      |  | $ | 75,990,136 |  
|Gross realized gains  |  |                                  | 991,807     |   |      |   | 2,605,208   |      |  |   | 1,802,770  |  
|Gross realized losses |  |                                  | (581,172    | ) |      |   | (673,950    | )    |  |   | (430,213   | )





|                      |                 |                                  |            |            |      |   |           |           |  |   |           |           | 
|--------------------- | --------------- | -------------------------------- | ---------- | ---------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                      |                 | For the Years Ended December 31, |           
|                      |                 |                                  |           
|                      |                 | 2005                             |            |            | 2004 |   |           | 2003      | 
|                      |                 |                                  |            |            |      |   |           |           | 
|Investment income:    |                 |                                  |            |            |      |   |           |           |  |   |           |          
|                      | Interest income |                                  | $          | 11,807,190 |      |   | $         | 6,651,242 |  |   | $         | 4,199,917 | 
|                      | Dividend income |                                  |            | 744,592    |      |   |           | 539,105   |  |   |           | 312,545   | 
|                      |                 |                                  |            |            |      |   |           |           | 
|Investment income     |                 |                                  | 12,551,782 |            |      |   | 7,190,347 |           |  |   | 4,512,462 |          
|Investment expenses   |                 |                                  | (148,547   | )          |      |   | (129,187  | )         |  |   | (254,790  | )        
|                      |                 |                                  |            |            |      |   |           |           | 
|Net investment income |                 | $                                | 12,403,235 |            |      | $ | 7,061,160 |           |  | $ | 4,257,672 |          
|                      |                 |                                  |            |            |      |   |           |           | 

F-17



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                     |  |                          |            |   |      |   |          |      |  |   |            |  
|---------------------------------------------------- |  | ------------------------ | ---------- | - | ---- | - | -------- | ---- |  | - | ---------- | -
|                                                     |  | Years Ended December 31, |           
|                                                     |  |                          |           
|                                                     |  | 2005                     |            |   | 2004 |   |          | 2003 | 
|                                                     |  |                          |            |   |      |   |          |      | 
|Fixed Maturities:                                    |  |                          |            |   |      |   |          |      |  |   |            |  
|Balance at January 1,                                |  | $                        | 128,092    |   |      | $ | (256,974 | )    |  | $ | 456,973    |  
|Unrealized investment gains (losses) during the year |  |                          | (2,820,799 | ) |      |   | 583,434  |      |  |   | (1,081,738 | )
|Deferred income taxes                                |  |                          | 959,072    |   |      |   | (198,368 | )    |  |   | 367,791    |  
|                                                     |  |                          |            |   |      |   |          |      | 
|Balance at period ended,                             |  | $                        | (1,733,635 | ) |      | $ | 128,092  |      |  | $ | (256,974   | )
|                                                     |  |                          |            |   |      |   |          |      | 
|Net change in unrealized investment gains            |  | $                        | (1,861,727 | ) |      | $ | 385,066  |      |  | $ | (713,947   | )
|                                                     |  |                          |            |   |      |   |          |      | 

|                                                     |  |      |         |   |      |   |          |      |  |   |          |  
|---------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                     |  | 2005 |         |   | 2004 |   |          | 2003 | 
|                                                     |  |      |         |   |      |   |          |      | 
|Equity Securities:                                   |  |      |         |   |      |   |          |      |  |   |          |  
|Balance at January 1,                                |  | $    | 54,040  |   |      | $ | 313,961  |      |  | $ | (109,109 | )
|Unrealized investment gains (losses) during the year |  |      | 118,188 |   |      |   | (393,819 | )    |  |   | 641,015  |  
|Deferred income taxes                                |  |      | (40,184 | ) |      |   | 133,898  |      |  |   | (217,945 | )
|                                                     |  |      |         |   |      |   |          |      | 
|Balance at period ended,                             |  | $    | 132,044 |   |      | $ | 54,040   |      |  | $ | 313,961  |  
|                                                     |  |      |         |   |      |   |          |      | 
|Net change in unrealized investment gains            |  | $    | 78,004  |   |      | $ | (259,921 | )    |  | $ | 423,070  |  
|                                                     |  |      |         |   |      |   |          |      | 



|                  |  |                          |         |  |      |   |           |      |  |   |           |  
|----------------- |  | ------------------------ | ------- |  | ---- | - | --------- | ---- |  | - | --------- | -
|                  |  | Years Ended December 31, |        
|                  |  |                          |        
|                  |  | 2005                     |         |  | 2004 |   |           | 2003 | 
|                  |  |                          |         |  |      |   |           |      | 
|Fixed maturities  |  | $                        | 17,263  |  |      | $ | 2,605,208 |      |  | $ | 1,546,459 |  
|Equity Securities |  |                          | 393,372 |  |      |   | (673,950  | )    |  |   | (173,902  | )
|                  |  |                          |         |  |      |   |           |      | 
|                  |  | $                        | 410,635 |  |      | $ | 1,931,258 |      |  | $ | 1,372,557 |  
|                  |  |                          |         |  |      |   |           |      | 



|   |                                 
|-- | --------------------------------
|3. | Replacement Carrier Transactions



| |              
| | -------------
| | Ohio Casualty





F-18



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




premium-to premium-to


premium-to






F-19



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                         
| | --------------------------------------------------------
| | Metropolitan Property and Casualty Insurance
    Company





| |                         
| | ------------------------
| | Sentry Insurance Company



premium-to premium-to premium-to




| |             
| | ------------
| | The Hartford



F-20



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|   |                     
|-- | --------------------
|4. | Reinsurance Activity







F-21



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|        |       |         |             |             |        |   |             |             |  |   |             |             |  |         |             |             |        |   |             |             |  |   |             |             | 
|------- | ----- | ------- | ----------- | ----------- | ------ | - | ----------- | ----------- |  | - | ----------- | ----------- |  | ------- | ----------- | ----------- | ------ | - | ----------- | ----------- |  | - | ----------- | ----------- | 
|        |       | 2005    |             |             | 2004   |   |             | 2003        | 
|        |       |         |             |             |        |   |             |             | 
|        |       | Written |             |             | Earned |   |             | Written     |  |   | Earned      |             |  | Written |             |             | Earned |  
|        |       |         |             |             |        |   |             |             |  |   |             |             |  |         |             |             |        |  
|Direct  |       | $       | 198,048,757 |             |        | $ | 180,378,535 |             |  | $ | 207,320,350 |             |  | $       | 195,070,774 |             |        | $ | 163,178,887 |             |  | $ | 158,409,998 |            
|Assumed |       |         | 1,913,775   |             |        |   | 2,208,920   |             |  |   | 3,375,295   |             |  |         | 3,266,956   |             |        |   | 2,719,644   |             |  |   | 1,693,591   |            
|        |       |         |             |             |        |   |             |             |  |   |             |             |  |         |             |             |        |  
|        | Gross |         |             | 199,962,532 |        |   |             | 182,587,455 |  |   |             | 210,695,645 |  |         |             | 198,337,730 |        |   |             | 165,898,531 |  |   |             | 160,103,589 | 
|Ceded   |       |         | (10,328,654 | )           |        |   | (9,805,391  | )           |  |   | (17,503,411 | )           |  |         | (18,671,009 | )           |        |   | (18,853,811 | )           |  |   | (16,947,666 | )          
|        |       |         |             |             |        |   |             |             |  |   |             |             |  |         |             |             |        |  
|Net     |       | $       | 189,633,878 |             |        | $ | 172,782,064 |             |  | $ | 193,192,234 |             |  | $       | 179,666,721 |             |        | $ | 147,044,720 |             |  | $ | 143,155,923 |            
|        |       |         |             |             |        |   |             |             |  |   |             |             |  |         |             |             |        |  













|                            |  |                     |        |  |      |  |       |      |  |  |        | 
|--------------------------- |  | ------------------- | ------ |  | ---- |  | ----- | ---- |  |  | ------ | 
|                            |  | For the Years Ended |       
|                            |  | December 31,        |       
|                            |  |                     |       
|                            |  | 2005                |        |  | 2004 |  |       | 2003 | 
|                            |  |                     |        |  |      |  |       |      | 
|Scor Reinsurance Company    |  |                     | 10,022 |  |      |  | 9,595 |      |  |  | 8,176  | 
|American Reinsurance        |  |                     | 4,022  |  |      |  | 3,989 |      |  |  | 9,169  | 
|Odyssey America Reinsurance |  |                     | 5,756  |  |      |  | 7,886 |      |  |  | 14,772 | 





F-22



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|   |                                                 
|-- | ------------------------------------------------
|5. | Reserves for Losses and Loss Adjustment Expenses



|                                              |                |                          |         |         |        |   |         |         |        |   |         |         |        | 
|--------------------------------------------- | -------------- | ------------------------ | ------- | ------- | ------ | - | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                                              |                | Years Ended December 31, |        
|                                              |                |                          |        
|                                              |                | 2005                     |         |         | 2004   |   |         | 2003    |       
|                                              |                |                          |         |         |        |   |         |         |       
|Balance as of beginning of year               |                | $                        | 184,283 |         |        | $ | 134,201 |         |        | $ | 85,472  |        
|Less reinsurance recoverable on unpaid losses |                |                          | (24,936 | )       |        |   | (21,329 | )       |        |   | (19,431 | )      
|                                              |                |                          |         |         |        |   |         |         |       
|Net balance as of beginning of year           |                |                          | 159,347 |         |        |   | 112,872 |         |        |   | 66,041  |        
|                                              |                |                          |         |         |        |   |         |         |       
|Incurred related to:                          |                |                          |         |         |        |   |         |         |        |   |         |        
|                                              | Current period |                          |         | 122,728 |        |   |         | 135,659 |        |   |         | 108,047 |       
|                                              | Prior period   |                          |         | 10,066  |        |   |         | (672    | )      |   |         | 76      |       
|                                              |                |                          |         |         |        |   |         |         |       
|Total incurred                                |                |                          | 132,794 |         |        |   | 134,987 |         |        |   | 108,123 |        
|                                              |                |                          |         |         |        |   |         |         |       
|Paid related to:                              |                |                          |         |         |        |   |         |         |        |   |         |        
|                                              |                | Current period           |         |         | 42,301 |   |         |         | 44,899 |   |         |         | 37,594 | 
|                                              |                | Prior period             |         |         | 58,548 |   |         |         | 43,613 |   |         |         | 23,698 | 
|                                              |                |                          |         |         |        |   |         |         |       
|Total paid                                    |                |                          | 100,849 |         |        |   | 88,512  |         |        |   | 61,292  |        
|                                              |                |                          |         |         |        |   |         |         |       
|Net balance as of December 31                 |                |                          | 191,292 |         |        |   | 159,347 |         |        |   | 112,872 |        
|Plus reinsurance recoverable on unpaid losses |                |                          | 28,069  |         |        |   | 24,936  |         |        |   | 21,329  |        
|                                              |                |                          |         |         |        |   |         |         |       
|Balance as of December 31                     |                | $                        | 219,361 |         |        | $ | 184,283 |         |        | $ | 134,201 |        
|                                              |                |                          |         |         |        |   |         |         |       



F-23



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Environmental Reserves






|                                    |                                                                 |      |   |       |      |  |   |      |  |  |   |     | 
|----------------------------------- | --------------------------------------------------------------- | ---- | - | ----- | ---- |  | - | ---- |  |  | - | --- | 
|                                    |                                                                 | 2005 |   |       | 2004 |  |   | 2003 | 
|                                    |                                                                 |      |   |       |      |  |   |      | 
|Environmental, Gross of Reinsurance |                                                                 |      |   |       |      |  |   |      |  |  |   |    
|                                    | Beginning Reserves  including case, bulk and IBNR,
    and LAE |      | $ | 892   |      |  | $ | 743  |  |  | $ | 650 | 
|                                    | Losses and LAE incurred                                         |      |   | 1,734 |      |  |   | 374  |  |  |   | 186 | 
|                                    | Calendar year payments for losses and LAE                       |      |   | 729   |      |  |   | 225  |  |  |   | 93  | 
|                                    | Ending reserves  including case, bulk and IBNR, and
    LAE    |      |   | 1,897 |      |  |   | 892  |  |  |   | 743 | 
|Environmental, net of reinsurance   |                                                                 |      |   |       |      |  |   |      |  |  |   |    
|                                    | Beginning Reserves  including case, bulk and IBNR,
    and LAE |      | $ | 634   |      |  | $ | 454  |  |  | $ | 381 | 
|                                    | Losses and LAE incurred                                         |      |   | 1,599 |      |  |   | 340  |  |  |   | 146 | 
|                                    | Calendar year payments for losses and LAE                       |      |   | 681   |      |  |   | 160  |  |  |   | 73  | 
|                                    | Ending reserves  including case, bulk and IBNR, and
    LAE    |      |   | 1,552 |      |  |   | 634  |  |  |   | 454 | 



|   |             
|-- | ------------
|6. | Income Taxes





|                                     |                |                                  |           |           |      |   |           |           |  |   |           |           | 
|------------------------------------ | -------------- | -------------------------------- | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                                     |                | For the Years Ended December 31, |          
|                                     |                |                                  |          
|                                     |                | 2005                             |           |           | 2004 |   |           | 2003      | 
|                                     |                |                                  |           |           |      |   |           |           | 
|Taxes on income before income taxes: |                |                                  |           |           |      |   |           |           |  |   |           |          
|                                     | Current taxes  |                                  | $         | 1,865,715 |      |   | $         | 4,953,669 |  |   | $         | 457,640   | 
|                                     | Deferred taxes |                                  | $         | (7,829    | )    |   | $         | 3,932,128 |  |   | $         | 9,487,562 | 
|                                     |                |                                  |           |           |      |   |           |           | 
|Total                                |                | $                                | 1,857,886 |           |      | $ | 8,885,797 |           |  | $ | 9,945,202 |          
|                                     |                |                                  |           |           |      |   |           |           | 

F-24



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                   |                                           |              |             |            |      |   |             |            | 
|---------------------------------- | ----------------------------------------- | ------------ | ----------- | ---------- | ---- | - | ----------- | ---------- | 
|                                   |                                           | December 31, |            
|                                   |                                           |              |            
|                                   |                                           | 2005         |             |            | 2004 |  
|                                   |                                           |              |             |            |      |  
|Deferred tax assets:               |                                           |              |             |            |      |   |             |           
|                                   | 20% UPR adjustment                        |              | $           | 5,477,775  |      |   | $           | 4,340,295  | 
|                                   | Loss reserve discount                     |              |             | 5,079,447  |      |   |             | 5,273,257  | 
|                                   | Depreciation                              |              |             | 53,653     |      |   |             |           | 
|                                   | Bad debt reserve                          |              |             | 31,146     |      |   |             | 279,344    | 
|                                   | Unrealized losses                         |              |             | 825,062    |      |   |             |           | 
|                                   | Incentive stock options                   |              |             | 469,535    |      |   |             | 453,334    | 
|                                   |                                           |              |             |            |      |  
|Deferred tax assets                |                                           |              | 11,936,618  |            |      |   | 10,346,230  |           
|Deferred tax liability:            |                                           |              |             |            |      |   |             |           
|                                   | Deferred acquisition costs                |              |             | 5,825,411  |      |   |             | 3,696,439  | 
|                                   | Accrual of bond discount                  |              |             | 47,942     |      |   |             | 31,358     | 
|                                   | Deferred revenues  special surplus funds |              |             | 16,852,832 |      |   |             | 18,227,709 | 
|                                   | Prepaid expenses                          |              |             | 227,250    |      |   |             | 97,288     | 
|                                   | Unrealized gains                          |              |             |           |      |   |             | 93,826     | 
|                                   | Due & Accrued dividends                   |              |             | 17,109     |      |   |             | 11,863     | 
|                                   | Depreciation                              |              |             | 34,698     |      |   |             | 183,088    | 
|                                   |                                           |              |             |            |      |  
|Deferred tax liabilities           |                                           |              | 23,005,242  |            |      |   | 22,341,571  |           
|                                   |                                           |              |             |            |      |  
|Net deferred tax (liability) asset |                                           | $            | (11,068,624 | )          |      | $ | (11,995,341 | )         
|                                   |                                           |              |             |            |      |  





F-25



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |  |                                  |       |      |  |  |       |    |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |   
|------------------------------ |  | -------------------------------- | ----- | ---- |  |  | ----- | -- |  | - | ------ | - |  |  | ----- | -- |  | - | ------ | - |  |  | ----- | --
|                               |  | 2005                             |       |      |  |  |       |    |  |   |       
|                               |  |                                  |       |      |  |  |       |    |  |   |       
|                               |  |                                  |       | 2004 |  |  |       |    | 
|                               |  |                                  |       |      |  |  |       |    | 
|                               |  | For the Years Ended December 31, |      
|                               |  |                                  |      
|                               |  |                                  |       | 2003 | 
|                               |  |                                  |       |      | 
|Pre Tax Net Income             |  | $                                | 8,294 |      |  |  |       |    |  | $ | 26,334 |   |  |  |       |    |  | $ | 29,013 |   |  |  |       |   
|Income Tax Statutory Rate      |  |                                  | 2,820 |      |  |  | 34.00 | %  |  |   | 8,954  |   |  |  | 34.00 | %  |  |   | 9,864  |   |  |  | 34.00 | % 
|Prior year return to provision |  |                                  | (478  | )    |  |  | (5.76 | )% |  |   |       |   |  |  | 0.00  | %  |  |   |       |   |  |  | 0.00  | % 
|Tax Exempt Interest            |  |                                  | (693  | )    |  |  | (8.36 | )% |  |   | (596   | ) |  |  | (2.26 | )% |  |   | (230   | ) |  |  | (0.79 | )%
|DRD                            |  |                                  | (34   | )    |  |  | (0.41 | )% |  |   | (33    | ) |  |  | (0.13 | )% |  |   | (54    | ) |  |  | (0.19 | )%
|Proration                      |  |                                  | 109   |      |  |  | 1.31  | %  |  |   | 94     |   |  |  | 0.36  | %  |  |   | 43     |   |  |  | 0.15  | % 
|Life insurance expense         |  |                                  | 27    |      |  |  | 0.33  | %  |  |   | 27     |   |  |  | 0.10  | %  |  |   | 27     |   |  |  | 0.09  | % 
|State taxes                    |  |                                  | 60    |      |  |  | 0.72  | %  |  |   | 434    |   |  |  | 1.65  | %  |  |   | 399    |   |  |  | 1.37  | % 
|Other                          |  |                                  | 47    |      |  |  | 0.57  | %  |  |   | 6      |   |  |  | 0.02  | %  |  |   | (104   | ) |  |  | (0.36 | )%
|                               |  |                                  |       |      |  |  |       |    |  |   |        |   |  |  |       |    |  |  
|Total income tax expense       |  | $                                | 1,858 |      |  |  | 22.40 | %  |  | $ | 8,886  |   |  |  | 33.74 | %  |  | $ | 9,945  |   |  |  | 34.27 | % 
|                               |  |                                  |       |      |  |  |       |    |  |   |        |   |  |  |       |    |  |  



|   |                       
|-- | ----------------------
|7. | Property and Equipment



|                               |  |                    |           |  |      |   |           | 
|------------------------------ |  | ------------------ | --------- |  | ---- | - | --------- | 
|                               |  | As of December 31, |          
|                               |  |                    |          
|                               |  | 2005               |           |  | 2004 |  
|                               |  |                    |           |  |      |  
|Automobiles                    |  | $                  | 542,406   |  |      | $ | 463,656   | 
|Computer Software              |  |                    | 1,808,507 |  |      |   | 822,545   | 
|Furniture & fixtures           |  |                    | 628,116   |  |      |   | 617,790   | 
|Leasehold improvements         |  |                    | 143,966   |  |      |   | 143,966   | 
|Electronic data equipment      |  |                    | 1,395,007 |  |      |   | 1,936,350 | 
|                               |  |                    |           |  |      |  
|                               |  |                    | 4,518,002 |  |      |   | 3,984,307 | 
|Less: Accumulated depreciation |  |                    | 2,455,530 |  |      |   | 1,962,873 | 
|                               |  |                    |           |  |      |  
|Net property and equipment     |  | $                  | 2,062,472 |  |      | $ | 2,021,434 | 
|                               |  |                    |           |  |      |  





|   |                     
|-- | --------------------
|8. | Capital Transactions





F-26



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










43-for-1






|   |              
|-- | -------------
|9. | Stock Options







F-27



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NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                         |           |           |         |          |                |   |      |       |  
|---------------------------------------- | --------- | --------- | ------- | -------- | -------------- | - | ---- | ----- | -
|                                         |           |           |         | Weighted |               
|                                         |           | Number of |         |          | Average        |  
|                                         |           | Options   |         |          | Exercise Price |  
|                                         |           |           |         |          |                |  
|Balance Outstanding at January 1, 2003   |           |           | 629,950 |          |                |   | 1.79 |      
|                                         | Granted   |           |         | 43,000   |                |   |      | 6.14  |  
|                                         | Exercised |           |         |          |                |   |      |       |  
|                                         | Forfeited |           |         |          |                |   |      |       |  
|                                         |           |           |         |          |                |  
|Balance Outstanding at December 31, 2003 |           |           | 672,950 |          |                |   | 2.06 |      
|                                         | Granted   |           |         |          |                |   |      |       |  
|                                         | Exercised |           |         |          |                |   |      |       |  
|                                         | Forfeited |           |         |          |                |   |      |       |  
|                                         |           |           |         |          |                |  
|Balance Outstanding at December 31, 2004 |           |           | 672,950 |          |                | $ | 2.06 |      
|                                         |           |           |         |          |                |  
|                                         | Granted   |           |         | 275,200  |                |   | $    | 1.71  |  
|                                         | Exercised |           |         | (275,200 | )              |   | $    | (1.71 | )
|                                         | Forfeited |           |         | (275,200 | )              |   | $    | (1.71 | )
|                                         |           |           |         |          |                |  
|Balance Outstanding at December 31, 2005 |           |           | 397,750 |          |                | $ | 2.31 |      
|                                         |           |           |         |          |                |  



|                         |  |          |                     |            |             |  |      |          |  |          |          |  |  |          |         |  |  |   |      | 
|------------------------ |  | -------- | ------------------- | ---------- | ----------- |  | ---- | -------- |  | -------- | -------- |  |  | -------- | ------- |  |  | - | ---- | 
|Options Outstanding      |  |          | Options Exercisable |           
|                         |  |          |                     |           
|                         |  | Weighted |                     |            | Weighted    |  |      |          |  | Weighted |         
|                         |  | Number   |                     |            | Average     |  |      | Average  |  |          | Number   |  |  | Average  |        
|                         |  | of Stock |                     |            | Contractual |  |      | Exercise |  |          | of Stock |  |  | Exercise |        
|Range of Exercise Prices |  | Options  |                     |            | Life        |  |      | Price    |  |          | Options  |  |  | Price    |        
|                         |  |          |                     |            |             |  |      |          |  |          |          |  |  |          |        
|                         |  |          |                     | (In years) |             |  |      |          |  |          |         
|$0.60                    |  |          | 47,300              |            |             |  | 6.44 |          |  | $        | 0.60     |  |  |          | 47,300  |  |  | $ | 0.60 | 
|0.98-1.29                |  |          | 124,700             |            |             |  | 2.55 |          |  |          | 1.16     |  |  |          | 124,700 |  |  |   | 1.16 | 
|2.5-2.89                 |  |          | 182,750             |            |             |  | 2.29 |          |  |          | 2.63     |  |  |          | 182,750 |  |  |   | 2.63 | 
|6.14                     |  |          | 43,000              |            |             |  | 7.28 |          |  |          | 6.14     |  |  |          | 43,000  |  |  |   | 6.14 | 
|                         |  |          |                     |            |             |  |      |          |  |          |          |  |  |          |        
|                         |  |          | 397,750             |            |             |  | 3.40 |          |  | $        | 2.31     |  |  |          | 397,750 |  |  | $ | 2.31 | 
|                         |  |          |                     |            |             |  |      |          |  |          |          |  |  |          |        

F-28



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |  |          |                     |            |             |  |      |          |  |          |          |  |  |          |         |  |  |   |      | 
|------------------------ |  | -------- | ------------------- | ---------- | ----------- |  | ---- | -------- |  | -------- | -------- |  |  | -------- | ------- |  |  | - | ---- | 
|Options Outstanding      |  |          | Options Exercisable |           
|                         |  |          |                     |           
|                         |  | Weighted |                     |            | Weighted    |  |      |          |  | Weighted |         
|                         |  | Number   |                     |            | Average     |  |      | Average  |  |          | Number   |  |  | Average  |        
|                         |  | of Stock |                     |            | Contractual |  |      | Exercise |  |          | of Stock |  |  | Exercise |        
|Range of Exercise Prices |  | Options  |                     |            | Life        |  |      | Price    |  |          | Options  |  |  | Price    |        
|                         |  |          |                     |            |             |  |      |          |  |          |          |  |  |          |        
|                         |  |          |                     | (In years) |             |  |      |          |  |          |         
|$0.60                    |  |          | 47,300              |            |             |  | 7.44 |          |  | $        | 0.60     |  |  |          | 47,300  |  |  | $ | 0.60 | 
|0.98-1.29                |  |          | 303,150             |            |             |  | 2.09 |          |  |          | 1.20     |  |  |          | 303,150 |  |  |   | 1.20 | 
|2.5-2.89                 |  |          | 279,500             |            |             |  | 3.23 |          |  |          | 2.62     |  |  |          | 279,500 |  |  |   | 2.62 | 
|6.14                     |  |          | 43,000              |            |             |  | 8.28 |          |  |          | 6.14     |  |  |          |        |  |  |   |     | 
|                         |  |          |                     |            |             |  |      |          |  |          |          |  |  |          |        
|                         |  |          | 672,950             |            |             |  | 3.34 |          |  | $        | 2.06     |  |  |          | 629,950 |  |  | $ | 1.79 | 
|                         |  |          |                     |            |             |  |      |          |  |          |          |  |  |          |        













|    |                              
|--- | -----------------------------
|10. | Contingencies and Commitments

Litigation


Operating Leases




F-29



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                    |  |        |           | 
|------------------- |  | ------ | --------- | 
|Year                |  | Amount |          
|                    |  |        |          
|2006                |  | $      | 867,599   | 
|2007                |  |        | 867,599   | 
|2008                |  |        | 796,799   | 
|2009 and thereafter |  |        | 545,999   | 
|                    |  |        |          
|Total               |  | $      | 3,077,996 | 
|                    |  |        |          



Guaranty Funds and Assessments








|        |  |                    |  |            |  |         
|------- |  | ------------------ |  | ---------- |  | --------
|        |  | As of December 31,
|        |  |                   
|        |  | 2005               |  | 2004       |  | 2003    
|        |  |                    |  |            |  |         
|Payable |  | $2,976,719         |  | $2,283,093 |  | $486,548
|Paid    |  | $4,886,128         |  | $2,370,085 |  | $124,394



F-30



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














F-31



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                              
| | ---------------------------------------------
| | New Jersey Automobile Insurance Risk Exchange







|    |                                  
|--- | ---------------------------------
|11. | Other Comprehensive Income (Loss)



|                                                                                    |  |            |        |   |        |   |     |            |  |   |        |  
|----------------------------------------------------------------------------------- |  | ---------- | ------ | - | ------ | - | --- | ---------- |  | - | ------ | -
|                                                                                    |  | Before Tax |        |   | Tax    |   |     | Net of Tax | 
|For the Year Ended December 31, 2005                                                |  | Amount     |        |   | Effect |   |     | Amount     | 
|                                                                                    |  |            |        |   |        |   |     |            | 
|Net holding losses arising during the year                                          |  | $          | (2,736 | ) |        | $ | 930 |            |  | $ | (1,806 | )
|Less reclassification adjustment for net realized losses
    included in net income |  |            | 33     |   |        |   | (11 | )          |  | $ | 22     |  
|                                                                                    |  |            |        |   |        |   |     |            | 
|Other comprehensive (loss) income                                                   |  | $          | (2,703 | ) |        | $ | 919 |            |  | $ | (1,784 | )
|                                                                                    |  |            |        |   |        |   |     |            | 

|                                                                                   |  |            |      |   |        |   |      |            |  |   |      |  
|---------------------------------------------------------------------------------- |  | ---------- | ---- | - | ------ | - | ---- | ---------- |  | - | ---- | -
|                                                                                   |  | Before Tax |      |   | Tax    |   |      | Net of Tax | 
|For the Year Ended December 31, 2004                                               |  | Amount     |      |   | Effect |   |      | Amount     | 
|                                                                                   |  |            |      |   |        |   |      |            | 
|Net holding gains arising during the year                                          |  | $          | 683  |   |        | $ | (232 | )          |  | $ | 451  |  
|Less reclassification adjustment for net realized gains included
    in net income |  |            | (494 | ) |        |   | 168  |            |  | $ | (326 | )
|                                                                                   |  |            |      |   |        |   |      |            | 
|Other comprehensive income                                                         |  | $          | 189  |   |        | $ | (64  | )          |  | $ | 125  |  
|                                                                                   |  |            |      |   |        |   |      |            | 

|                                                                                   |  |            |      |   |        |   |     |            |  |   |      |  
|---------------------------------------------------------------------------------- |  | ---------- | ---- | - | ------ | - | --- | ---------- |  | - | ---- | -
|                                                                                   |  | Before Tax |      |   | Tax    |   |     | Net of Tax | 
|For the Year Ended December 31, 2003                                               |  | Amount     |      |   | Effect |   |     | Amount     | 
|                                                                                   |  |            |      |   |        |   |     |            | 
|Net holding gains arising during the year                                          |  | $          | 95   |   |        | $ | (32 | )          |  | $ | 63   |  
|Less reclassification adjustment for net realized gains included
    in net income |  |            | (536 | ) |        |   | 182 |            |  | $ | (354 | )
|                                                                                   |  |            |      |   |        |   |     |            | 
|Other comprehensive (loss) income                                                  |  | $          | (441 | ) |        | $ | 150 |            |  | $ | (291 | )
|                                                                                   |  |            |      |   |        |   |     |            | 



|    |                  
|--- | -----------------
|12. | Statutory Surplus



F-32



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|    |                            
|--- | ---------------------------
|13. | Dividends from Subsidiaries





|    |                                    
|--- | -----------------------------------
|14. | Fair Value of Financial Instruments

Disclosure About Fair Value of
Financial Instruments




Cash and Short Term Investments.


F-33



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Investment in Securities.




|                       |  |                    |             |  |            |   |             |          |  |   |             |  |  |          |             |  |            |   |             |  |  |   |             | 
|---------------------- |  | ------------------ | ----------- |  | ---------- | - | ----------- | -------- |  | - | ----------- |  |  | -------- | ----------- |  | ---------- | - | ----------- |  |  | - | ----------- | 
|                       |  | As of December 31, |            
|                       |  |                    |            
|                       |  | 2005               |             |  | 2004       |   |             | 2003     | 
|                       |  |                    |             |  |            |   |             |          | 
|                       |  | Carrying           |             |  | Estimated  |   |             | Carrying |  |   | Estimated   |  |  | Carrying |             |  | Estimated  |  
|                       |  | Value              |             |  | Fair Value |   |             | Value    |  |   | Fair Value  |  |  | Value    |             |  | Fair Value |  
|                       |  |                    |             |  |            |   |             |          |  |   |             |  |  |          |             |  |            |  
|Fixed maturity         |  | $                  | 281,010,221 |  |            | $ | 278,383,501 |          |  | $ | 210,635,988 |  |  | $        | 210,830,067 |  |            | $ | 130,798,817 |  |  | $ | 130,409,462 | 
|Short-term investments |  |                    | 8,800,000   |  |            |   | 8,800,000   |          |  |   | 13,820,488  |  |  |          | 13,820,488  |  |            |   | 31,569,445  |  |  |   | 31,569,445  | 
|Equity Securities      |  |                    | 12,636,230  |  |            |   | 12,836,297  |          |  |   | 12,718,656  |  |  |          | 12,800,536  |  |            |   | 8,117,385   |  |  |   | 8,593,084   | 



|    |                       
|--- | ----------------------
|15. | Net Earnings Per Share





|                                             |                                        |                          |           |           |      |   |            |           |  |   |            |           | 
|-------------------------------------------- | -------------------------------------- | ------------------------ | --------- | --------- | ---- | - | ---------- | --------- |  | - | ---------- | --------- | 
|                                             |                                        | Years Ended December 31, |          
|                                             |                                        |                          |          
|                                             |                                        | 2005                     |           |           | 2004 |   |            | 2003      | 
|                                             |                                        |                          |           |           |      |   |            |           | 
|Net Income applicable to common stockholders |                                        | $                        | 6,435,950 |           |      | $ | 17,448,050 |           |  | $ | 19,067,575 |          
|                                             | Weighted average common shares  basic |                          |           | 9,166,683 |      |   |            | 4,941,990 |  |   |            | 4,448,684 | 
|                                             | Effect of dilutive securities:         |                          |           |           |      |   |            |           |  |   |            |           | 
|                                             | Options                                |                          |           | 315,885   |      |   |            | 672,950   |  |   |            | 613,235   | 
|                                             |                                        |                          |           |           |      |   |            |           | 
|Weighted average common shares  diluted     |                                        |                          | 9,482,568 |           |      |   | 5,614,940  |           |  |   | 5,061,919  |          
|                                             |                                        |                          |           |           |      |   |            |           | 
|Basic Earnings Per Share                     |                                        | $                        | 0.70      |           |      | $ | 3.53       |           |  | $ | 4.29       |          
|                                             |                                        |                          |           |           |      |   |            |           | 
|Diluted Earnings per Share                   |                                        | $                        | 0.68      |           |      | $ | 3.11       |           |  | $ | 3.77       |          
|                                             |                                        |                          |           |           |      |   |            |           | 





|    |                         
|--- | ------------------------
|16. | Related Party Disclosure





F-34



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


















|    |                  
|--- | -----------------
|17. | Subsequent Events







F-35



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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








10-K). 10-K.










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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, 2005 |  
|                   |                                                     |                         |  
|                   |                                                     | Cost/                   |   |             |             |  | Amount at      |              
|                   |                                                     | Amortized               |   |             |             |  | Which Shown on |              
|Type of Investment |                                                     | Cost                    |   |             | Fair Value  |  |                | Balance Sheet |            
|                   |                                                     |                         |   |             |             |  |                |               |            
|                   |                                                     | (In thousands)          |  
|Fixed Maturities   |                                                     |                         |   |             |             |  |                |               |             |  |   |            
|                   | U.S Government, government agencies and authorities |                         | $ | 170,627,486 |             |  | $              | 168,893,250   |             |  | $ | 168,893,250 |            
|                   | State, local government and agencies                |                         |   | 69,462,854  |             |  |                | 69,289,978    |             |  |   | 69,289,978  |            
|                   | Industrial and miscellaneous                        |                         |   | 39,691,216  |             |  |                | 38,980,881    |             |  |   | 38,980,881  |            
|                   | Mortgage-backed securities                          |                         |   | 1,228,665   |             |  |                | 1,219,392     |             |  |   | 1,219,392   |            
|                   |                                                     |                         |   |             |             |  |                |               |            
|                   |                                                     | Total fixed maturities  |   |             | 281,010,221 |  |                |               | 278,383,501 |  |   |             | 278,383,501 | 
|                   |                                                     |                         |   |             |             |  |                |               |            
|Equity Securities  |                                                     |                         |   |             |             |  |                |               |             |  |   |            
|                   | Common and preferred stock                          |                         |   | 12,636,230  |             |  |                | 12,836,297    |             |  |   | 12,836,297  |            
|                   |                                                     |                         |   |             |             |  |                |               |            
|                   |                                                     | Total equity securities |   |             | 12,636,230  |  |                |               | 12,836,297  |  |   |             | 12,836,297  | 
|                   |                                                     |                         |   |             |             |  |                |               |            
|Other investments  |                                                     |                         |   |             |             |  |                |               |             |  |   |            
|                   | Short-term investments                              |                         |   | 8,800,000   |             |  |                | 8,800,000     |             |  |   | 8,800,000   |            
|                   |                                                     |                         |   |             |             |  |                |               |            
|                   |                                                     | Total other investments |   |             | 8,800,000   |  |                |               | 8,800,000   |  |   |             | 8,800,000   | 
|                   |                                                     |                         |   |             |             |  |                |               |            
|                   |                                                     | Total investments       |   | $           | 302,446,451 |  |                | $             | 300,019,798 |  |   | $           | 300,019,798 | 
|                   |                                                     |                         |   |             |             |  |                |               |            

|                   |                                                     |                         |   |             |             |  |                |               |             |  |   |             |             | 
|------------------ | --------------------------------------------------- | ----------------------- | - | ----------- | ----------- |  | -------------- | ------------- | ----------- |  | - | ----------- | ----------- | 
|                   |                                                     | As of December 31, 2004 |  
|                   |                                                     |                         |  
|                   |                                                     | Cost/                   |   |             |             |  | Amount at      |              
|                   |                                                     | Amortized               |   |             |             |  | Which Shown on |              
|Type of Investment |                                                     | Cost                    |   |             | Fair Value  |  |                | Balance Sheet |            
|                   |                                                     |                         |   |             |             |  |                |               |            
|                   |                                                     | (In thousands)          |  
|Fixed Maturities   |                                                     |                         |   |             |             |  |                |               |             |  |   |            
|                   | U.S Government, government agencies and authorities |                         | $ | 113,849,983 |             |  | $              | 113,788,120   |             |  | $ | 113,788,120 |            
|                   | State, local government and agencies                |                         |   | 47,447,514  |             |  |                | 47,767,806    |             |  |   | 47,767,806  |            
|                   | Industrial and miscellaneous                        |                         |   | 48,235,166  |             |  |                | 48,159,869    |             |  |   | 48,159,869  |            
|                   | Mortgage-backed securities                          |                         |   | 1,103,325   |             |  |                | 1,114,272     |             |  |   | 1,114,272   |            
|                   |                                                     |                         |   |             |             |  |                |               |            
|                   |                                                     | Total fixed maturities  |   |             | 210,635,988 |  |                |               | 210,830,067 |  |   |             | 210,830,067 | 
|                   |                                                     |                         |   |             |             |  |                |               |            
|Equity Securities  |                                                     |                         |   |             |             |  |                |               |             |  |   |            
|                   | Common and preferred stock                          |                         |   | 12,718,656  |             |  |                | 12,800,536    |             |  |   | 12,800,536  |            
|                   |                                                     |                         |   |             |             |  |                |               |            
|                   |                                                     | Total equity securities |   |             | 12,718,656  |  |                |               | 12,800,536  |  |   |             | 12,800,536  | 
|                   |                                                     |                         |   |             |             |  |                |               |            
|Other investments  |                                                     |                         |   |             |             |  |                |               |             |  |   |            
|                   | Short-term investments                              |                         |   | 13,820,488  |             |  |                | 13,820,488    |             |  |   | 13,820,488  |            
|                   |                                                     |                         |   |             |             |  |                |               |            
|                   |                                                     | Total other investments |   |             | 13,820,488  |  |                |               | 13,820,488  |  |   |             | 13,820,488  | 
|                   |                                                     |                         |   |             |             |  |                |               |            
|                   |                                                     | Total investments       |   | $           | 237,175,132 |  |                | $             | 237,451,091 |  |   | $           | 237,451,091 | 
|                   |                                                     |                         |   |             |             |  |                |               |            

S-1



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


SCHEDULE II


CONDENSED FINANCIAL INFORMATION OF REGISTRANT


BALANCE SHEETS


|                         |                                               |                     |         |         |      |   |        |        | 
|------------------------ | --------------------------------------------- | ------------------- | ------- | ------- | ---- | - | ------ | ------ | 
|                         |                                               | For the Years Ended |        
|                         |                                               |                     |        
|                         |                                               | December 31,        |         |         |     
|                         |                                               | 2005                |         |         | 2004 |  
|                         |                                               |                     |         |         |      |  
|                         |                                               | (In thousands)      |        
|ASSETS:                 
|                         | Cash and cash equivalents                     |                     | $       | 21,137  |      |   | $      | 1,089  | 
|                         | Investment in subsidiaries                    |                     |         | 118,489 |      |   |        | 69,475 | 
|                         | Accrued investment income                     |                     |         | 108     |      |   |        |       | 
|                         | Deferred expenses                             |                     |         |        |      |   |        | 2,437  | 
|                         | Deferred tax asset                            |                     |         | 469     |      |   |        | 452    | 
|                         | Fixed assets, net of depreciation             |                     |         | 6       |      |   |        | 6      | 
|                         | Taxes recoverable                             |                     |         | 972     |      |   |        |       | 
|                         | Intercompany receivable                       |                     |         |        |      |   |        | 5,185  | 
|                         |                                               |                     |         |         |      |  
|Total assets             |                                               | $                   | 141,180 |         |      | $ | 78,644 |       
|                         |                                               |                     |         |         |      |  
|                        
|LIABILITIES AND CAPITAL:
|                         | Accounts payable                              |                     | $       | 380     |      |   | $      | 959    | 
|                         | Taxes payable                                 |                     |         |        |      |   |        | 1,821  | 
|                         | Intercompany payable                          |                     |         | 2,590   |      |   |        | 8,025  | 
|                         |                                               |                     |         |         |      |  
|Total liabilities        |                                               |                     | 2,970   |         |      |   | 10,805 |       
|                         |                                               |                     |         |         |      |  
|                        
|STOCKHOLDERS EQUITY:   
|                         | Common stock, Class A, no par value           |                     |         |        |      |   |        | 3,002  | 
|                         | Common stock, Class B, no par value           |                     |         |        |      |   |        | 28,738 | 
|                         | Common stock, $0.01 par value                 |                     |         | 97,458  |      |   |        |       | 
|                         | Retained earnings                             |                     |         | 42,353  |      |   |        | 35,917 | 
|                         | Accumulated other comprehensive (loss) income |                     |         | (1,602  | )    |   |        | 182    | 
|                         |                                               |                     |         |         |      |  
|                         | Total stockholders equity                    |                     |         | 138,209 |      |   |        | 67,839 | 
|                         |                                               |                     |         |         |      |  
|                         | Total Liabilities and stockholders equity    |                     | $       | 141,180 |      |   | $      | 78,644 | 
|                         |                                               |                     |         |         |      |  



S-2



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


SCHEDULE II


CONDENSED FINANCIAL INFORMATION OF REGISTRANT


STATEMENTS OF INCOME


|                                                                              |                      |                          |        |        |      |   |        |       |   |   |        |      |  
|----------------------------------------------------------------------------- | -------------------- | ------------------------ | ------ | ------ | ---- | - | ------ | ----- | - | - | ------ | ---- | -
|                                                                              |                      | Years Ended December 31, |       
|                                                                              |                      |                          |       
|                                                                              |                      | 2005                     |        |        | 2004 |   |        | 2003  |  
|                                                                              |                      |                          |        |        |      |   |        |       |  
|                                                                              |                      | (In thousands)           |       
|Income                                                                        |                      |                          |        |        |      |   |        |       |   |   |        |     
|Other Income                                                                  |                      | $                        | 542    |        |      | $ | 4      |       |   | $ | 5      |     
|Loss on disposition of fixed assets                                           |                      |                          |       |        |      |   | (2     | )     |   |   |       |     
|                                                                              |                      |                          |        |        |      |   |        |       |  
|Total Income                                                                  |                      |                          | 542    |        |      |   | 2      |       |   |   | 5      |     
|                                                                              |                      |                          |        |        |      |   |        |       |  
|Cost and Expenses:                                                            |                      |                          |        |        |      |   |        |       |   |   |        |     
|                                                                              | Salary Expense       |                          |        | 302    |      |   |        | 1,038 |   |   |        | 822  |  
|                                                                              | Interest expense     |                          |        |       |      |   |        |      |   |   |        | 3    |  
|                                                                              | Professional fees    |                          |        | 789    |      |   |        | 87    |   |   |        | 49   |  
|                                                                              | Other expenses       |                          |        | 3,833  |      |   |        | 745   |   |   |        | 523  |  
|                                                                              |                      |                          |        |        |      |   |        |       |  
|Total expenses                                                                |                      |                          | 4,925  |        |      |   | 1,871  |       |   |   | 1,397  |     
|                                                                              |                      |                          |        |        |      |   |        |       |  
|Loss before federal income taxes and equity in net income of
    subsidiaries |                      |                          | (4,383 | )      |      |   | (1,869 | )     |   |   | (1,392 | )   
|                                                                              | Income tax (benefit) |                          |        | (1,388 | )    |   |        | (631  | ) |   |        | (100 | )
|                                                                              |                      |                          |        |        |      |   |        |       |  
|Loss before equity in net income of subsidiaries                              |                      |                          | (2,995 | )      |      |   | (1,238 | )     |   |   | (1,292 | )   
|                                                                              |                      |                          |        |        |      |   |        |       |  
|Equity in net income of subsidiaries                                          |                      |                          | 9,431  |        |      |   | 18,686 |       |   |   | 20,360 |     
|                                                                              |                      |                          |        |        |      |   |        |       |  
|Net income                                                                    |                      | $                        | 6,436  |        |      | $ | 17,448 |       |   | $ | 19,068 |     
|                                                                              |                      |                          |        |        |      |   |        |       |  

S-3



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


SCHEDULE II


CONDENSED FINANCIAL INFORMATION


STATEMENTS OF CASH FLOWS


|                                      |                                                 |                                                      |        |         |         |   |       |         |       |   |     |         |         |  
|------------------------------------- | ----------------------------------------------- | ---------------------------------------------------- | ------ | ------- | ------- | - | ----- | ------- | ----- | - | --- | ------- | ------- | -
|                                      |                                                 | Years Ended December 31,                             |       
|                                      |                                                 |                                                      |       
|                                      |                                                 | 2005                                                 |        |         | 2004    |   |       | 2003    |      
|                                      |                                                 |                                                      |        |         |         |   |       |         |      
|                                      |                                                 | (In thousands)                                       |       
|Cash flows from operating activities: |                                                 |                                                      |        |         |         |   |       |         |       |   |     |        
|                                      | Net earnings                                    |                                                      | $      | 6,436   |         |   | $     | 17,448  |       |   | $   | 19,068  |        
|                                      | Undistributed net (income) of subsidiaries      |                                                      |        | (9,431  | )       |   |       | (18,686 | )     |   |     | (20,360 | )      
|                                      | Loss on sale of fixed asset                     |                                                      |        |        |         |   |       | 2       |       |   |     |        |        
|                                      | Amortization of share options                   |                                                      |        | 3,050   |         |   |       | 482     |       |   |     | 419     |        
|                                      | Changes in current assets and liabilities  net |                                                      |        | (1,309  | )       |   |       | (72     | )     |   |     | (1,321  | )      
|                                      |                                                 |                                                      |        |         |         |   |       |         |      
|                                      |                                                 | Net cash (used in) provided by operating activities  |        |         | (1,254  | ) |       |         | (826  | ) |     |         | (2,194  | )
|                                      |                                                 |                                                      |        |         |         |   |       |         |      
|Cash flows from investing activities: |                                                 |                                                      |        |         |         |   |       |         |       |   |     |        
|                                      | Capital contributions to subsidiaries           |                                                      |        | (43,866 | )       |   |       | (1,007  | )     |   |     | (11,675 | )      
|                                      | Purchase of equipment                           |                                                      |        |        |         |   |       | (6      | )     |   |     |        |        
|                                      | Dividends received                              |                                                      |        | 2,500   |         |   |       | 2,650   |       |   |     | 1,668   |        
|                                      |                                                 |                                                      |        |         |         |   |       |         |      
|                                      |                                                 | Net cash provided by (used in) investing activities  |        |         | (41,366 | ) |       |         | 1,637 |   |     |         | (10,007 | )
|                                      |                                                 |                                                      |        |         |         |   |       |         |      
|Cash flows from financing activities: |                                                 |                                                      |        |         |         |   |       |         |       |   |     |        
|                                      | Sale of stock                                   |                                                      |        | 62,668  |         |   |       |        |       |   |     | 12,456  |        
|                                      |                                                 |                                                      |        |         |         |   |       |         |      
|                                      |                                                 | Net cash provided by (used in ) financing activities |        |         | 62,668  |   |       |         |      |   |     |         | 12,456  |  
|                                      |                                                 |                                                      |        |         |         |   |       |         |      
|Net increase in cash                  |                                                 |                                                      | 20,048 |         |         |   | 811   |         |       |   | 255 |        
|Cash, beginning of period             |                                                 |                                                      | 1,089  |         |         |   | 278   |         |       |   | 23  |        
|                                      |                                                 |                                                      |        |         |         |   |       |         |      
|Cash, end of period                   |                                                 | $                                                    | 21,137 |         |         | $ | 1,089 |         |       | $ | 278 |        
|                                      |                                                 |                                                      |        |         |         |   |       |         |      

S-4



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


SCHEDULE III


SUPPLEMENTARY INSURANCE INFORMATION


For the years ended December 31, 2005, 2004 and 2003


|                      |  |                |        |            |            |   |         |          |  |   |          |     |            |            |            |              |             |        |        |             |  |   |          |  |  |          |        |  |  |   |        |  |  |   |         | 
|--------------------- |  | -------------- | ------ | ---------- | ---------- | - | ------- | -------- |  | - | -------- | --- | ---------- | ---------- | ---------- | ------------ | ----------- | ------ | ------ | ----------- |  | - | -------- |  |  | -------- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                      |  |                |        | Reserves   |            |   |         |          |  |   |          |     |            |            |            |              |             |        |       
|                      |  |                |        | for Unpaid |            |   |         |          |  |   |          |     | Losses and |            |            | Amortization |             |        |        |             | 
|                      |  | Deferred       |        |            | Losses and |   |         |          |  |   |          |     |            | Losses and |            |              | of Deferred |        |        |             |  |  
|                      |  | Policy         |        |            | Loss       |   |         |          |  |   |          | Net |            |            | Adjustment |              |             | Policy |        |             |  |   | Net      | 
|                      |  | Acquisition    |        |            | Adjustment |   |         | Unearned |  |   | Earned   |     |            | Investment |            |              | Expenses    |        |        | Acquisition |  |   | Other    |  |  | Written  |       
|                      |  | Costs          |        |            | Expense    |   |         | Premiums |  |   | Premiums |     |            | Income     |            |              | Incurred    |        |        | Costs       |  |   | Expenses |  |  | Premiums |       
|                      |  |                |        |            |            |   |         |          |  |   |          |     |            |            |            |              |             |        |        |             |  |   |          |  |  |          |       
|                      |  | (In thousands) |       
|at December 31, 2005  |  |                |        |            |            |   |         |          |  |   |          |     |            |            |            |              |             |        |        |             |  |   |          |  |  |          |        |  |  |   |        |  |  |   |         | 
|Property and Casualty |  | $              | 17,134 |            |            | $ | 219,361 |          |  | $ | 81,546   |     |            | $          | 172,782    |              |             | $      | 12,403 |             |  | $ | 132,794  |  |  | $        | 34,506 |  |  | $ | 11,747 |  |  | $ | 189,634 | 
|                      |  |                |        |            |            |   |         |          |  |   |          |     |            |            |            |              |             |        |        |             |  |   |          |  |  |          |       
|Consolidated          |  | $              | 17,134 |            |            | $ | 219,361 |          |  | $ | 81,546   |     |            | $          | 172,782    |              |             | $      | 12,403 |             |  | $ | 132,794  |  |  | $        | 34,506 |  |  | $ | 11,747 |  |  | $ | 189,634 | 
|                      |  |                |        |            |            |   |         |          |  |   |          |     |            |            |            |              |             |        |        |             |  |   |          |  |  |          |       
|at December 31, 2004  |  |                |        |            |            |   |         |          |  |   |          |     |            |            |            |              |             |        |        |             |  |   |          |  |  |          |        |  |  |   |        |  |  |   |         | 
|Property and Casualty |  | $              | 10,872 |            |            | $ | 184,283 |          |  | $ | 64,170   |     |            | $          | 179,667    |              |             | $      | 7,061  |             |  | $ | 134,987  |  |  | $        | 39,586 |  |  | $ | 7,766  |  |  | $ | 193,192 | 
|                      |  |                |        |            |            |   |         |          |  |   |          |     |            |            |            |              |             |        |        |             |  |   |          |  |  |          |       
|Consolidated          |  | $              | 10,872 |            |            | $ | 184,283 |          |  | $ | 64,170   |     |            | $          | 179,667    |              |             | $      | 7,061  |             |  | $ | 134,987  |  |  | $        | 39,586 |  |  | $ | 7,766  |  |  | $ | 193,192 | 
|                      |  |                |        |            |            |   |         |          |  |   |          |     |            |            |            |              |             |        |        |             |  |   |          |  |  |          |       
|at December 31, 2003  |  |                |        |            |            |   |         |          |  |   |          |     |            |            |            |              |             |        |        |             |  |   |          |  |  |          |        |  |  |   |        |  |  |   |         | 
|Property and Casualty |  | $              | 9,788  |            |            | $ | 134,201 |          |  | $ | 51,813   |     |            | $          | 143,156    |              |             | $      | 4,258  |             |  | $ | 108,123  |  |  | $        | 25,547 |  |  | $ | 992    |  |  | $ | 147,045 | 
|                      |  |                |        |            |            |   |         |          |  |   |          |     |            |            |            |              |             |        |        |             |  |   |          |  |  |          |       
|Consolidated          |  | $              | 9,788  |            |            | $ | 134,201 |          |  | $ | 51,813   |     |            | $          | 143,156    |              |             | $      | 4,258  |             |  | $ | 108,123  |  |  | $        | 25,547 |  |  | $ | 992    |  |  | $ | 147,045 | 
|                      |  |                |        |            |            |   |         |          |  |   |          |     |            |            |            |              |             |        |        |             |  |   |          |  |  |          |       

S-5



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


SCHEDULE IV


REINSURANCE


For the years ended December 31, 2005, 2004 and 2003


|                                           |  |                |         |          |           |   |         |            |  |            |        |           |  |         |         |  |  |  |      |  
|------------------------------------------ |  | -------------- | ------- | -------- | --------- | - | ------- | ---------- |  | ---------- | ------ | --------- |  | ------- | ------- |  |  |  | ---- | -
|                                           |  |                |         |          |           |   |         |            |  | Percentage |       
|                                           |  |                |         | Ceded to |           |   | Assumed |            |  |            |        | of Amount | 
|                                           |  | Gross          |         |          | Other     |   |         | from Other |  |            | Net    |           |  | Assumed |        
|                                           |  | Amount         |         |          | Companies |   |         | Companies  |  |            | Amount |           |  | to Net  |        
|                                           |  |                |         |          |           |   |         |            |  |            |        |           |  |         |        
|                                           |  | (In thousands) |        
|For the year ended ended December 31, 2005 |  |                |         |          |           |   |         |            |  |            |        |           |  |         |         |  |  |  |      |  
|Property 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 | %
|                                           |  |                |         |          |           |   |         |            |  |            |        |           |  |         |        
|For the year ended ended December 31, 2004 |  |                |         |          |           |   |         |            |  |            |        |           |  |         |         |  |  |  |      |  
|Property and casualty insurance premiums   |  | $              | 195,071 |          |           | $ | 18,671  |            |  | $          | 3,267  |           |  | $       | 179,667 |  |  |  | 1.82 | %
|                                           |  |                |         |          |           |   |         |            |  |            |        |           |  |         |        
|Total Premiums                             |  | $              | 195,071 |          |           | $ | 18,671  |            |  | $          | 3,267  |           |  | $       | 179,667 |  |  |  | 1.82 | %
|                                           |  |                |         |          |           |   |         |            |  |            |        |           |  |         |        
|For the year ended December 31, 2003       |  |                |         |          |           |   |         |            |  |            |        |           |  |         |         |  |  |  |      |  
|Property and casualty insurance premiums   |  | $              | 158,410 |          |           | $ | 16,948  |            |  | $          | 1,694  |           |  | $       | 143,156 |  |  |  | 1.18 | %
|                                           |  |                |         |          |           |   |         |            |  |            |        |           |  |         |        
|Total Premiums                             |  | $              | 158,410 |          |           | $ | 16,948  |            |  | $          | 1,694  |           |  | $       | 143,156 |  |  |  | 1.18 | %
|                                           |  |                |         |          |           |   |         |            |  |            |        |           |  |         |        

S-6



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


SCHEDULE V


VALUATION AND QUALIFYING ACCOUNTS


As of December 31, 2005


(In thousands)


|                                         |  |              |     |  |            |  |    |                     |  |  |                         |            |  |        |     |  |  |  |     | 
|---------------------------------------- |  | ------------ | --- |  | ---------- |  | -- | ------------------- |  |  | ----------------------- | ---------- |  | ------ | --- |  |  |  | --- | 
|                                         |  | Balance at   |     |  | Charged to |  |    |                     |  |  |                         | Balance at | 
|                                         |  | Beginning of |     |  | Costs and  |  |    | Charged to Other    |  |  | Deductions             |            |  | End of |    
|Description                              |  | Period       |     |  | Expenses   |  |    | Accounts  Describe |  |  | Describe                |            |  | Period |    
|                                         |  |              |     |  |            |  |    |                     |  |  |                         |            |  |        |    
|Valuation Allowance for State Receivable |  |              | 500 |  |            |  |   |                     |  |  | NY State Receivable     |            |  |        |    |  |  |  | 500 | 
|Allowance for doubtful Accounts          |  |              | 10  |  |            |  | 24 |                     |  |  | Premiums Receivable     |            |  |        |    |  |  |  | 34  | 
|Valuation Allowance for Reinsurance      |  |              | 312 |  |            |  |   |                     |  |  | Reinsurance Recoverable |            |  |        | 312 |  |  |  |    | 
|Valuation Allowance for Notes Receivable |  |              | 227 |  |            |  |   |                     |  |  | Notes Receivable        |            |  |        |    |  |  |  | 227 | 
|                                         |  |              |     |  |            |  |    |                     |  |  |                         |            |  |        |    
|                                         |  |              | 549 |  |            |  | 24 |                     |  |  |                         |            |  |        | 312 |  |  |  | 261 | 
|                                         |  |              |     |  |            |  |    |                     |  |  |                         |            |  |        |    

As of December 31, 2004


(In thousands)


|                                         |  |              |     |  |            |  |        |                     |  |  |                         |            |  |        |       |  |  |  |     | 
|---------------------------------------- |  | ------------ | --- |  | ---------- |  | ------ | ------------------- |  |  | ----------------------- | ---------- |  | ------ | ----- |  |  |  | --- | 
|                                         |  | Balance at   |     |  | Charged to |  |        |                     |  |  |                         | Balance at | 
|                                         |  | Beginning of |     |  | Costs and  |  |        | Charged to Other    |  |  | Deductions             |            |  | End of |      
|Description                              |  | Period       |     |  | Expenses   |  |        | Accounts  Describe |  |  | Describe                |            |  | Period |      
|                                         |  |              |     |  |            |  |        |                     |  |  |                         |            |  |        |      
|Valuation Allowance for State Receivable |  |              |     |  |            |  | 500.00 |                     |  |  | NY State Receivable     |            |  |        |      |  |  |  | 500 | 
|Allowance for doubtful Accounts          |  |              |     |  |            |  | 1,502  |                     |  |  | Premiums Receivable     |            |  |        | 1,492 |  |  |  | 10  | 
|Valuation Allowance for Reinsurance      |  |              |    |  |            |  | 312    |                     |  |  | Reinsurance Recoverable |            |  |        |      |  |  |  | 312 | 
|Valuation Allowance for Notes Receivable |  |              | 227 |  |            |  |       |                     |  |  | Notes Receivable        |            |  |        |      |  |  |  | 227 | 
|                                         |  |              |     |  |            |  |        |                     |  |  |                         |            |  |        |      
|                                         |  |              | 227 |  |            |  | 2,314  |                     |  |  |                         |            |  |        | 1,492 |  |  |  | 549 | 
|                                         |  |              |     |  |            |  |        |                     |  |  |                         |            |  |        |      

S-7



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##### Table of Contents



NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES


SCHEDULE VI


SUPPLEMENTARY INFORMATION CONCERNING PROPERTY


AND CASUALTY INSURANCE OPERATIONS


|                         |      |                      |   |         |             |  |   |          |   |  |   |         | 
|------------------------ | ---- | -------------------- | - | ------- | ----------- |  | - | -------- | - |  | - | ------- | 
|                         |      | Losses and Loss      |   |         |            
|                         |      | Adjustment Expenses  |   |         | Paid Losses | 
|                         |      | Incurred Related to: |   |         | and Loss    | 
|                         |      |                      |   |         | Adjustment  | 
|                         |      | Current Year         |   |         | Prior Years |  |   | Expenses |  
|                         |      |                      |   |         |             |  |   |          |  
|                         |      | (In thousands)       |  
|Years ended December 31, |      |                      |   |         |             |  |   |          |   |  |   |        
|                         | 2005 |                      | $ | 122,728 |             |  | $ | 10,066   |   |  | $ | 100,849 | 
|                         | 2004 |                      | $ | 135,659 |             |  | $ | (672     | ) |  | $ | 88,512  | 
|                         | 2003 |                      | $ | 108,047 |             |  | $ | 76       |   |  | $ | 61,292  | 

S-8



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##### Table of Contents



SIGNATURES






| |                           
| | --------------------------
| | NATIONAL ATLANTIC HOLDINGS
| | CORPORATION               



| |     |                    
| | --- | -------------------
| | By: | /s/ James V. Gorman

| |                      
| | ---------------------
| |                      
| | Name: James V. Gorman

| |        |                                                               
| | ------ | --------------------------------------------------------------
| | Title: | Chairman of the Board of Directors and Chief Executive Officer





|                                                         |  |                                                                                                  |  |      |                |  |  | 
|-------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------ |  | ---- | -------------- |  |  | 
|Signature                                                |  | Title                                                                                            |  | Date |               
|                                                         |  |                                                                                                  |  |      |               
|                                                        
|/s/ James V. GormanJames V. Gorman                       |  | Chairman of the Board of Directors and Chief Executive Officer
    (Principle Executive Officer) |  |      | March 29, 2006 | 
|                                                        
|/s/ Frank J. PrudenteFrank J. Prudente                   |  | Executive Vice President , Treasurer and Chief Accounting Officer                                |  |      | March 29, 2006 | 
|                                                        
|/s/ Peter A. Cappello, Jr.Peter A. Cappello, Jr.         |  | Director                                                                                         |  |      | March 29, 2006 | 
|                                                        
|/s/ Martin I. Krupnick, Psy. DMartin I. Krupnick, Psy. D |  | Director                                                                                         |  |      | March 29, 2006 | 
|                                                        
|/s/ Thomas M. MulhareThomas M. Mulhare                   |  | Director                                                                                         |  |      | March 29, 2006 | 
|                                                        
|/s/ Thomas J. Sharkey, Sr.Thomas J. Sharkey, Sr.         |  | Director                                                                                         |  |      | March 29, 2006 | 
|                                                        
|/s/ Steven V. StalloneSteven V. Stallone                 |  | Director                                                                                         |  |      | March 29, 2006 | 
|                                                        
|/s/ Candace L. StraightCandace L. Straight               |  | Director                                                                                         |  |      | March 29, 2006 |