**UNITED STATES****SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 
| **(Mark  One)**                                                                                                                                                                                                                                                                                                                                                            |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                       |   |
| **ý**                                                                                                                                                                                                                                                                                                                                                                 | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                                                                       |   |
| **For  the quarterly period ended September 30, 2002**                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                       |   |
| **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 001-14673**                                                                                                                                                                                                                                                                                                                                      |

 

| **MEEMIC Holdings, Inc.**                                                          |
|------------------------------------------------------------------------------------|
| (Exact name of  registrant as specified in its charter)                            |
|                                                                               |   |   |
| **Michigan**                                                                       |   | **38-3436541** |
| (State or other  jurisdiction  of incorporation or organization)                   |   | (I.R.S. Employer  Identification No.) |
|                                                                               |   |   |
| **691  North Squirrel Road, Suite 100  Auburn Hills, Michigan**                    |   | **48321** |
| (Address of principal  executive offices)                                          |   | (Zip Code) |
|                                                                               |   |   |
| Registrant’s telephone  number, including area code:  **(888) 463-3642** |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.   Yes    ý     No   o

 

The number of shares outstanding of the registrant’s common stock, nopar value per share, as of November 9, 2002 was 6,672,343.

 

 

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TABLE OF CONTENTS

 

 
| PART  I. | FINANCIAL  INFORMATION                                                                                                                         |
|----------|------------------------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                                           |
|     | Item 1. Financial  Statements                                                                                                                  |
|     |                                                                                                                                           |
|     | Condensed  Consolidated Balance Sheets at September 30, 2002 (Unaudited) and December  31, 2001                                                |
|     |                                                                                                                                           |
|     | Condensed  Consolidated Statements of Income for the Three Months and Nine Months Ended  September 30, 2002 and 2001 (Unaudited)               |
|     |                                                                                                                                           |
|     | Condensed  Consolidated Statements of Comprehensive Income for the Three Months and Nine  Months Ended September 30, 2002 and 2001 (Unaudited) |
|     |                                                                                                                                           |
|     | Condensed  Consolidated Statements of Cash Flows for the Nine Months Ended September 30,  2002 and 2001 (Unaudited)                            |
|     |                                                                                                                                           |
|     | Notes  to Condensed Consolidated Financial Statements (Unaudited)                                                                              |
|     |                                                                                                                                           |
|     | Item  2. Management’s Discussion and Analysis of Financial Condition and Results of  Operations                                           |
|     |                                                                                                                                           |
|     | Item  3. Quantitative and Qualitative Disclosures About Market Risk                                                                            |
|     |                                                                                                                                           |
|     | Item 4. Controls and Procedures                                                                                                                |
|     |                                                                                                                                           |
| Part II. | OTHER INFORMATION                                                                                                                              |
|     |                                                                                                                                           |
|     | Item 1. Legal Proceedings                                                                                                                      |
|     |                                                                                                                                           |
|     | Item 6.  Exhibits and Reports on Form 8-K                                                                                                      |
|     |                                                                                                                                           |
|     | Signatures                                                                                                                                     |
|     |                                                                                                                                           |
|     | Certifications                                                                                                                                 |

 

2

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**PARTI.         FINANCIAL INFORMATION**

**Item 1.  Financial Statements**

 

**MEEMIC Holdings, Inc.**

**and Subsidiaries**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
|                                                                                                                                                                                |   | **September 30, 2002**                |    | **December 31, 2001** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|-----------------------|--------|
|                                                                                                                                                                                |   | **(Unaudited)**                       |    |                  |   |
|                                                                                                                                                                                |   | **(In thousands, except share data)** |    |
| **ASSETS**                                                                                                                                                                          |   |                                  |    |                  |   |
| Investments:                                                                                                                                                                        |   |                                  |    |                  |   |
| Fixed maturities available for sale, at fair value (amortized cost of  $185,747 and $181,989 in 2002 and 2001, respectively)                                                        |   | $                                     | 198,070 |                  | $      | 187,497 |   |
| Equity securities available for sale, at fair value                                                                                                                                 |   | 3,732                                 |    | —                |   |
| Short-term investments, at cost, which approximates fair value                                                                                                                      |   | 2,967                                 |    | 2,922                 |   |
| Real estate, at cost                                                                                                                                                                |   | 2,300                                 |    | 2,300                 |   |
| Total investments                                                                                                                                                                   |   | 207,069                               |    | 192,719               |   |
| Cash and cash equivalents                                                                                                                                                           |   | 48,739                                |    | 29,948                |   |
| Premiums due from policyholders                                                                                                                                                     |   | 11,218                                |    | 7,789                 |   |
| Amounts recoverable from reinsurers                                                                                                                                                 |   | 64,049                                |    | 62,423                |   |
| Amounts recoverable from reinsurers, related party                                                                                                                                  |   | 3,490                                 |    | 5,326                 |   |
| Accrued investment income                                                                                                                                                           |   | 2,637                                 |    | 2,647                 |   |
| Deferred federal income taxes                                                                                                                                                       |   | 1,148                                 |    | 3,181                 |   |
| Property and equipment, at cost, net of accumulated depreciation                                                                                                                    |   | 2,075                                 |    | 3,011                 |   |
| Deferred policy acquisition costs                                                                                                                                                   |   | 4,424                                 |    | 3,356                 |   |
| Intangible assets, net of amortization                                                                                                                                              |   | 30,404                                |    | 30,496                |   |
| Other assets                                                                                                                                                                        |   | 1,649                                 |    | 787                   |   |
| Total assets                                                                                                                                                                        |   | $                                     | 376,902 |                  | $      | 341,683 |   |
|                                                                                                                                                                                |   |                                  |    |                  |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                      |   |                                  |    |                  |   |
| Liabilities:                                                                                                                                                                        |   |                                  |    |                  |   |
| Loss and loss adjustment expense reserves                                                                                                                                           |   | $                                     | 126,610 |                  | $      | 124,361 |   |
| Unearned premiums                                                                                                                                                                   |   | 50,915                                |    | 41,310                |   |
| Accrued expenses and other liabilities                                                                                                                                              |   | 14,315                                |    | 9,734                 |   |
| Accrued expenses and other liabilities, related party                                                                                                                               |   | 43                                    |    | 79                    |   |
| Premiums ceded payable                                                                                                                                                              |   | 2,529                                 |    | 4,479                 |   |
| Federal income taxes payable                                                                                                                                                        |   | 2,291                                 |    | 602                   |   |
| Total liabilities                                                                                                                                                                   |   | 196,703                               |    | 180,565               |   |
| Shareholders’ equity:                                                                                                                                                          |   |                                  |    |                  |   |
| Common stock, no par value; 10,000,000 shares authorized; 6,672,343  and 6,674,335 shares issued and outstanding in 2002 and 2001, respectively                                     |   | 66,023                                |    | 66,043                |   |
| Additional paid-in capital                                                                                                                                                          |   | 320                                   |    | 46                    |   |
| Retained earnings                                                                                                                                                                   |   | 106,686                               |    | 91,449                |   |
| Accumulated other comprehensive income:  Net unrealized appreciation on investments, net of deferred  federal income taxes of $3,860 and $1,928 in 2002 and 2001, respectively |   | 7,170                                 |    | 3,580                 |   |
| Total shareholders’ equity                                                                                                                                                     |   | 180,199                               |    | 161,118               |   |
| Total liabilities and shareholders’ equity                                                                                                                                     |   | $                                     | 376,902 |                  | $      | 341,683 |   |

 

See the accompanying notes to the unauditedcondensed consolidated financial statements.

 

3

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**MEEMIC Holdings, Inc.**

** and Subsidiaries**

**CONDENSED CONSOLIDATEDSTATEMENTS OF INCOME**

**For the Three andNine Months Ended September 30, 2002 and 2001 (Unaudited)**

 
|                                                                |   | **Three  Months Ended  September 30,** |   | **Nine  Months Ended  September 30,** |   |
|---------------------------------------------------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                                                                |   | **2002**                               |   | **2001**                              |   | **2002** |   | **2001** |   |
|                                                                |   | **(In  thousands, except share data)** |   |
| Revenues and other income:                                          |   |                                   |   |                                  |   |   |   |   |   |
| Premiums written                                                    |   | $                                      | 45,503 |                                  | $      | 36,719 |   | $ | 129,350 |   | $ | 105,745 |   |
| Premiums ceded                                                      |   | (3,876                                 | )      | (424                                  | )      | (9,940 | ) | (3,132 | ) |
| Net premiums written                                                |   | 41,627                                 |   | 36,295                                |   | 119,410 |   | 102,613 |   |
| Increase in unearned premiums, net  of prepaid reinsurance premiums |   | (2,711                                 | )      | (1,435                                | )      | (9,575 | ) | (3,931 | ) |
| Net premiums earned                                                 |   | 38,916                                 |   | 34,860                                |   | 109,835 |   | 98,682 |   |
| Net investment income                                               |   | 2,707                                  |   | 2,846                                 |   | 8,358 |   | 8,414 |   |
| Net realized investment gains  (losses) on fixed maturities         |   | 10                                     |   | (4                                    | )      | 639 |   | (1,566 | ) |
| Other income                                                        |   | 474                                    |   | 358                                   |   | 1,384 |   | 1,228 |   |
| Total revenues and other income                                     |   | 42,107                                 |   | 38,060                                |   | 120,216 |   | 106,758 |   |
|                                                                |   |                                   |   |                                  |   |   |   |   |   |
| Expenses:                                                           |   |                                   |   |                                  |   |   |   |   |   |
| Loss and loss adjustment expenses  incurred, net                    |   | 24,837                                 |   | 23,131                                |   | 73,426 |   | 68,531 |   |
| Policy acquisition and other  underwriting expenses:                |   |                                   |   |                                  |   |   |   |   |   |
| Policy acquisition and underwriting  expenses                       |   | 8,512                                  |   | 7,890                                 |   | 24,418 |   | 23,984 |   |
| Management fees, related party                                      |   | 42                                     |   | 90                                    |   | 150 |   | 424 |   |
|                                                                |   | 8,554                                  |   | 7,980                                 |   | 24,568 |   | 24,408 |   |
|                                                                |   |                                   |   |                                  |   |   |   |   |   |
| Amortization expense                                                |   | 30                                     |   | 731                                   |   | 92 |   | 2,193 |   |
| Other expenses                                                      |   | 36                                     |   | 29                                    |   | 175 |   | 76 |   |
| Total expenses                                                      |   | 33,457                                 |   | 31,871                                |   | 98,261 |   | 95,208 |   |
| Income from operations before federal  income taxes                 |   | 8,650                                  |   | 6,189                                 |   | 21,955 |   | 11,550 |   |
| Federal income taxes                                                |   | 2,674                                  |   | 1,559                                 |   | 6,718 |   | 2,901 |   |
| Net income                                                          |   | $                                      | 5,976  |                                  | $      | 4,630 |   | $ | 15,237 |   | $ | 8,649 |   |
|                                                                |   |                                   |   |                                  |   |   |   |   |   |
| **Earnings per common  share - basic**                              |   |                                   |   |                                  |   |   |   |   |   |
| Net income per common share - basic                                 |   | $                                      | 0.89   |                                  | $      | 0.69 |   | $ | 2.28 |   | $ | 1.30 |   |
|                                                                |   |                                   |   |                                  |   |   |   |   |   |
| **Earnings per common  share - assuming dilution**                  |   |                                   |   |                                  |   |   |   |   |   |
| Net income per common share -  assuming dilution                    |   | $                                      | 0.88   |                                  | $      | 0.68 |   | $ | 2.25 |   | $ | 1.28 |   |
|                                                                |   |                                   |   |                                  |   |   |   |   |   |
| Weighted average shares outstanding  - basic                        |   | 6,680,270                              |   | 6,676,047                             |   | 6,678,634 |   | 6,662,680 |   |
|                                                                |   |                                   |   |                                  |   |   |   |   |   |
| Weighted average shares outstanding  - assuming dilution            |   | 6,758,470                              |   | 6,758,243                             |   | 6,758,382 |   | 6,772,600 |   |

 

See the accompanying notes to the unaudited condensed consolidatedfinancial statements.

 

4

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**MEEMIC Holdings, Inc.**

**and Subsidiaries**

**CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

**For theThree and Nine Months Ended September 30, 2002 and 2001 (Unaudited)**

 
|                                                                                                                                                                                                                                                                  |   | **Three  Months Ended  September 30,** |   | **Nine  Months Ended  September 30,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                                                                                                                                                                                                                                                                  |   | **2002**                               |   | **2001**                              |   | **2002** |   | **2001** |   |
|                                                                                                                                                                                                                                                                  |   | **(In  thousands)**                    |   |
| Comprehensive income:                                                                                                                                                                                                                                                 |   |                                   |   |                                  |   |   |   |   |   |
| Net  income                                                                                                                                                                                                                                                           |   | $                                      | 5,976  |                                  | $      | 4,630 |   | $ | 15,237 |   | $ | 8,649 |   |
| Net  unrealized appreciation on investments, net of reclassification adjustment  and net of deferred federal income taxes of $1,313 and $1,492 for three  months in 2002 and 2001, respectively and $1,932 and $2,069 for nine months  in 2002 and 2001, respectively |   | 2,440                                  |   | 2,773                                 |   | 3,590 |   | 3,842 |   |
| Comprehensive income                                                                                                                                                                                                                                                  |   | $                                      | 8,416  |                                  | $      | 7,403 |   | $ | 18,827 |   | $ | 12,491 |   |

 

See the accompanying notes to the unauditedcondensed consolidated financial statements.

 

5

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**MEEMIC Holdings, Inc.**

**and Subsidiaries**

**CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**For the Nine MonthsEnded September 30, 2002 and 2001 (Unaudited)**

** **
|                                                                                                                                |   | **2002**                             |   | **2001** |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|----------|--------|
|                                                                                                                                |   | **(In thousands except share data)** |   |
| Cash flows from operating  activities:                                                                                              |   |                                 |   |     |   |
| Net income                                                                                                                          |   | $                                    | 15,237 |     | $      | 8,649 |   |
| Adjustments to reconcile net income  to net cash provided by operating activities:                                                  |   |                                 |   |     |   |
| Depreciation and amortization                                                                                                       |   | 1,465                                |   | 3,490    |   |
| Realized (gains) losses on  investments                                                                                             |   | (639                                 | )      | 1,566    |   |
| Net accretion of discount on  investments                                                                                           |   | (33                                  | )      | (57      | )      |
| Deferred federal income taxes                                                                                                       |   | 101                                  |   | (774     | )      |
| Changes in assets and liabilities:                                                                                                  |   |                                 |   |     |   |
| Premiums due from policyholders                                                                                                     |   | (3,429                               | )      | (2,464   | )      |
| Amounts due from reinsurers                                                                                                         |   | (1,740                               | )      | 876      |   |
| Accrued investment income                                                                                                           |   | 10                                   |   | (46      | )      |
| Deferred policy acquisition costs                                                                                                   |   | (1,068                               | )      | (404     | )      |
| Other assets                                                                                                                        |   | (862                                 | )      | (132     | )      |
| Loss and loss adjustment expense  reserves                                                                                          |   | 2,249                                |   | 917      |   |
| Unearned premiums                                                                                                                   |   | 9,605                                |   | 3,931    |   |
| Accrued expenses and other  liabilities                                                                                             |   | 4,133                                |   | 707      |   |
| Federal income taxes payable                                                                                                        |   | 2,355                                |   | 3,692    |   |
|                                                                                                                                |   |                                 |   |     |   |
| Net cash provided by operating  activities                                                                                          |   | 27,384                               |   | 19,951   |   |
|                                                                                                                                |   |                                 |   |     |   |
| Cash flows from investing  activities:                                                                                              |   |                                 |   |     |   |
| Purchases of short-term investments                                                                                                 |   | (5,952                               | )      | (12,802  | )      |
| Proceeds from sale or maturity of  short-term investments                                                                           |   | 5,907                                |   | 15,757   |   |
| Purchases of securities available  for sale                                                                                         |   | (23,763                              | )      | (33,899  | )      |
| Proceeds from maturity of securities  available for sale                                                                            |   | 20,677                               |   | 18,010   |   |
| Purchases of equities available for  sale                                                                                           |   | (5,025                               | )      | —   |   |
| Proceeds from sales of property and  equipment                                                                                      |   | 82                                   |   | 135      |   |
| Purchases of property and equipment                                                                                                 |   | (519                                 | )      | (927     | )      |
|                                                                                                                                |   |                                 |   |     |   |
| Net cash used in investing  activities                                                                                              |   | (8,593                               | )      | (13,726  | )      |
|                                                                                                                                |   |                                 |   |     |   |
| Cash flows from financing  activities:                                                                                              |   |                                 |   |     |   |
| Payment on payable related to  acquisition                                                                                          |   | —                               |   | (1,040   | )      |
|                                                                                                                                |   |                                 |   |     |   |
| Net cash used in financing  activities                                                                                              |   | —                               |   | (1,040   | )      |
|                                                                                                                                |   |                                 |   |     |   |
| Net increase in cash and cash  equivalents                                                                                          |   | 18,791                               |   | 5,185    |   |
| Cash and cash equivalents, beginning  of year                                                                                       |   | 29,948                               |   | 21,093   |   |
|                                                                                                                                |   |                                 |   |     |   |
| Cash and cash equivalents, end of  period                                                                                           |   | $                                    | 48,739 |     | $      | 26,278 |   |
|                                                                                                                                |   |                                 |   |     |   |
| Supplemental disclosure of cash flow  information:                                                                                  |   |                                 |   |     |   |
| Federal income taxes paid                                                                                                           |   | $                                    | 4,252  |     | $      | 2,481 |   |
|                                                                                                                                |   |                                 |   |     |   |
| Supplemental disclosure of noncash  financing activities:                                                                           |   |                                 |   |     |   |
|                                                                                                                                |   |                                 |   |     |   |
| Common stock of 11,220 shares  surrendered in incentive plans, net of shares issued in cashless exercise of  employee stock options |   | $                                    | (20    | )        | $      | 239 |   |

 

See the accompanying notes to theunaudited condensed consolidated financial statements.

 

6

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**MEEMIC Holdings, Inc.**

**and Subsidiaries**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

 

**(1)           Description of Business**

 

MEEMIC Holdings, Inc.(“Holdings”) is an insurance holding company incorporated under Michigan law inOctober 1998.  Holdings owns all of theissued and outstanding common stock of MEEMIC Insurance Company (“MEEMIC”) andMEEMIC Insurance Services Corp.  MEEMICis a property and casualty insurance company that operates as a single segmentwriting full coverage private passenger automobile, homeowner, boat andumbrella insurance products primarily for educational employees and theirimmediate families exclusively in the State of Michigan. MEEMIC sells itsinsurance contracts through MEEMIC Insurance Services Corp., d/b/a MEIAInsurance Agency, which is the exclusive distributor of MEEMIC’s products.  Holdings and its subsidiaries are sometimesreferred to collectively as the “Company”.

 

**(2)           Basisof Presentation**

 

The accompanyingunaudited condensed consolidated financial statements include the accounts ofHoldings and its wholly-owned subsidiaries, and have been prepared in accordancewith accounting principles generally accepted in the United States forForm 10-Q and Rule 10-01 of Regulation S-X financialinformation.  Accordingly, they have notbeen audited and they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements. All significant intercompany transactions have been eliminated inconsolidation.

 

In the opinion ofmanagement, all adjustments (consisting of normal recurring adjustments) considerednecessary for a fair presentation of financial position and results ofoperations have been included.  Theoperating results for the three and nine month periods ended September 30, 2002are not necessarily indicative of the results to be expected for the yearending December 31, 2002.

 

In preparing thefinancial statements, management is required to make estimates and assumptionsthat affect the reported amounts of assets and liabilities as of the dates ofthe balance sheets and revenues and expenses for the periods then ended.  Actual results may differ from thoseestimates.

 

The most significantestimates that are susceptible to significant change in the near term relate tothe determination of the loss and loss adjustment expense reserves.  Although considerable variability isinherent in these estimates, management believes that the reserves areadequate.  The estimates are reviewedregularly and adjusted as necessary. Such adjustments are reflected in current operations.

 

7

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**(3)           RelatedParty Transactions**

 

ProNational InsuranceCompany (“ProNational”), a wholly-owned subsidiary of Professionals Group,Inc., owns 84.1% of the issued and outstanding shares of Holdings.  The Company has an Expense AllocationAgreement with ProNational covering indirect expenses and salaries of keycompany personnel.  Expenses related tothis agreement were $42,000 and $150,000 for the three and nine months endedSeptember 30, 2002 compared to $90,000 and $424,000 for the same periods in2001.

 

On June 27, 2001,Professionals Group, Inc. and Medical Assurance, Inc. formed a new holdingcompany, ProAssurance Corporation (“ProAssurance”), that owns all of the stockof Medical Assurance, Inc. and Professionals Group, Inc.  Medical Assurance, Inc., ProNational andMEEMIC continue to serve policyholders under the umbrella of the newProAssurance holding company.

 

OnMarch 18, 2002, Holdings announced that it intends to acquire all of itsoutstanding shares of stock not currently owned by ProAssurance, for $29 pershare in cash (a total of 1,182,298 fully diluted shares) and, on July 9, 2002,Holdings announced that it had entered into a definitive agreement pursuant to which shareholders other thanProAssurance (which owns the shares through its ProNational subsidiary) willhave the opportunity to sell their shares to Holdings in a tender offer at aprice per share of $29.00, net to the shareholders in cash.  If certain conditions are satisfied, theagreement contemplates that the remaining shares would be acquired through amerger at the same price.  The committeeof independent directors has received a written opinion of its financialadvisor that, from a financial point of view, the consideration to be paid tothe independent shareholders is fair to such shareholders. The tender offer andmerger are subject to prior approval by the independent shareholders ofHoldings and to various other conditions. There can be no assurance that thetransaction will be completed. The proposed transaction and final terms of thedefinitive agreement have been unanimously approved by Holdings’ Board ofDirectors, including its committee of independent directors not affiliated withProAssurance. As a result of the completion of the offer, Holdings’ stock couldbe delisted from the Nasdaq Stock Market and its registration under theSecurities Exchange Act of 1934, as amended, could be terminated.  Holdings intends to use primarily its ownexisting cash resources to fund the purchase of the shares.

 

On March 18, 2002, alawsuit was filed against Holdings, its directors and ProAssurance, in theSixth Circuit Court in Oakland County, Michigan by a purported shareholder ofHoldings seeking to enjoin the transaction described above.  The suit is captioned *David Osher v Adamo, et al.*,02-039218-CP.  The suit, which purportedto be a class action on behalf of the minority shareholders, alleged, amongother things that the transaction has been timed to freeze out the minorityshareholders, that the proposed transaction is unfair and that ProAssurance andthe directors have violated their fiduciary duties.  The lawsuit also sought monetary damages in an undeterminedamount and recovery of plaintiffs’ costs and attorneys’ fees.  On September 10, 2002, the plaintiff agreedto dismiss the lawsuit and the court approved the dismissal with prejudice on

 

8

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September 11, 2002.  No payments of any kind were made by MEEMIC Holdings,ProAssurance or the directors to plaintiff or his counsel to obtain thedismissal of the case.

 

**(4)           RevenueInformation**

 

The Company operates as asingle segment where private passenger automobile coverage is the primary line,and homeowners, boat and umbrella coverages are offered as accommodationproducts.  Revenue is from unaffiliatedcustomers.  Net premiums written and netpremiums earned from each of these products is as follows:

 
|                   |   | **Three  Months Ended  September 30,** |   | **Nine  Months Ended  September 30,** |   |
|------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                   |   | **2002**                               |   | **2001**                              |   | **2002** |   | **2001** |   |
|                   |   | **(In thousands)**                     |   |
| Net premiums  written: |   |                                   |   |                                  |   |   |   |   |   |
| Personal  automobile   |   | $                                      | 33,226 |                                  | $      | 30,702 |   | $ | 99,960 |   | $ | 88,844 |   |
| Homeowners             |   | 8,226                                  |   | 5,464                                 |   | 19,003 |   | 13,441 |   |
| Boat                   |   | 173                                    |   | 128                                   |   | 442 |   | 324 |   |
| Umbrella               |   | 2                                      |   | 1                                     |   | 5 |   | 4 |   |
| Total                  |   | $                                      | 41,627 |                                  | $      | 36,295 |   | $ | 119,410 |   | $ | 102,613 |   |
|                   |   |                                   |   |                                  |   |   |   |   |   |
| Net premiums  earned:  |   |                                   |   |                                  |   |   |   |   |   |
| Personal  automobile   |   | $                                      | 33,250 |                                  | $      | 30,639 |   | $ | 94,343 |   | $ | 86,781 |   |
| Homeowners             |   | 5,549                                  |   | 4,137                                 |   | 15,190 |   | 11,707 |   |
| Boat                   |   | 115                                    |   | 83                                    |   | 298 |   | 191 |   |
| Umbrella               |   | 2                                      |   | 1                                     |   | 4 |   | 3 |   |
| Total                  |   | $                                      | 38,916 |                                  | $      | 34,860 |   | $ | 109,835 |   | $ | 98,682 |   |

 

**(5)           Effectsof New Accounting Pronouncements**

 

In June 2001, theFinancial Accounting Standards Board issued SFAS No. 141 “BusinessCombinations”.  SFAS No. 141 requiresthat the purchase method of accounting be used for all business combinationswith a closing date after June 30, 2001. This statement eliminates the pooling-of-interest method of accountingfor business combinations.  SFAS No. 141also includes guidance on the initial recognition and measurement of goodwilland other intangible assets in a business combination.  As the Company has not had a businesscombination after June 30, 2001, the adoption of SFAS No. 141 did not affectthe results of operations or financial position of the Company.

 

The Financial AccountingStandards Board has also issued SFAS No. 142 “Goodwill and Other IntangibleAssets” which supersedes APB Opinion 17 “Intangible Assets,” and is effectivefor fiscal years beginning after December 15, 2001.  SFAS No. 142 addresses how goodwill and other intangible assetsshould be accounted for in

 

9

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financial statements upon acquisition and how theseitems should be accounted for subsequent to acquisition.  Contrary to APB Opinion 17, SFAS No. 142does not presume that goodwill and all other intangible assets are wastingassets requiring amortization.  Instead,goodwill and intangible assets that have indefinite useful lives will be testedat least annually for impairment.  Ifgoodwill and intangible assets are deemed to be impaired, the change will becharged through the Statement of Operations. SFAS No. 142 requires additional disclosure of information aboutgoodwill and other intangible assets in the years subsequent to theiracquisition.  Intangible assets net ofaccumulated amortization were $30.4 million at September 30, 2002 and theCompany determined there are currently no impaired intangible assets which havean indefinite useful life.  Thus,adopting SFAS No. 142 did not affect the current results of operations with anyadditional charges for impairment, but has eliminated current annualamortization expense of approximately $2.9 million.  The Company applied SFAS No. 142 on January 1, 2002.  The amortization expense, net income andearnings per share of the Company as adjusted for this change for the period ofinitial application and prior period are as follows:

 
|                                                      |   | **For the  Three Months  Ended September 30,** |   | **For the  Nine Months  Ended September 30,** |   |
|-----------------------------------------------------------|--------|------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                      |   | **2002**                                       |   | **2001**                                      |   | **2002** |   | **2001** |   |
| Reported net  income                                      |   | $                                              | 5,976  |                                          | $      | 4,630 |   | $ | 15,237 |   | $ | 8,649 |   |
| Add back:  Goodwill amortization                          |   | —                                         |   | 340                                           |   | — |   | 1,020 |   |
| Add back: Sales  Rep/Agency agreements amortization       |   | —                                         |   | 115                                           |   | — |   | 345 |   |
| Adjusted net  income                                      |   | $                                              | 5,976  |                                          | $      | 5,085 |   | $ | 15,237 |   | $ | 10,014 |   |
|                                                      |   |                                           |   |                                          |   |   |   |   |   |
| Earnings per  common share - basic                        |   |                                           |   |                                          |   |   |   |   |   |
| Reported net  income                                      |   | $                                              | 0.89   |                                          | $      | 0.69 |   | $ | 2.28 |   | $ | 1.30 |   |
| Goodwill  amortization                                    |   | —                                         |   | 0.05                                          |   | — |   | 0.15 |   |
| Sales Rep/Agency  agreements amortization                 |   | —                                         |   | 0.02                                          |   | — |   | 0.05 |   |
| Adjusted net  income per common share - basic             |   | $                                              | 0.89   |                                          | $      | 0.76 |   | $ | 2.28 |   | $ | 1.50 |   |
|                                                      |   |                                           |   |                                          |   |   |   |   |   |
| Earnings per  common share - assuming dilution            |   |                                           |   |                                          |   |   |   |   |   |
| Reported net  income                                      |   | $                                              | 0.88   |                                          | $      | 0.68 |   | $ | 2.25 |   | $ | 1.28 |   |
| Goodwill  amortization                                    |   | —                                         |   | 0.05                                          |   | — |   | 0.15 |   |
| Sales Rep/Agency  agreements amortization                 |   | —                                         |   | 0.02                                          |   | — |   | 0.05 |   |
| Adjusted net  income per common share - assuming dilution |   | $                                              | 0.88   |                                          | $      | 0.75 |   | $ | 2.25 |   | $ | 1.48 |   |

 

10

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The Financial AccountingStandards Board also issued SFAS No. 144 “Accounting for the Impairment orDisposal of Long-Lived Assets” which supercedes SFAS No. 121 “Accounting forthe Impairment of Long-Lived Assets and for Long-Lived Assets to Be DisposedOf,” and the accounting and reporting provisions of APB Opinion No. 30“Reporting the Results of Operations-Reporting the Effects of Disposal of aSegment of a Business, and Extraordinary, Unusual and Infrequently OccurringEvents and Transactions,” and is effective for fiscal years beginning afterDecember 15, 2001.  SFAS No. 144establishes a single accounting model for the disposal of long-livedassets.  As the Company does not holdlong-lived assets, the adoption of SFAS No. 144 did not affect the results ofoperations or financial position of the Company.

 

**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

The following discussion and analysis should be readin conjunction with the condensed consolidated financial statements and thenotes thereto included elsewhere in this report and in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2001.  The following discussion of our financialcondition and results of operations contains certain forward-looking statementsrelating to our anticipated future financial condition and operating resultsand our current business plans.  Theseforward-looking statements represent only our outlook as of the date of thisreport.  While we believe anyforward-looking statements we have made are reasonable, actual results coulddiffer materially since the statements are based on our current expectationsand are subject to risks and uncertainties. These risks and uncertainties include, but are not limited to, thefollowing: an increase in the frequency and severity of claims; uncertaintiesinherent in reserve estimates; the occurrence of catastrophic events or acts ofterrorism; a change in the demand for, pricing of, or supply of reinsurance orinsurance; changing and implementing new salesforce contracts; increasedcompetitive pressure; changing rates of inflation; a deterioration in generaleconomic conditions; and other risks and uncertainties listed or discussed inour annual or quarterly reports filed with the Securities and ExchangeCommission.  See also, the disclosuresin the Company’s Annual Report on Form 10-K “Item 1 – Business – Forward-Looking Statements”.  Other factors not currently anticipated bymanagement may also materially and adversely affect the Company’s results ofoperations.  The Company does notundertake, and expressly disclaims any obligation, to update or alter itsforward-looking statements whether as a result of new information, futureevents or otherwise, except as required by applicable law.

 

**Overview**

 

We provide private passenger automobile, homeowners,boat and umbrella insurance primarily to educational employees and theirimmediate families in the State of Michigan through our MEEMIC subsidiary.  We sell our insurance contracts through over95 sales representatives associated with our insurance agency subsidiary, whichis the exclusive distributor of our products. As of September 30, 2002, we had 152,548 policies in force, representing182,058 insured vehicles, 53,554 homes, 2,743 boats and 839 personal umbrellapolicies.

 

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**Financial Condition- September 30,2002 Compared to December 31, 2001**

 

Our total assets increased to $376.9 million atSeptember 30, 2002 from $341.7 million at December 31, 2001.  The majority of our assets consists ofinvestments and cash, which totaled $255.8 million at September 30, 2002 and$222.7 million at December 31, 2001.  Weprimarily invest in high quality bonds with the objective of providing stableincome while maintaining liquidity at appropriate levels for our current andlong-term requirements.  Investmentsconsist primarily of government bonds, municipal bonds, collateralized mortgageobligations, and investment grade corporate bonds.  The modified duration of investments was 3.34 years at September30, 2002 compared to 3.90 years at December 31, 2001.  The decrease in the modified duration of our investments duringthe three months ended September 30, 2002 was primarily the result of increasedcash and cash equivalents at September 30, 2002 compared to December 31, 2001due to curtailing new long-term investment purchases so that cash will beavailable to satisfy the potential short-term liquidity requirements of theproposed minority share buy back transaction described in Note 3 of the Notesto Condensed Consolidated Financial Statements.  At September 30, 2002, the portfolio had an average Standard& Poor’s security quality rating of AA (Excellent), and there were nosecurities in default concerning the timely payment of interest and principal.  Our gross unrealized gains and grossunrealized losses in investments in securities were $12.5 million and $1.5million, respectively, at September 30, 2002 and $6.2 million and $732,000,respectively, at December 31, 2001. These changes in our gross unrealized gains and losses were a result offluctuating bond market values due to volatility of interest rates in themarketplace.

 

Our recorded estimates of loss and loss adjustmentexpense reserves were $126.6 million at September 30, 2002 compared to $124.4million at December 31, 2001.  The $2.2million net increase in reserves at September 30, 2002 was due to growth in thenumber of insured vehicles and homeowner policies in force.

 

Unearned premiums were $50.9 million at September 30,2002 and $41.3 million at December 31, 2001. The increase in unearned premiums at September 30, 2002 compared toDecember 31, 2001 of 23.2% was due to the increase in premiums written and thetiming of renewals for the auto book of business that has a concentration of6-month renewal dates in April and October. Other liabilities were $19.2 million at September 30, 2002 and $14.9million at December 31, 2001.  Theincrease at September 30, 2002 was due primarily to the timing of payments forfederal income taxes and the timing of settlement for certain purchases ofinvestments.

 

Our book value per common share outstanding was $27.01at September 30, 2002, compared to $24.14 at December 31, 2001.  Shareholders’ equity was $180.2 million atSeptember 30, 2002, compared to $161.1 million at December 31, 2001.  This increase of $19.1 million was primarilydue to net income of $15.2 million and an increase in other comprehensiveincome of $3.6 million.  We expect to use retainedearnings to finance future growth and to purchase the minority shares in theproposed transaction described in Note 3 of the Notes to Condensed ConsolidatedFinancial Statements subject to the terms and conditions of the relatedagreement and plan of merger.

 

12

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**Critical Accounting Policies**

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requires usto make estimates and assumptions in certain circumstances that affect amountsreported in the accompanying condensed consolidated financial statements andrelated footnotes. These estimates and assumptions are evaluated on an on-goingbasis based on historical developments, market conditions, industry trends andother information we believe to be reasonable under the circumstances. Therecan be no assurance that actual results will conform to our estimates andassumptions, and that reported results of operations will not be materiallyadversely affected by the need to make accounting adjustments to reflectchanges in these estimates and assumptions from time to time.  Item 7 of our Annual Report on Form 10-Kdiscusses several critical accounting policies which we believe are mostsensitive to estimates and judgments and involve a higher degree of judgmentand complexity. There have been no material changes to that information duringthe first three quarters of 2002.

 

**Results of Operations – Three andNine Months Ended September 30, 2002 Compared to Three and Nine Months EndedSeptember 30, 2001**

 

Net income for the three and nine months endedSeptember 30, 2002 was $6.0 million and $15.2 million, respectively, comparedto $4.6 million and $8.6 million for the same periods in 2001.  Our income from operations before taxes was$8.7 million and $22.0 million, respectively, for the three and nine monthsended September 30, 2002 compared to $6.2 million and $11.6 million for thesame periods in 2001.  The increase inincome from operations for the three months ended September 30, 2002 was due toincreased premiums, fewer reported claims and a $700,000 reduction in goodwilland other intangibles amortization compared to the same period in 2001.  The increase in income from operations forthe nine months ended September 30, 2002 was also due to increased premiums andfewer reported claims in addition to a $700,000 capital gain, and a $2.1million reduction in goodwill and other intangibles amortization, whereas thesame period in 2001 included $1.7 million of severance charges in connectionwith the ProAssurance merger, and $1.5 million in investment losses for writedowns in the value of certain California utilities.

 

Our direct premiums written were $45.5 million and$129.4 million for the three and nine months ended September 30, 2002,respectively, an increase of 23.9% and 22.3% from the comparable periods in2001.  Direct premiums written forautomobile coverage were $36.7 million and $109.0 million for the three andnine months ended September 30, 2002, respectively, an increase of 18.8% and19.5%, respectively, compared to the comparable periods in 2001.  Approximately 35% of the increased premiumsfor autos was due to an increase in the statutory assessments required by theMichigan Catastrophic Claims Association (“MCCA”), which assessments areincluded in the rates charged to policyholders.  The remaining increase in auto premiums reflects policyholdergrowth of 5.0% and an increase in the value of autos being insured.  The number of insured vehicles increased to182,058 at September 30, 2002 from 173,406 at September 30, 2001.  Our homeowners business also continued toincrease.  Direct premiums written forhomeowners were $8.5 million and $19.7 million for the three and nine monthsended September 30, 2002, respectively, an increase of 49.1% and 39.7%,respectively, compared to the comparable periods in 2001.  The increases in homeowners premiums weredue to a 22% rate increase for homeowners effective July 1, 2002 in addition toa 12% rate increase for homeowners that became effective October 1, 2001, anincrease in the value of homes insured, and growth in the number ofpolicyholders.  The number of insuredhomes increased 14.2% to 53,554 at September 30, 2002 from 46,893 at September30, 2001.  In addition to

 

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homeowners, we also offer boat and umbrella policies as anaccommodation to our primary line of private passenger automobileinsurance.  Direct premiums written forboat and umbrella were $231,000 and $595,000 for the three and nine monthsperiods ended September 30, 2002.

 

Net premiums written were $41.6 million and $119.4million for the three and nine months ended September 30, 2002, respectively,an increase of 14.6% and 16.4%, respectively, compared to the comparableperiods in 2001.  The increase instatutory assessments ceded to the MCCA discussed in the preceding paragraphwas greater than the increase in associated direct premiums written for thethree and nine months ended September 30, 2002 due to the timing of the MCCAassessment and the level of premiums ceded to the MCCA.  Net premiums earned were $38.9 million and$109.8 million for the three and nine months ended September 30, 2002,respectively, an increase of 11.4% and 11.3%, respectively, compared to thecomparable periods in 2001.  Theincrease in net premiums earned for the three and nine months ended September30, 2002 lagged behind the increase in net premiums written due to the businessgrowth and timing differences between when revisions for rate increases becameeffective and when they are earned for accounting purposes.

 

Our combined ratio was 85.8% and 89.2% for the threeand nine months ended September 30, 2002, respectively, compared to 89.3% and94.2% for the three and nine months ended September 30, 2001,respectively.  Overall, our net lossratio for the three and nine months ended September 30, 2002 was 57.3% and59.9%, respectively, compared to 59.5% and 61.7% for the three and nine monthsended September 30, 2001, respectively.

 

Net loss ratios for the personal automobile andhomeowners products were as follows:

 
|                          |   | **For the  Three Months  Ended September 30,** |   | **For the  Nine Months  Ended September 30,** |   |
|-------------------------------|--------|------------------------------------------------|--------|-----------------------------------------------|--------|
|                          |   | **2002**                                       |   | **2001**                                      |   | **2002** |   | **2001** |   |
| Personal auto liability       |   | 40.1                                           | %      | 50.6                                          | %      | 47.9 | % | 46.4 | % |
| Personal auto physical damage |   | 63.9                                           | %      | 62.1                                          | %      | 64.8 | % | 64.0 | % |
| Total personal auto           |   | 54.5                                           | %      | 58.0                                          | %      | 58.6 | % | 55.5 | % |
| Homeowners                    |   | 73.7                                           | %      | 71.2                                          | %      | 68.9 | % | 85.5 | % |
| Overall loss ratio            |   | 57.3                                           | %      | 59.5                                          | %      | 59.9 | % | 61.7 | % |

 

The decreases in overall net loss ratio and combinedratio for the third quarter of 2002 were due to milder weather, decreases inboth the frequency and severity of auto liability claims and rateincreases.  The increased personal autoliability claims reported in the first quarter of 2002 leveled off during thesecond and third quarters of 2002, and personal auto losses for the nine monthsended September 30, 2002 were comparable to the same period in 2001.  Although the homeowners net loss ratioincreased in the third quarter of 2002 due to a large fire loss, the net lossratio for the nine months ended September 30, 2002 improved over the sameperiod in 2001 due to decreases in claim frequency and two rate increases.

 

Policy acquisition and underwriting expenses were $8.6million and $24.6 million for the three and nine months ended September 30,2002, respectively, compared to $8.0 million and $24.4 million for the sameperiods in 2001.  The underwritingexpenses ratios were 22.0% and

 

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22.4% for the three and nine months ended September 30, 2002respectively, compared to 22.9% and 24.7% for comparable periods in 2001.  The decreases in 2002 are due to a one time$1.7 million charge in 2001 for expenses related to severance payments fromchange of control agreements in connection with the ProAssurance merger.  Additionally, there was a premium tax refundof $400,000 recorded in 2002 from a prior year tax reduction and increasedefficiencies as costs increased at a slower pace than premiums.  Amortization expense was $30,000 and $92,000for the three and nine months ended September 30, 2002, respectively, comparedto $731,000 and $2.2 million for the comparable periods in 2001,respectively.  The decrease was due tothe adoption of SFAS No. 142.

 

Net investment income, excluding realized investmentgains and losses, was $2.7 million and $8.4 million for the three and ninemonths ended September 30, 2002, respectively, compared to $2.8 million and$8.4 million for the three and nine months ended September 30, 2001,respectively.  Declining interest ratesand the need for cash to satisfy the potential short-term liquidityrequirements of the proposed minority share buy back transaction more thanoffset the positive effect of a larger portfolio of investments during thethree and nine months ended September 30, 2002, compared to the same periods in2001.  Consistent with 2001, investmentincome for the three and nine months ended September 30, 2002 was attributableprimarily to interest income and not to realized capital gains.  However, the increase in realized capitalgains for the nine months ended September 30, 2002 was due to the maturity andsubsequent recovery of $700,000 in June 2002 from one of the securities thathad been previously written down in June 2001 as securities deemed to haveother than temporary declines in fair value due to uncertainty with Californiaelectric utilities.

 

The weighted average tax equivalent book yield of thefixed maturity portfolio was 6.62% for the nine months ended September 30,2002, compared to 7.02% for the same period in 2001.  The annualized tax equivalent total rate of return, whichincludes both income and changes in market value of securities, was 14.25% and10.97% for the three and nine months ended September 30, 2002, compared to16.43% and 10.16% for the three and nine months ended September 30, 2001.  The returns for the three months endedSeptember 30, 2002 were lower than 2001 due to lower interest rates and thedownturn in the U.S. economy.

 

**Liquidityand Capital Resources**

 

Our primary sources of cash are from premiums,investment income and proceeds from maturities of portfolio investments.  The principal uses of cash are for paymentsof claims, commissions, taxes, operating expenses and purchases of investments.  Cash flow and liquidity are managed in orderto meet anticipated short-term payment obligations, and to maximizeopportunities to earn interest on those funds not immediately required.

 

Our cash increased by $18.8 million during the ninemonths ended September 30, 2002 compared to an increase of $5.2 million for thesame period in 2001.  The increase forthe nine months ended September 30, 2002 was primarily the result of curtailingnew long-term investment purchases so that cash will available to satisfy thepotential short-term liquidity requirements of the proposed minority share buyback transaction discussed in Note 3 of the Notes to Condensed ConsolidatedFinancial Statements.  Cash provided byoperations for the nine months ended September 30, 2002 was $27.4 millioncompared to $20.0 million for the nine months ended September 30, 2001.  The $7.4 million increase was primarily dueto the increase in premiums written during the nine months ended September 30,2002.

 

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The proposed minority share buy back transaction describedin Note 3 of the Notes to Condensed Consolidated Financial Statements will havea material effect on Holdings’ liquidity. The total amount to be paid in thetransaction to holders of Holdings stock and options is $33.1 million, which isexpected to be paid from Holdings’ existing cash and investments.  We do not expect to incur indebtedness tofinance the transaction or to affect the reserves of MEEMIC, but Holdings’ cashwill be substantially depleted as a result of the transaction.  The transaction is subject to a number ofconditions, including approval by our shareholders other than ProNational andits affiliates and associates.  If thetransaction does not occur or is substantially delayed, we may resume thepurchase of new longer-term investments.

 

Historically, our liquidity requirements have been metby funds provided by operations.  Due tothe short-term nature of our products, a decrease in premiums or demand for ourproducts could have a significant impact on the availability of our funds.  Also, a substantial increase in paid claims,the occurrence of multi-catastrophe events or insolvency of our reinsurerscould negatively impact our cash flows and our ability to pay our liabilities.

 

Based on historical trends, market conditions and ourbusiness plans, we believe that our existing resources and sources of fundswill be sufficient to meet our short term and long term liquidity needs.  However, because economic, market andregulatory conditions may change, there can be no assurance that our funds willbe sufficient to meet these liquidity needs.

 

**Item3.  Quantitative and QualitativeDisclosures About Market Risk**

 

Market risk is the risk of loss due to adverse changesin market rates and prices.  Our primarymarket risk exposure is to changes in interest rates.  The active management of interest rate risk is essential to ouroperations.

 

We manage market risk through an investment committeeconsisting of senior officers of the Company, consultants and a professionalinvestment advisor.  The committeeperiodically measures the impact that an instantaneous rise in interest rateswould have on the fair value of securities. The committee also measures the duration, or interest rate sensitivity,of a fixed income security or portfolio. Our investment policy, with which we were in compliance at September 30,2002, limits the duration of our portfolio to a maximum of 300% of the durationof our liabilities.

 

We are vulnerable to interest rate risk because, likeother insurance companies, we invest primarily in fixed maturity securities,which are interest-sensitive assets.  Wedo not invest in fixed maturity securities for trading purposes.  Mortgage-backed securities, which make upapproximately 20% of our investment portfolio, are particularly susceptible tointerest rate changes.  We investprimarily in classes of mortgage-backed securities that are less subject toprepayment risk and, as a result, somewhat less susceptible to interest raterisk than other mortgage-backed securities.

 

Our fixed maturity investment portfolio was valued at$198.1 million at September 30, 2002 and had a duration of 3.34 years.  The following table shows the effects of achange in interest rate on the fair value and duration of our portfolio.  We have assumed an immediate

 

16

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increase or decrease of 1% or 2% in interest rate.  You should not consider this assumption orthe values shown in the table to be a prediction of actual future results.

 
| **Change in Rates** |   | **Portfolio  Value**        |    | **Change  in Value** |   | **Modified  Duration** |   |
|---------------------|--------|-----------------------------|---------|----------------------|--------|------------------------|--------|
|                |   | **(dollars  in thousands)** |    |
| +2%                 |   | $                           | 183,578 |                 | $      | (14,492                | )      | 4.06 |   |
| +1%                 |   | $                           | 191,076 |                 | $      | (6,994                 | )      | 4.29 |   |
| 0%                  |   | $                           | 198,070 |                 | — |                   | 3.34   |   |
| -1%                 |   | $                           | 205,100 |                 | $      | 7,030                  |   | 3.55 |   |
| -2%                 |   | $                           | 211,888 |                 | $      | 13,818                 |   | 3.75 |   |

 

The other financial instruments, which include cash,premiums due from reinsurers and accrued investment income, do not produce asignificant difference in fair value when included in the market risk analysisdue to their short-term nature.

 

**Item 4. Controls and Procedures**

 

Within the 90 days prior to the date of this report, the Companycarried out an evaluation, under the supervision and with the participation ofthe Company’s management, including its Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures pursuant to Rule 13a-15 of theSecurities Exchange Act of 1934.  Basedupon that evaluation, the Company’s Chief Executive Officer and Chief FinancialOfficer concluded that the Company’s disclosure controls and procedures areeffective to cause the material information required to be disclosed by theCompany in the reports that it files or submits under the Securities ExchangeAct of 1934 to be recorded, processed, summarized and reported within the timeperiods specified in the Commission’s rules and forms.  There have been no significant changes inthe Company’s internal controls or in other factors which could significantlyaffect internal controls subsequent to the date the Company carried out itsevaluation.

 

**PART II.  OTHER INFORMATION**

 

**Item1. Legal Proceedings**

 

As previously disclosedin the Company’s Report on Form 10-Q for the quarter ended March 31, 2002, onMarch 18, 2002, a complaint was filed against Holdings, its directors and itsparent company, ProAssurance Corporation, in the 6th Circuit Courtin Oakland County, Michigan by a purported shareholder of Holdings seeking toenjoin the transaction described above.  The suit, which purported to be aclass action on behalf of the minority shareholders, alleged, among otherthings that the transaction has been timed to freeze out the minorityshareholders, that the proposed transaction is unfair and that ProAssurance andthe directors have violated their fiduciary duties.  The complaint alsosought damages in an undetermined amount.   On September 10, 2002, the plaintiff agreed to dismiss thelawsuit and the court approved the dismissal with prejudice on September 11,2002.  No payments of any kind were madeby the Company,

 

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ProAssurance or the directors to plaintiff or hiscounsel to obtain the dismissal of the case.

 

**Item 6. Exhibits and Reports on Form8-K**

 

(a)           Exhibits

 

10.24                     Agreement andPlan of Merger, dated July 9, 2002 (as amended as of September 18, 2002)(included as Appendix A to the Company’s definitive proxy statement on Schedule14A filed with the Securities and Exchange Commission on October 16, 2002 andincorporated herein by reference).

 

99.2                           Certificationof Principal Executive Officer pursuant to 18 U.S.C. Section 1350.

 

99.3                           Certificationof Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

 

(b)           Reports on Form 8-K.

 

On July 12, 2002, the Company filed a Current Reporton Form 8-K dated July 9, 2002, furnishing information under Items 5 and7.  This report did not includefinancial statements.

 

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                           | MEEMIC Holdings, Inc.                                             |
|--------------------------------|-------------------------------------------------------------------|
|                           |                                                              |
|                           |                                                              |
| Date:   November 14, 2002 | /s/ Christine C. Schmitt                                          |   |
|                           | Christine C. Schmitt                                              |
|                           | Its:  Chief  Financial Officer, Secretary and Treasurer      |
|                           | (as principal  financial officer and on behalf of the registrant) |

 

 

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**CERTIFICATIONS**

 

I, Victor T. Adamo, certify that:

 

1.  I havereviewed this quarterly report on Form 10-Q of MEEMIC Holdings, Inc.;

 

2.  Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

 

3.  Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.  Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a) designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b) evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.  Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a) all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b) any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.  Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
|   | Date: November 14, 2002 |                    |
|--------|-------------------------|-------------------------|
|   |                    |                    |
|   |                    |                    |
|   |                    | /s/ Victor T. Adamo     |   |
|   |                    | Victor T. Adamo         |
|   |                    | Chief Executive Officer |

 

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I, Christine C. Schmitt, certify that:

 

1.  I havereviewed this quarterly report on Form 10-Q of MEEMIC Holdings, Inc.;

 

2.  Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.  Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.  Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a) designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b) evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.  Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a) all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b) any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.  Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent

 

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evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
|   | Date: November 14, 2002 |                     |
|--------|-------------------------|--------------------------|
|   |                    |                     |
|   |                    |                     |
|   |                    | /s/ Christine C. Schmitt |   |
|   |                    | Christine C. Schmitt     |
|   |                    | Chief Financial Officer  |

 

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