-------------------------------------------------------------------------------

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                      -----------------------------------
                                   FORM 10-Q

          X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         ---
                        SECURITIES EXCHANGE ACT OF 1934

              FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010

                                       OR

             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         ---
                        SECURITIES EXCHANGE ACT OF 1934

               For the Transition Period from           to
                                              ---------    ---------

                       COMMISSION FILE NUMBER:  1-15135

                             CHANDLER (U.S.A.), INC.
             (Exact name of registrant as specified in its charter)

             OKLAHOMA                             73-1325906
  (State or other jurisdiction of    (I.R.S. Employer Identification No.)
   incorporation or organization)

                  1010 MANVEL AVENUE, CHANDLER, OKLAHOMA 74834
              (Address of principal executive offices and zip code)

    Registrant's telephone number, including area code:  (405) 258-0804

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


  Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).  YES     NO
                                                  ---    ---

   Indicate by check mark whether the registrant is a large accelerated filer,
 an accelerated filer, a non-accelerated filer, or a smaller reporting
 company.  See the definitions of "large accelerated filer," "accelerated
 filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  	                     Accelerated filer
                         --                                           --
Non-accelerated filer  X  (Do not check if a smaller reporting company)
                       --
   Smaller reporting company
                              --

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

  The number of common shares, $1.00 par value, of the registrant outstanding
on October 31, 2010 was 2,484, which are owned by Chandler Insurance Company,
Ltd.

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<PAGE>
                                                                      Page i

                            CHANDLER (U.S.A.), INC.

                                     INDEX
                                     -----

PART I - FINANCIAL INFORMATION
------------------------------

ITEM 1.    FINANCIAL STATEMENTS:
--------------------------------
Consolidated Balance Sheets as of September 30, 2010 (unaudited)
      and December 31, 2009  .................................................1

Consolidated Statements of Operations for the three months
      ended September 30, 2010 and 2009 (unaudited)  .........................2

Consolidated Statements of Operations for the nine months
      ended September 30, 2010 and 2009 (unaudited)  .........................3

Consolidated Statements of Comprehensive Income for the three
      months ended September 30, 2010 and 2009 (unaudited)  ..................4

Consolidated Statements of Comprehensive Income for the nine
      months ended September 30, 2010 and 2009 (unaudited)  ..................5

Consolidated Statements of Cash Flows for the nine months
      ended September 30, 2010 and 2009 (unaudited)  .........................6

Notes to Interim Consolidated Financial Statements (unaudited)  ..............7

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
--------------------------------------------------------------------------
           RESULTS OF OPERATIONS ............................................16
           ---------------------

ITEM 4. CONTROLS AND PROCEDURES .............................................22
--------------------------------

PART II - OTHER INFORMATION
---------------------------
Item 1.     Legal Proceedings  ..............................................23

Item 1A.    Risk Factors  ...................................................23

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds  ....23

Item 3.     Defaults Upon Senior Securities  ................................23

Item 4.     Reserved  .......................................................23

Item 5.     Other Information  ..............................................23

Item 6.     Exhibits  .......................................................23

Signatures  .................................................................24

<PAGE>
                                                                      PAGE 1

                           CHANDLER (U.S.A.), INC.
                         CONSOLIDATED BALANCE SHEETS
                 (Amounts in thousands except share amounts)

<TABLE>
<CAPTION>
                                                                                          September 30, December 31,
                                                                                              2010          2009
                                                                                          ------------  ------------
                                                                                           (Unaudited)
<S>                                                                                       <C>           <C>
ASSETS
Investments
 Fixed maturities available for sale, at fair value
  Restricted (amortized cost $29,142 and $34,923 in 2010 and 2009, respectively) ........ $    29,369   $    35,392
  Unrestricted (amortized cost $65,842 and $66,735 in 2010 and 2009, respectively .......      67,238        67,829
 Equity securities at fair value (cost $0 in 2010 and 2009) .............................          45            42
 Mortgage loan on real estate, at cost ..................................................       2,287             -
 Short-term investments at fair value (amortized cost $0 and $380
  in 2010 and 2009, respectively) .......................................................           -           380
                                                                                          ------------  ------------
  Total investments .....................................................................      98,939       103,643
Cash and cash equivalents ($1,968 and $2,194 restricted in 2010 and 2009, respectively)..      10,418         7,430
Accrued investment income ...............................................................         683         1,228
Premiums receivable, less allowance for non-collection of $421 and $291 at
 2010 and 2009, respectively ............................................................      23,325        25,305
Reinsurance recoverable on paid losses ..................................................         348           316
Reinsurance recoverable on paid losses from related parties .............................       2,935             -
Reinsurance recoverable on unpaid losses, less allowance for
 non-collection of $253 and $298 at 2010 and 2009, respectively .........................      40,286        36,588
Reinsurance recoverable on unpaid losses from related parties ...........................      21,321        21,360
Prepaid reinsurance premiums ............................................................       3,856         3,424
Prepaid reinsurance premiums to related parties .........................................      12,945        12,276
Deferred policy acquisition costs .......................................................       2,422         1,546
Property and equipment, net .............................................................       6,906         7,174
Amounts due from related parties ........................................................      11,317        12,697
State insurance licenses, net ...........................................................       3,745         3,745
Amortizable intangible assets, net ......................................................         929             -
Other assets ............................................................................      13,432        10,613
                                                                                          ------------  ------------
Total assets ............................................................................ $   253,807   $   247,345
                                                                                          ============  ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
 Unpaid losses and loss adjustment expenses ............................................. $   110,641   $   107,341
 Unearned premiums ......................................................................      47,183        44,519
 Policyholder deposits ..................................................................       7,747         9,094
 Accrued taxes and other payables .......................................................       8,728         6,831
 Premiums payable .......................................................................       3,199         4,266
 Premiums payable to related parties ....................................................           -           522
 Senior debentures ......................................................................       6,979         6,979
 Junior subordinated debentures issued to affiliated trusts .............................      20,620        20,620
                                                                                          ------------  ------------
  Total liabilities .....................................................................     205,097       200,172
                                                                                          ------------  ------------

Shareholder's equity
 Common stock, $1.00 par value, 50,000 shares authorized;
  2,484 shares issued and outstanding ...................................................           2             2
 Paid-in surplus ........................................................................      60,584        60,584
 Accumulated deficit ....................................................................     (12,977)      (14,472)
 Accumulated other comprehensive income:
 Unrealized gain on investments available for sale, net of deferred income taxes ........       1,101         1,059
                                                                                          ------------  ------------
  Total shareholder's equity ............................................................      48,710        47,173
                                                                                          ------------  ------------
Total liabilities and shareholder's equity .............................................. $   253,807   $   247,345
                                                                                          ============  ============

</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.

<PAGE>

                                                                      PAGE 2
                            CHANDLER (U.S.A.), INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                  Three months ended September 30,
                                                                  --------------------------------
                                                                       2010               2009
                                                                  -------------      -------------
<S>                                                               <C>                <C>
Premiums and other revenues
  Direct premiums written and assumed ........................... $     27,418        $    20,396
  Reinsurance premiums ceded ....................................       (3,278)            (2,682)
  Reinsurance premiums ceded to related parties .................       (7,264)            (5,293)
                                                                  -------------      -------------

    Net premiums written and assumed ............................       16,876             12,421
  Decrease (increase) in unearned premiums ......................       (1,407)               836
                                                                  -------------      -------------

    Net premiums earned .........................................       15,469             13,257

Investment income, net ..........................................          696                838
Interest income, net from related parties .......................          100                111
Realized investment gains, net ..................................        1,408                194
Other income ....................................................          725                825
                                                                  -------------      -------------

  Total premiums and other revenues .............................       18,398             15,225
                                                                  -------------      -------------

Operating costs and expenses
  Losses and loss adjustment expenses, net of amounts
    ceded to related parties of $4,064 and $3,078 in
    2010 and 2009, respectively .................................        9,932              8,039
  Policy acquisition costs, net of ceding commissions
    received from related parties of $2,195 and $2,012 in
    2010 and 2009, respectively .................................        3,653              2,941
  General and administrative expenses ...........................        3,012              2,699
  Interest expense ..............................................          581                585
                                                                  -------------      -------------

    Total operating costs and expenses ..........................       17,178             14,264
                                                                  -------------      -------------

Income before income taxes ......................................        1,220                961
Income tax provision ............................................         (398)              (365)
                                                                  -------------      -------------

  Net income .................................................... $        822       $        596
                                                                  =============      =============

</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.


<PAGE>

                                                                      PAGE 3
                            CHANDLER (U.S.A.), INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                   Nine months ended September 30,
                                                                  --------------------------------
                                                                       2010               2009
                                                                  -------------      -------------
<S>                                                               <C>                <C>
Premiums and other revenues
  Direct premiums written and assumed ........................... $     71,385        $    66,284
  Reinsurance premiums ceded ....................................       (8,252)            (8,060)
  Reinsurance premiums ceded to related parties .................      (18,946)           (17,361)
                                                                  -------------      -------------

    Net premiums written and assumed ............................       44,187             40,863
  Decrease (increase) in unearned premiums ......................       (1,564)             1,472
                                                                  -------------      -------------

    Net premiums earned .........................................       42,623             42,335

Investment income, net ..........................................        2,160              2,379
Interest income, net from related parties .......................          314                326
Realized investment gains, net ..................................        2,503              1,383
Other income ....................................................        1,653              1,600
                                                                  -------------      -------------

  Total premiums and other revenues .............................       49,253             48,023
                                                                  -------------      -------------

Operating costs and expenses
  Losses and loss adjustment expenses, net of amounts
    ceded to related parties of $10,620 and $11,303 in
    2010 and 2009, respectively .................................       26,413             25,801
  Policy acquisition costs, net of ceding commissions
    received from related parties of $5,631 and $6,600 in
    2010 and 2009, respectively .................................        9,722              8,735
  General and administrative expenses ...........................        9,188              8,523
  Interest expense ..............................................        1,736              1,778
                                                                  -------------      -------------

    Total operating costs and expenses ..........................       47,059             44,837
                                                                  -------------      -------------

Income before income taxes ......................................        2,194              3,186
Income tax provision ............................................         (699)            (1,194)
                                                                  -------------      -------------

  Net income .................................................... $      1,495       $      1,992
                                                                  =============      =============

</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.

<PAGE>
                                                                     PAGE 4


                             CHANDLER (U.S.A.), INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                    (Unaudited)
                              (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                Three months ended September 30,
                                                                --------------------------------
                                                                    2010                2009
                                                                -------------       ------------
<S>                                                             <C>                 <C>
Net income .................................................... $        822        $       596
                                                                -------------       ------------
Other comprehensive income (loss), before income tax:
  Unrealized gains on securities:
    Unrealized holding gains arising during period ............          907              2,497
    Less:  Reclassification adjustment for gains included in
    net income ................................................       (1,408)              (194)
                                                                -------------       ------------
Other comprehensive income (loss), before income tax ..........         (501)             2,303
Income tax benefit (provision) related to items of other
  comprehensive income (loss) .................................          171               (783)
                                                                -------------       ------------
Other comprehensive income (loss), net of income tax ..........         (330)             1,520
                                                                -------------       ------------

Comprehensive income .......................................... $        492        $     2,116
                                                                =============       ============

</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.

<PAGE>
                                                                     PAGE 5


                             CHANDLER (U.S.A.), INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                    (Unaudited)
                              (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                 Nine months ended September 30,
                                                                --------------------------------
                                                                    2010                2009
                                                                -------------       ------------
<S>                                                             <C>                 <C>
Net income .................................................... $      1,495        $     1,992
                                                                -------------       ------------

Other comprehensive income, before income tax:
  Unrealized gains on securities:
    Unrealized holding gains arising during period ............        2,566              2,061
    Less:  Reclassification adjustment for gains included in
      net income ..............................................       (2,503)            (1,383)
                                                                -------------       ------------
Other comprehensive income, before income tax .................           63                678
Income tax provision related to items of other
  comprehensive income ........................................          (21)              (231)
                                                                -------------       ------------
Other comprehensive income, net of income tax .................           42                447
                                                                -------------       ------------

Comprehensive income .......................................... $      1,537        $     2,439
                                                                =============       ============

</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.

<PAGE>
                                                                     PAGE 6

                             CHANDLER (U.S.A.), INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                               Nine months ended September 30,
                                                                              --------------------------------
                                                                                  2010                2009
                                                                              ------------        ------------
<S>                                                                           <C>                 <C>
OPERATING ACTIVITIES
Net income .................................................................. $     1,495         $     1,992
 Add (deduct):
 Adjustments to reconcile net income to cash provided by (applied to)
   operating activities:
   Realized investment gains, net ..........................................       (2,503)             (1,383)
   Net gains on sale of property and equipment .............................            6                  29
   Amortization and depreciation ...........................................        1,119               1,371
   Provision for non-collection of premiums ................................          151                  65
   Provision for non-collection of reinsurance recoverables ................           21                 160
   Provision for non-collection of debenture ...............................           30                  30
   Net change in non-cash balances relating to operating activities:
     Accrued investment income .............................................          545                  57
     Premiums receivable ...................................................        1,845               4,882
     Reinsurance recoverable on paid losses ................................          (98)               (623)
     Reinsurance recoverable on paid losses from related parties ...........       (2,935)                  -
     Reinsurance recoverable on unpaid losses ..............................       (3,653)             (2,755)
     Reinsurance recoverable on unpaid losses from related parties .........           39              (1,013)
     Prepaid reinsurance premiums ..........................................         (432)               (502)
     Prepaid reinsurance premiums to related parties .......................         (669)                633
     Deferred policy acquisition costs .....................................         (876)                (28)
     Other assets ..........................................................         (550)                246
     Unpaid losses and loss adjustment expenses ............................        3,300               3,719
     Unearned premiums .....................................................        2,664              (1,603)
     Policyholder deposits .................................................       (1,347)              1,144
     Accrued taxes and other payables ......................................         (559)               (897)
     Premiums payable ......................................................       (1,067)                155
     Premiums payable to related parties ...................................         (522)               (200)
                                                                              ------------        ------------
   Cash provided by (applied to) operating activities ......................       (3,996)              5,479
                                                                              ------------        ------------

INVESTING ACTIVITIES
 Short-term investments:
   Purchases ...............................................................            -                (380)
   Maturities ..............................................................          380               5,660
 Unrestricted fixed maturities available for sale:
   Purchases ...............................................................      (89,703)            (58,249)
   Sales ...................................................................       68,088              25,984
   Maturities ..............................................................       30,395               8,215
 Mortgage loan on real estate:
   Purchases ...............................................................       (2,350)                  -
   Principal payments received .............................................           63                   -
 Cost of property and equipment purchased ..................................         (321)               (140)
 Proceeds from sale of property and equipment ..............................            9                  19
 Cost of subsidiary purchased, net of cash received ........................         (958)                  -
                                                                              ------------        ------------
   Cash provided by (applied to) investing activities ......................        5,603             (18,891)
                                                                              ------------        ------------

FINANCING ACTIVITIES
 Payments and loans from related parties ...................................        4,081               1,912
 Payments and loans to related parties .....................................       (2,700)             (2,344)
                                                                              ------------        ------------
   Cash provided by (applied to) financing activities ......................        1,381                (432)
                                                                              ------------        ------------

Increase (decrease) in cash and cash equivalents during the period .........        2,988             (13,844)

Cash and cash equivalents at beginning of period ...........................        7,430              20,636
                                                                              ------------        ------------
Cash and cash equivalents at end of period .................................  $    10,418         $     6,792
                                                                              ============        ============

</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.


<PAGE>
                                                                     PAGE 7


                             CHANDLER (U.S.A.), INC.

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                 NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
                                   (Unaudited)

NOTE 1.  BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements of Chandler
(U.S.A.), Inc. ("Chandler USA") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  They do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements.  However, except as
disclosed herein, there have been no material changes in the information
included in Chandler USA's Annual Report on Form 10-K for the year ended
December 31, 2009.  In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included.  The results of operations for the interim periods ended
September 30, 2010 are not necessarily indicative of the results that may be
expected for the year.

     The consolidated financial statements include the accounts of Chandler
USA and all wholly owned subsidiaries that meet consolidation requirements
including National American Insurance Company ("NAICO"), Chandler Insurance
Managers, Inc. ("CIMI") and Chandler Insurance Services Agency, Inc. ("CISA").

NOTE 2.  SEGMENT INFORMATION

     Chandler USA has two reportable operating segments:  property and casualty
insurance and agency.  The segments are managed separately due to the
differences in the nature of the insurance products and services sold.  The
following table presents a summary of Chandler USA's operating segments for the
periods indicated:

<TABLE>
<CAPTION>
                                                   PROPERTY
                                                     AND
                                                   CASUALTY                  INTERSEGMENT    REPORTED
                                                  INSURANCE       AGENCY     ELIMINATIONS    BALANCES
                                                 ------------  ------------  ------------  ------------
                                                                     (In thousands)
<S>                                              <C>           <C>           <C>           <C>
THREE MONTHS ENDED SEPTEMBER 30, 2010
Revenues from external customers (1) ........... $    15,570   $       624   $         -   $    16,194
Intersegment revenues ..........................          33           518          (551)            -
Segment profit before income taxes (2) .........       1,148            72             -         1,220

THREE MONTHS ENDED SEPTEMBER 30, 2009
Revenues from external customers (1) ........... $    13,338   $       744   $         -   $    14,082
Intersegment revenues ..........................          40           534          (574)            -
Segment profit before income taxes (2) .........         531           430             -           961

NINE MONTHS ENDED SEPTEMBER 30, 2010
Revenues from external customers (1) ........... $    42,910   $     1,366   $         -   $    44,276
Intersegment revenues ..........................          87         1,297        (1,384)            -
Segment profit (loss) before income taxes (2) ..       2,461          (267)            -         2,194
Segment assets .................................     252,322         9,385        (7,900)      253,807

NINE MONTHS ENDED SEPTEMBER 30, 2009
Revenues from external customers (1) ........... $    42,671   $     1,264   $         -   $    43,935
Intersegment revenues ..........................         111         1,940        (2,051)            -
Segment profit before income taxes (2) .........       2,572           614             -         3,186
Segment assets .................................     236,972         9,940        (7,508)      239,404

---------------------------------------------------

<FN>

(1) Consists of net premiums earned and other income.
(2) Includes net realized investment gains.

</TABLE>

<PAGE>
                                                                     PAGE 8

     Net premiums earned and losses and loss adjustment expenses within the
property and casualty insurance segment can be identified to Chandler USA
designated insurance programs and to each line of insurance.  Chandler USA's
chief operating decision makers review net premiums earned and losses and
loss adjustment expenses in assessing the performance of the insurance
programs and lines of business.  In addition, Chandler USA's chief
operating decision makers consider many other factors such as the lines
of business offered within an insurance program and the states in which
the insurance programs are offered.  Certain discrete financial
information is not readily available by insurance programs or lines of
insurance, including assets, interest income, and investment gains or
losses, allocated to each insurance program or line of insurance.
Chandler USA does not consider its insurance programs or lines of
insurance to be reportable segments, however, the following supplemental
information pertaining to each insurance program's net premiums earned
and losses and loss adjustment expenses is presented by insurance
program and line of insurance for the property and casualty insurance
segment.
<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED SEPTEMBER 30,       NINE MONTHS ENDED SEPTEMBER 30,
                                           --------------------------------      --------------------------------
                                               2010                2009              2010                2009
                                           ------------        ------------      ------------        ------------
                                                                       (In thousands)
<S>                                        <C>                 <C>               <C>                 <C>
INSURANCE PROGRAM:
-----------------------------------------
  NET PREMIUMS EARNED
  Standard lines ........................  $    15,237         $    12,828       $    41,919         $    40,433
  Political subdivisions ................          226                 373               612               1,654
  Other .................................            6                  56                92                 248
                                           ------------        ------------      ------------        ------------
  TOTAL .................................  $    15,469         $    13,257       $    42,623         $    42,335
                                           ============        ============      ============        ============

  LOSSES AND LOSS ADJUSTMENT EXPENSES
  Standard lines ........................  $    9,779          $     7,678       $    26,173         $    23,647
  Political subdivisions ................          75                  200                29               1,370
  Other .................................          78                  161               211                 784
                                           ------------        ------------      ------------        ------------
  TOTAL .................................  $    9,932          $     8,039       $    26,413         $    25,801
                                           ============        ============      ============        ============

</TABLE>

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED SEPTEMBER 30,       NINE MONTHS ENDED SEPTEMBER 30,
                                           --------------------------------      --------------------------------
                                               2010                2009              2010                2009
                                           ------------        ------------      ------------        ------------
                                                                       (In thousands)
<S>                                        <C>                 <C>               <C>                 <C>
LINES OF INSURANCE:
-----------------------------------------
  NET PREMIUMS EARNED
  Workers compensation ..................  $     6,527         $     5,531       $    16,814         $    15,813
  Automobile liability ..................        4,119               3,135            12,408              12,288
  Other liability .......................        3,160               3,314             8,818               9,936
  Automobile physical damage ............        1,305               1,138             3,535               4,073
  Inland marine .........................          182                  75               532                 110
  Property ..............................          160                  49               449                  66
  Other .................................           16                  15                67                  49
                                           ------------        ------------      ------------        ------------
  TOTAL .................................  $    15,469         $    13,257       $    42,623         $    42,335
                                           ============        ============      ============        ============


  LOSSES AND LOSS ADJUSTMENT EXPENSES
  Workers compensation ..................  $     5,043         $     3,132       $    11,310         $    11,847
  Automobile liability ..................        3,505               3,008            10,345               7,881
  Other liability .......................          438               1,227             1,826               4,104
  Automobile physical damage ............          781                 525             2,309               1,915
  Inland marine .........................           53                   -               228                 (63)
  Property ..............................           80                   -               210                 (34)
  Other .................................           32                 147               185                 151
                                           ------------        ------------      ------------        ------------
  TOTAL .................................  $     9,932         $     8,039       $    26,413         $    25,801
                                           ============        ============      ============        ============

</TABLE>

<PAGE>
                                                                     PAGE 9

NOTE 3.  COMMITMENTS AND CONTINGENCIES

     During March 2001, Chandler USA entered into a $3.8 million sale and
leaseback transaction for certain owned equipment for three years.  During
March 2004 and March 2007, the lease was extended for additional three year
terms, and during March 2010, the lease was extended for an additional three
years with monthly rental installments equal to the sum of (i) $10,929 plus
(ii) interest on the unpaid lease balance at 1% over JP Morgan Chase Bank
prime which was 4.25% at September 30, 2010.  The interest rate is subject to
a minimum rate of 5.5%.  Chandler USA has the option to repurchase the
equipment at the end of the lease for approximately $1.5 million (the
"Balloon Payment"), or may elect to have the lessor sell the equipment.  If
the election to sell the equipment is made, Chandler USA would retain any
proceeds exceeding the Balloon Payment.  If the proceeds were less than the
Balloon Payment, Chandler USA would be required to pay the difference between
the proceeds and the Balloon Payment, not to exceed approximately $1.2 million.

     Chandler USA has guaranteed the obligations of Chandler Capital Trust I
and Chandler Capital Trust II (the "Capital Trusts") with respect to the trust
preferred securities they have outstanding.  The Capital Trusts distribute the
interest received from Chandler USA on the junior subordinated debentures to
the holders of the trust preferred securities to fulfill their obligations
with respect to such securities.  The Capital Trusts are wholly owned non-
consolidated subsidiaries of Chandler USA.  Chandler USA guarantees payment
of distributions and the redemption price of the trust preferred securities
until the securities are redeemed in full.  The total redemption price of the
trust preferred securities is $20.0 million.

NOTE 4.  LITIGATION

     In October 1999, NAICO provided surety bonds for Gulsby Engineering,
Inc. ("Gulsby") in connection with contracts between Gulf Liquids New River
Project, LLC ("Gulf Liquids") and Gulsby for the construction of two gas
processing plants in Louisiana. During 2001, Gulsby became unable to pay
various vendors resulting in payments to vendors by NAICO totaling $20,182,499.
In August 2001, NAICO filed suit in federal court in Louisiana alleging that
Gulf Liquids had breached its obligations under the bonds by materially
altering certain contracts and that, as a result, NAICO was exonerated on the
bonds and should recover the amounts paid to vendors. In the fall of 2001,
Gulsby and Bay Limited, another contractor with whom Gulsby had entered into
a joint venture for the construction of other gas processing plants for Gulf
Liquids, filed lawsuits relating to those plants in Houston, Texas. Gulf
Liquids filed original actions and counterclaims. NAICO intervened in the
Texas lawsuits and, in addition, sued Williams Energy Marketing and Trading
(which later became Williams Power Company, Inc.) ("Williams") alleging fraud,
breach of contract, tortious interference with contractual relations,
conspiracy and alter ego. These claims were asserted against both Gulf Liquids
and Williams. Gulf Liquids asserted counterclaims alleging breach of contract
against NAICO and requesting contractual and statutory damages ranging from
$40 million to $80 million. The cases were consolidated for trial in the 215th
Judicial District Court in Harris County, Texas.

     The trial in the Harris County cases began in late April 2006, and
concluded August 1, 2006.  The jury found in favor of NAICO and Gulsby, Bay
Limited and the joint venture between Gulsby and Bay Limited ("Gulsby-Bay
Plant Partners") on all counts and fixed damages against Gulf Liquids and
Williams totaling $402,568,089. The damages determined by the jury included
a total of $325 million in punitive damages. Among other findings, the jury
found:

1. Williams tortiously interfered with NAICO's contractual relationship with
   Gulsby and Gulf Liquids; and
2. Williams fraudulently induced NAICO to issue the surety bonds; and
3. Williams defrauded NAICO after the bonds were issued; and
4. Williams' actions were malicious; and
5. Gulf Liquids fraudulently induced NAICO to issue the surety bonds; and
6. Gulf Liquids breached its obligations to NAICO under the bonds; and
7. Williams is responsible for the claims against Gulf Liquids because Gulf
   Liquids is the alter ego of Williams; and
8. There were material alterations (cardinal changes) to the contracts NAICO
   bonded.

     The amounts the jury found owing to NAICO included $20,182,499 in actual
damages, against both Gulf Liquids and Williams, $20 million in punitive
damages against Gulf Liquids, and $50 million in punitive damages against
Williams. The verdicts in favor of Gulsby included $20,941,436 in actual
damages against both Gulf Liquids and Williams, $25 million in punitive
damages against Gulf Liquids and $60 million in punitive damages against
Williams.

     NAICO is subrogated to any recovery by Gulsby to the extent of NAICO's
losses on the bonds including loss adjustment expenses with interest from the
date the losses and loss expenses were paid.

<PAGE>
                                                                     PAGE 10

     A significant amount of NAICO's losses on the surety bonds were ceded to
various reinsurers and NAICO will be required to reimburse these reinsurers
in accordance with the agreements between NAICO and the reinsurers.

     On January 28, 2008, the court entered a final judgment denying Gulf
Liquid's claims against NAICO and Gulsby, denying all of NAICO's claims
against Gulf Liquids and Williams, and entering judgment for Gulsby against
Gulf Liquids for $15,651,927 plus interest at 7.25% compounded annually from
January 28, 2008 until paid.  The court also ordered Gulf Liquids to pay
Gulsby's taxable court costs, estimated at $100,000.  Gulf Liquids has
appealed the judgment entered in favor of Gulsby and the denial of its claims
against NAICO and Gulsby.  NAICO has appealed the trial court's denial of its
claims against Gulf Liquids and Williams and seeks entry of judgment upon the
jury verdicts for the amounts the jury found should be awarded to NAICO.
Gulsby has also appealed the trial court's final judgment, contending that
judgment should be entered in its favor against Gulf Liquids and Williams in
accordance with the jury verdicts.  The recoverable amounts deducted from
Chandler USA's net liability for losses and loss adjustment expenses related
to this litigation were approximately $10.1 million at September 30, 2010 and
December 31, 2009.

NOTE 5.  NEW ACCOUNTING STANDARDS

     Chandler USA has reviewed the recently issued accounting pronouncements
and concluded that the following new accounting standards and accounting
standard updates are applicable to Chandler USA.

     In June 2009, the Financial Accounting Standards Board ("FASB") issued
new guidance on the accounting for transfers of financial assets.  The new
guidance requires additional disclosures for transfers of financial assets,
including securitization transactions, and any continuing exposure to the
risks related to transferred financial assets.  There is no longer a concept
of a qualifying special-purpose entity, and the requirements for derecognizing
financial assets have changed.  Chandler USA adopted this new guidance as of
January 1, 2010.  The adoption of this new guidance did not have any impact
on its consolidated financial statements.

     In June 2009, the FASB issued new guidance on the accounting for variable
interest entities.  The new guidance requires an enterprise to perform an
analysis to determine whether the enterprise's variable interest or interests
give it a controlling financial interest in a variable interest entity; to
require ongoing reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity; to eliminate the quantitative
approach previously required for determining the primary beneficiary of a
variable interest entity; to add an additional reconsideration event for
determining whether an entity is a variable interest entity when any changes
in facts and circumstances occur such that holders of the equity investment
at risk, as a group, lose the power from voting rights or similar rights of
those investments to direct the activities of the entity that most
significantly impact the entity's economic performance; and to require
enhanced disclosures that will provide users of financial statements with
more transparent information about an enterprise's involvement in a variable
interest entity.  Chandler USA adopted this new guidance as of January 1,
2010.  The adoption of this new guidance did not have any impact on its
consolidated financial statements.  While the trusts that hold Chandler USA's
junior subordinated debentures are variable interest entities, and Chandler
USA has 100% ownership and has guaranteed the performance of the trusts,
Chandler USA is not the primary beneficiary because its interest is not
variable.  Therefore, Chandler USA does not consolidate the trusts under this
new guidance.

     In January 2010, the FASB issued new guidance on improving disclosures
about fair value measurements.  The new guidance does not change how fair
values are measured.  Chandler USA adopted this new guidance as of January 1,
2010.  The adoption of this new guidance did not have any impact on its
consolidated financial statements.  The disclosures required by this new
guidance are included in Note 8.

     In July 2010, the FASB issued new guidance on disclosures about the
credit quality of financing receivables and the allowance for credit losses.
The new guidance is effective for interim and annual reporting periods
ending after December 15, 2010.  The new guidance requires additional
disclosures about financing receivables and the allowances for credit
losses.  The new guidance does not change how financing receivables or
allowances for credit losses are measured.  Accordingly, except for the
additional disclosures, Chandler USA does not anticipate that the initial
application of the new guidance will have any impact on Chandler USA's
consolidated financial statements.

     In October 2010, the FASB issued new guidance on the accounting for costs
associated with acquiring or renewing insurance contracts.  The new guidance
modifies the definition of the types of costs incurred by insurance entities
that can be capitalized in the acquisition of new and renewal contracts.  The
new guidance specifies that the costs must be based on successful efforts.
The new guidance is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2011.  Early adoption is
permitted, but only at the beginning of an entity's annual reporting period.
Chandler USA is currently evaluating the impact that this new guidance will
have, if any, on its consolidated financial statements.

<PAGE>
                                                                     PAGE 11

NOTE 6.  BUSINESS COMBINATION

     On July 1, 2010, CIMI acquired the customer accounts and certain assets
and assumed certain liabilities of a retail insurance agency.  The purchase
price of the acquisition was $896,000, including $654,000 that was applied to
premiums receivable due from the agency in lieu of a cash payment and a
$242,000 earn-out liability.  The earn-out obligation is based on the value
of the expected future payments to be made on behalf of the seller of the
acquired business in accordance with the provisions outlined in the purchase
agreement.  Due to the short-term nature of the earn-out provision of
approximately 24 months, the carrying value is estimated to be the fair value.

     The estimated fair value of the assets and liabilities acquired as of the
acquisition date were $945,000 for purchased customer accounts, $62,000 for
premiums receivable and $111,000 for liabilities assumed.  The purchase price
allocation was preliminarily established at the time of the acquisition and
will be subsequently reviewed within the first year of operations to determine
the necessity for allocation adjustments.  The purchased customer accounts are
being amortized on a straight-line basis over a 15 year estimated useful life.
Amortization expense for amortizable intangible assets was $16,000 for the
three and nine months ended September 30, 2010.  No goodwill was recorded as a
result of the acquisition.

     The results of operations for the acquisition have been combined with
those of Chandler USA since the acquisition date.  The total revenues and
income after income taxes from the acquisition included in the consolidated
statement of operations were $231,000 and $63,000, respectively, for the three
and nine months ended September 30, 2010.  If the acquisition had occurred as
of the beginning of the period, Chandler USA's results would not have been
materially different than the results reported previously.  The retail
insurance business acquired is operated through Chandler USA's new
subsidiary CISA.


NOTE 7.  INVESTMENTS AND INVESTMENT INCOME

     Net investment income and realized investment gains are summarized in the
following table.  These amounts are net of investment expenses.

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED     NINE MONTHS ENDED
                                                             SEPTEMBER 30,          SEPTEMBER 30,
                                                           ------------------    ------------------
                                                             2010      2009        2010      2009
                                                           --------  --------    --------  --------
                                                                        (In thousands)
<S>                                                        <C>       <C>         <C>       <C>
Interest on fixed-maturity investments ................... $   717   $   883     $ 2,267   $ 2,457
Interest on short-term investments and cash equivalents ..      19        10          35       106
Interest on mortgage loan on real estate .................      25         -          38         -
Investment expenses ......................................     (65)      (55)       (180)     (184)
                                                           --------  --------    --------  --------
  Investment income, net .................................     696       838       2,160     2,379

Realized gains, net - fixed maturity investments .........   1,408       194       2,503     1,383
                                                           --------  --------    --------  --------
                                                           $ 2,104   $ 1,032     $ 4,663   $ 3,762
                                                           ========  ========    ========  ========

</TABLE>

     Investment expenses included $21,000 and $60,000 in the third quarter and
first nine months of 2010, and $19,000 and $73,000 in the third quarter and
first nine months of 2009, respectively, in expense to subsidize a premium
finance program for certain insureds of NAICO with an unaffiliated premium
finance company.


<PAGE>
                                                                     PAGE 12
     The amortized cost of fixed maturities or cost of equity securities,
gross unrealized gains or losses, fair value and carrying value of investments
are as follows:

<TABLE>
<CAPTION>

                                                                  GROSS      GROSS
                                                                UNREALIZED UNREALIZED   FAIR     CARRYING
SEPTEMBER 30, 2010                                       COST     GAINS      LOSSES     VALUE      VALUE
---------------------------------------------------  ---------- ---------- ---------- ---------- ----------
FIXED MATURITIES AVAILABLE FOR SALE:                                     (In thousands)
<S>                                                  <C>        <C>        <C>        <C>        <C>
U.S. Treasury securities and obligations
   of U.S. government corporations
   and agencies ...................................  $  56,032  $     481  $     (17) $  56,496  $  56,496
Corporate obligations .............................      8,614         81         (1)     8,694      8,694
Obligations of states and political subdivisions ..     30,338      1,120        (41)    31,417     31,417
                                                     ---------- ---------- ---------- ---------- ----------
                                                     $  94,984  $   1,682  $     (59) $  96,607  $  96,607
                                                     ========== ========== ========== ========== ==========
EQUITY SECURITIES:
Corporate stock ...................................  $       -  $      45  $       -  $      45  $      45
                                                     ========== ========== ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>

                                                                  GROSS      GROSS
                                                                UNREALIZED UNREALIZED   FAIR     CARRYING
DECEMBER 31, 2009                                        COST     GAINS      LOSSES     VALUE      VALUE
---------------------------------------------------  ---------- ---------- ---------- ---------- ----------
FIXED MATURITIES AVAILABLE FOR SALE:                                      (In thousands)
<S>                                                  <C>        <C>        <C>        <C>        <C>
U.S. Treasury securities and obligations
   of U.S. government corporations
   and agencies ...................................  $  40,395  $     731  $     (52) $  41,074  $  41,074
Corporate obligations .............................     31,989        732       (130)    32,591     32,591
Public utilities ..................................      2,052         43          -      2,095      2,095
Obligations of states and political subdivisions ..     27,222        331        (92)    27,461     27,461
                                                     ---------- ---------- ---------- ---------- ----------
                                                     $ 101,658  $   1,837  $    (274) $ 103,221  $ 103,221
                                                     ========== ========== ========== ========== ==========
EQUITY SECURITIES:
Corporate stock ...................................  $       -  $      42  $       -  $      42  $      42
                                                     ========== ========== ========== ========== ==========

</TABLE>

     Other than investments in bonds and notes of the U.S. Government and U.S.
Government agencies and authorities, Chandler USA did not hold any fixed
maturity investments that exceeded 10% of shareholder's equity at September
30, 2010 or December 31, 2009.

     The fair value of Chandler USA's investments with continuous gross
unrealized losses at September 30, 2010 is presented below:

<TABLE>
<CAPTION>

                                         LESS THAN 12 MONTHS      12 MONTHS OR LONGER             TOTAL
                                       -----------------------  -----------------------  ------------------------
                                                    UNREALIZED               UNREALIZED               UNREALIZED
                                       FAIR VALUE     LOSSES    FAIR VALUE     LOSSES    FAIR VALUE     LOSSES
                                       -----------  ----------  -----------  ----------  -----------  ----------
                                                                   (In thousands)
<S>                                    <C>          <C>         <C>          <C>         <C>          <C>
U.S. Treasury securities and
  obligations of U.S. government
  corporations and agencies .......... $    4,978   $     (17)  $        -   $       -   $    4,978   $     (17)
Corporate securities .................        999          (1)           -           -          999          (1)
Obligations of states and political
  subdivisions .......................      1,825         (41)           -           -        1,825         (41)
                                       -----------  ----------  -----------  ----------  -----------  ----------
                                       $    7,802   $     (59)  $        -   $       -   $    7,802   $     (59)
                                       ===========  ==========  ===========  ==========  ===========  ==========

</TABLE>

<PAGE>
                                                                     PAGE 13

     The unrealized losses of Chandler USA's fixed maturity investments were
primarily caused by changes in market interest rates since the date of
purchase, current conditions in the capital markets and the impact of those
conditions on market prices.  The contractual terms of those investments do
not permit the issuer to settle the securities at a price less than the
amortized cost of the investment.  Chandler USA regularly reviews its
investment portfolio for factors that may indicate that a decline in fair
value of an investment is other than temporary.  Based on an evaluation of
the issues, including, but not limited to, Chandler USA's intentions to sell
or ability to hold the investments; the length of time and amount of the
unrealized loss; and the credit ratings of the issuers of the investments,
Chandler USA does not consider these investments to be other-than-temporarily
impaired at September 30, 2010.

     Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.  The maturities of investments in fixed
maturities at September 30, 2010 are shown below:

<TABLE>
<CAPTION>

                                                      AVAILABLE FOR SALE
                                                    ------------------------
                                                     AMORTIZED
                                                        COST      FAIR VALUE
                                                    ------------  ----------
                                                         (In thousands)
<S>                                                 <C>           <C>
Due in one year or less ..........................  $     7,911   $   7,970
Due after one year through five years ............       11,042      11,322
Due after five years through ten years ...........       36,687      37,655
Due after ten years ..............................       39,344      39,660
                                                    ------------  ----------
                                                    $    94,984   $  96,607
                                                    ============  ==========

</TABLE>

     Realized gains and losses from sales of investments are shown below:

<TABLE>
<CAPTION>

                                 THREE MONTHS ENDED   NINE MONTHS ENDED
                                    SEPTEMBER 30,       SEPTEMBER 30,
                                 ------------------  ------------------
                                   2010      2009      2010      2009
                                 --------  --------  --------  --------
                                             (In thousands)
<S>                              <C>       <C>       <C>       <C>
FIXED MATURITIES:
Gross realized gains ........... $ 1,408   $   194   $ 2,661   $ 1,383
Gross realized losses ..........       -         -      (158)        -
                                 --------  --------  --------  --------
  Total net realized gains ..... $ 1,408   $   194   $ 2,503   $ 1,383
                                 ========  ========  ========  ========

</TABLE>

     The mortgage loan on real estate is recorded at carrying value, which is
comprised of the original cost net of repayments.  The mortgage loan has an
interest rate of prime plus 1%, which was 4.25% at September 30, 2010.  The
mortgage loan contract requires monthly payments of both principal and
interest.  The mortgage loan contract is due upon demand, and has an
amortization period of 10 years.

     NAICO is required to deposit cash and securities with regulatory agencies
in which it is licensed as a condition of conducting operations in the state.
In addition, NAICO has deposited cash and securities into a trust account as
collateral for a reinsurance agreement in which NAICO is the assuming
reinsurer.  NAICO has also established a letter of credit in the amount of
$500,000 and pledged cash and investments in this amount to secure reserves
assumed under a reinsurance agreement.  Certain insurance companies require
CIMI to hold unremitted net insurance premiums in a fiduciary capacity until
disbursed by CIMI.  At September 30, 2010, the total amount of cash and
securities restricted as a result of these arrangements was $31.3 million
which was a decrease of $6.2 million from December 31, 2009.

<PAGE>
                                                                     PAGE 14

NOTE 8.  FAIR VALUE MEASUREMENTS

     Fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.  The quality and reliability of the
information used to determine fair values is prioritized into three broad
categories, with the highest priority given to Level 1 inputs and the lowest
priority to Level 3 inputs.  These levels are defined as follows:

     Level 1 - Quoted prices (unadjusted) in active markets for identical
     assets or liabilities that the reporting entity has the ability to
     access at the measurement date.

     Level 2 - Observable inputs other than quoted prices included within
     Level 1 for the asset or liability, either directly or indirectly.  If
     an asset or liability has a specified term, a Level 2 input must be
     observable for substantially the full term of the asset or liability.

     Level 3 - Unobservable inputs for the asset or liability.

     The following table presents information about Chandler USA's assets
measured at fair value on a recurring basis as of September 30, 2010 and
December 31, 2009, and indicates the fair value hierarchy of the valuation
techniques utilized to determine such values.  Substantially all of the
prices of fixed maturities, equity securities and short-term investments
that are valued as Level 1 or Level 2 in the fair value hierarchy are
received from independent pricing services utilized by our investment
custodians.  No liabilities were measured at fair value at September 30,
2010 or December 31, 2009.

<TABLE>
<CAPTION>

                                                             FAIR VALUE MEASUREMENTS AT SEPTEMBER 30, 2010
                                                           --------------------------------------------------
                                                             QUOTED PRICES     SIGNIFICANT
                                                               IN ACTIVE         OTHER        SIGNIFICANT
                                                             MARKETS FOR       OBSERVABLE    UNOBSERVABLE
                                                           IDENTICAL ASSETS      INPUTS         INPUTS            TOTAL
   DESCRIPTION                                                  (LEVEL 1)       (LEVEL 2)      (LEVEL 3)        FAIR VALUE
---------------------------------------------------------  ---------------- ---------------- ---------------- ----------------
                                                                                      (In thousands)
<S>                                                        <C>              <C>              <C>              <C>
   Fixed maturities available for sale:
    U.S. Treasury securities and obligations of U.S.
     government corporations and agencies .............    $             -  $        56,496  $             -  $        56,496
    Corporate obligations .............................                  -            8,694                -            8,694
    Obligations of states and political subdivisions ..                  -           31,417                -           31,417
                                                           ---------------- ---------------- ---------------- ----------------
      Total fixed maturities available for sale .......                  -           96,607                -           96,607

   Equity securities - corporate stock ................                  -                -               45               45
                                                           ---------------- ---------------- ---------------- ----------------
     Total ............................................    $             -  $        96,607  $            45  $        96,652
                                                           ================ ================ ================ ================
</TABLE>


<PAGE>
                                                                     PAGE 15


<TABLE>
<CAPTION>

                                                             FAIR VALUE MEASUREMENTS AT DECEMBER 30, 2009
                                                           --------------------------------------------------
                                                             QUOTED PRICES     SIGNIFICANT
                                                               IN ACTIVE         OTHER        SIGNIFICANT
                                                             MARKETS FOR       OBSERVABLE    UNOBSERVABLE
                                                           IDENTICAL ASSETS      INPUTS         INPUTS            TOTAL
   DESCRIPTION                                                  (LEVEL 1)       (LEVEL 2)      (LEVEL 3)        FAIR VALUE
---------------------------------------------------------  ---------------- ---------------- ---------------- ----------------
                                                                                      (In thousands)
<S>                                                        <C>              <C>              <C>              <C>

   Fixed maturities available for sale:
    U.S. Treasury securities and obligations of U.S.
     government corporations and agencies .............    $             -  $        41,074  $             -  $        41,074
    Corporate obligations .............................                  -           32,591                -           32,591
    Public utilities ..................................                  -            2,095                -            2,095
    Obligations of states and political subdivisions ..                  -           27,461                -           27,461
                                                           ---------------- ---------------- ---------------- ----------------
     Total fixed maturities available for sale ........                  -          103,221                -          103,221

   Equity securities - corporate stock ................                  -                -               42               42
   Short-term investments .............................                  -              380                -              380
                                                           ---------------- ---------------- ---------------- ----------------
     Total ............................................    $             -  $       103,601  $            42  $       103,643
                                                           ================ ================ ================ ================

</TABLE>

     Prices for fixed maturities available for sale and short-term investments
were provided by various custodians that hold such assets on behalf of
Chandler USA.  The custodians utilize independent pricing services to
determine prices for these assets.  Management reviews the prices provided but
does not conduct an independent validation of the prices.  Any fixed
maturities that are not held by a custodian are priced using non-binding
broker quotations.  Total assets priced from broker quotations totaled
$774,000 and $377,000 at September 30, 2010 and December 31, 2009,
respectively, or 0.8% and 0.4% of total Level 2 assets in each period. There
were no transfers into or out of Level 1 or Level 2 during the third quarter
or nine months ended September 30, 2010.

     At September 30, 2010, Chandler USA's equity securities which were
measured at fair value using Level 3 inputs consisted of common stock
received in connection with an unaffiliated entity's conversion to a for-
profit corporation.  The fair value of this stock was based upon an
analytically determined valuation from an independent rating organization.
The following table presents additional information about assets measured
at fair value using Level 3 inputs for the three and nine-month periods
ended September 30, 2010:

<TABLE>
<CAPTION>

                                                         THREE MONTHS        NINE MONTHS
     FAIR VALUE MEASUREMENTS USING SIGNIFICANT              ENDED               ENDED
     UNOBSERVABLE INPUTS (LEVEL 3)                    SEPTEMBER 30, 2010  SEPTEMBER 30, 2010
   -------------------------------------------------  ------------------  ------------------
                                                                  (In thousands)
   <S>                                                <C>                 <C>
     Equity Securities-corporate stocks:
     Beginning balance .............................  $              42   $              42
       Total realized and unrealized gains (losses):
         Included in earnings ......................                  -                   -
         Included in other comprehensive income ....                  3                   3
       Purchases, issuances and settlements:
       Purchases ...................................                  -                   -
       Issuances ...................................                  -                   -
       Sales .......................................                  -                   -
       Settlements .................................                  -                   -
       Transfers into Level 3 ......................                  -                   -
       Transfers out of Level 3 ....................                  -                   -
                                                      ------------------  ------------------
     Ending balance ................................  $              45   $              45
                                                      ==================  ==================

</TABLE>

<PAGE>
                                                                     PAGE 16

NOTE 9. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS

     Estimated fair value amounts have been determined by Chandler USA using
available market information and appropriate valuation methodologies.  However,
considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value.  Accordingly, the estimates of fair values
presented herein are not necessarily indicative of the amounts that Chandler
USA could realize in a current market exchange.  The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.

     A number of Chandler USA's significant assets (including deferred policy
acquisition costs, property and equipment, reinsurance recoverables, prepaid
reinsurance premiums and state insurance licenses) and liabilities (including
unpaid losses and loss adjustment expenses and unearned premiums) are not
considered financial instruments.  Based on the short term nature or other
relevant characteristics, Chandler USA has concluded that the carrying value
of other assets and liabilities considered financial instruments, such as cash
equivalents, mortgage loan on real estate, premiums receivable, policyholder
deposits, accrued taxes and other payables, and premiums payable, approximates
their fair value as of September 30, 2010 and December 31, 2009.  The estimated
fair values of Chandler USA's fixed-maturity and equity security investments
are disclosed at Note 7.  The fair value of Chandler USA's senior debentures
was estimated to be $7.3 million as of September 30, 2010 and $7.1 million at
December 31, 2009, based on an analytically determined valuation from an
independent rating organization.  Chandler USA's senior debentures have not
historically traded regularly, and settlement at the reported fair value may
not be possible.  The senior debentures are redeemable by Chandler USA without
penalty or premium and may be purchased and cancelled by Chandler USA at a
price of less than the sum of the principal amount and accrued interest at any
time.  Chandler USA is obligated for $13.4 million principal amount of junior
subordinated debentures that mature in 2033 with a fixed interest rate of
9.75%, and $7.2 million principal amount of junior subordinated debentures
that mature in 2034 with a floating rate of 4.10% over LIBOR.  The interest
rate at September 30, 2010 was 4.40%.  The fair value of Chandler USA's junior
subordinated debentures was estimated to be $23.9 million and $22.0 million at
September 30, 2010 and December 31, 2009, respectively.





ITEM 2.              MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

     Some of the statements made in this Form 10-Q report, as well as
statements made by Chandler (U.S.A.), Inc. ("Chandler USA") in periodic press
releases and oral statements made by Chandler USA's officials constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.  Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of Chandler USA to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements.  Such factors include, among other
things, (i) general economic and business conditions; (ii) interest rate
changes; (iii) competition and regulatory environment in which Chandler USA
and its subsidiaries operate, including the ability to implement price
increases; (iv) claims frequency; (v) claims severity; (vi) catastrophic
events of unanticipated frequency or severity; (vii) the number of new and
renewal policy applications submitted to National American Insurance Company
("NAICO") by its agents; (viii) the ability of NAICO to obtain adequate
reinsurance in amounts and at rates that will not adversely affect its
competitive position; (ix) the ability of NAICO to collect reinsurance
recoverables; (x) the ability of NAICO to maintain favorable insurance
company ratings; and (xi) various other factors including ongoing litigation
matters.

<PAGE>
                                                                     PAGE 17

RESULTS OF OPERATIONS

PREMIUMS EARNED

     The following table sets forth premiums earned on a gross basis (before
reductions for premiums ceded to reinsurers) and on a net basis (after such
reductions) for each insurance program as well as each line of insurance for
the periods indicated:

<TABLE>
<CAPTION>

                                         GROSS PREMIUMS EARNED          NET PREMIUMS EARNED
                                      ---------------------------   ---------------------------
   THREE MONTHS ENDED SEPTEMBER 30,       2010           2009           2010           2009
   ---------------------------------- ------------   ------------   ------------   ------------
                                                            (In thousands)
   <S>                                <C>            <C>            <C>            <C>
   INSURANCE PROGRAMS:
   Standard lines ................... $    24,637    $    20,767    $    15,237    $    12,828
   Political subdivisions ...........         373            573            226            373
   Other ............................          12             64              6             56
                                      ------------   ------------   ------------   ------------
   TOTAL ............................ $    25,022    $    21,404    $    15,469    $    13,257
                                      ============   ============   ============   ============

   LINES OF INSURANCE:
   Workers compensation ............. $    10,106    $     8,464    $     6,527    $     5,531
   Automobile liability .............       6,013          4,585          4,119          3,135
   Other liability ..................       6,368          6,414          3,160          3,314
   Automobile physical damage .......       1,931          1,694          1,305          1,138
   Inland marine ....................         292            110            182             75
   Property .........................         290            115            160             49
   Other ............................          22             22             16             15
                                      ------------   ------------   ------------   ------------
   TOTAL ............................ $    25,022    $    21,404    $    15,469    $    13,257
                                      ============   ============   ============   ============

</TABLE>

<TABLE>
<CAPTION>

                                         GROSS PREMIUMS EARNED          NET PREMIUMS EARNED
                                      ---------------------------   ---------------------------
   NINE MONTHS ENDED SEPTEMBER 30,        2010           2009           2010           2009
   ---------------------------------- ------------   ------------   ------------   ------------
                                                            (In thousands)
   <S>                                <C>            <C>            <C>            <C>
   INSURANCE PROGRAMS:
   Standard lines ................... $    67,641    $    65,081    $    41,919    $    40,433
   Political subdivisions ...........         985          2,536            612          1,654
   Other ............................          95            270             92            248
                                      ------------   ------------   ------------   ------------
   TOTAL ............................ $    68,721    $    67,887    $    42,623    $    42,335
                                      ============   ============   ============   ============

   LINES OF INSURANCE:
   Workers compensation ............. $    25,995    $    24,365    $    16,814    $    15,813
   Automobile liability .............      18,014         17,866         12,408         12,288
   Other liability ..................      17,747         19,226          8,818          9,936
   Automobile physical damage .......       5,240          6,043          3,535          4,073
   Inland marine ....................         839            161            532            110
   Property .........................         815            155            449             66
   Other ............................          71             71             67             49
                                      ------------   ------------   ------------   ------------
   TOTAL ............................ $    68,721    $    67,887    $    42,623    $    42,335
                                      ============   ============   ============   ============

</TABLE>

     Gross premiums earned increased $3.6 million or 17% and $834,000 or 1% in
the third quarter and first nine months of 2010, respectively, compared to the
2009 periods.  Net premiums earned increased $2.2 million or 17% and $288,000
or less than 1% for the third quarter and first nine months of 2010,
respectively.

        Gross premiums earned in the standard lines program increased $3.9
million or 19% and increased $2.6 million or 4% in the third quarter and first
nine months of 2010, respectively, compared to the 2009 periods.  Gross
premiums earned in this program for workers compensation increased $1.7
million and $1.8 million in the third quarter and first nine months of 2010,
respectively, and gross premiums earned in this program for automobile
liability increased $1.5 million and $919,000 in the third quarter and first
nine months of 2010.  Gross premiums earned in this program for property and
inland marine business increased $357,000 and $1.3 million in the third
quarter and first nine months of 2010.  These increases were partially offset
by decreases in other liability and automobile physical damage premiums.  Net
premiums earned in this program increased $2.4 million or 19% and increased
$1.5 million or 4% in the third quarter and first nine months of 2010,
respectively.

<PAGE>
                                                                     PAGE 18

     From January 2007 to the second quarter of 2009, the property and inland
marine lines of insurance that were previously written by NAICO in the standard
lines program were written by Praetorian Insurance Company ("Praetorian")
through an arrangement between Praetorian and CIMI.  Under this arrangement,
CIMI received commission income for the business it produced for Praetorian.
NAICO handles all claims for this business under a separate claims handling
agreement with Praetorian.  CIMI and Praetorian terminated this arrangement
effective June 29, 2009, and NAICO resumed writing these lines of insurance in
this program.

     Gross premiums earned in the political subdivisions program decreased
$200,000 or 35% and $1.6 million or 61% in the third quarter and first nine
months of 2010, respectively, compared to the 2009 periods.  Net premiums
earned in this program decreased $147,000 or 39% and $1.0 million or 63% in
the third quarter and first nine months of 2010, respectively.  From January
2007 to the second quarter of 2009, the property and inland marine lines of
insurance in the political subdivisions program that were previously written
by NAICO were written by Praetorian through an arrangement between Praetorian
and CIMI.  CIMI and Praetorian terminated this arrangement effective June 29,
2009.  Effective June 1, 2009, the property, inland marine, automobile
liability, automobile physical damage and other liability lines of insurance
in the political subdivisions program that were previously written by NAICO
are being written by Greenwich Insurance Company ("Greenwich") through an
arrangement with CIMI.  Under this arrangement, CIMI receives commission
income for the business it produces.  CIMI is responsible for the payment of
commissions to the producing agents, and is also responsible for providing
underwriting and loss control services for this business.  NAICO handles all
claims for this business under a separate claims handling agreement with
Greenwich.  NAICO will continue to write workers compensation coverages for
the political subdivisions program and reinsures on a quota share basis 35%
of the first $1,000,000 of loss per occurrence of the other liability business
in this program.  During July 2010, Greenwich provided notice of termination
of CIMI's underwriting authority for this business effective November 17,
2010.  CIMI will place the property and inland marine coverages in this
program with its wholesale property markets, and will write the automobile
liability, automobile physical damage and other liability lines through NAICO.

NET INVESTMENT INCOME AND NET REALIZED INVESTMENT GAINS

     At September 30, 2010, Chandler USA's investment portfolio consisted
primarily of fixed income U.S. Treasury and government agency bonds, high-
quality corporate and tax exempt bonds, certificates of deposit insured by
the FDIC and a real estate mortgage loan, with approximately 10% invested in
cash and money market instruments.  Income generated from this portfolio is
largely dependent upon prevailing levels of interest rates.  Chandler USA's
portfolio contains no non-investment grade bonds or real estate investments.
Chandler USA also receives interest income from related parties on
intercompany loans.

     Net investment income, excluding interest income from related parties
decreased $142,000 or 17% and decreased $219,000 or 9% in the third quarter
and first nine months of 2010, respectively.  The decreases in 2010 were due
primarily to lower interest rates.  Cash and invested assets were $109.4
million at September 30, 2010 compared to $111.1 million at December 31, 2009
and $110.0 million at September 30, 2009.  Net interest income from related
parties decreased $11,000 and $12,000 in the third quarter and first nine
months of 2010, respectively.

     Net realized investment gains were $1.4 million and $2.5 million during
the third quarter and first nine months of 2010, respectively.  The realized
gains resulted from sales of fixed maturities available for sale in the amount
of $68.1 million.  Net realized investment gains were $194,000 and $1.4
million during the third quarter and first nine months of 2009.

OTHER INCOME

     Other income was $725,000 and $1.7 million in the third quarter and first
nine months of 2010, respectively, compared to $825,000 and $1.6 million in
the third quarter and first nine months of 2009.  Other income included net
commission income related to business produced by CIMI for insurance companies
other than NAICO totaling $624,000 and $1.4 million in the third quarter and
first nine months of 2010, respectively, compared to $744,000 and $1.3 million
in the third quarter and first nine months of 2009.

<PAGE>
                                                                     PAGE 19

LOSSES AND LOSS ADJUSTMENT EXPENSES

     Chandler USA estimates losses and loss adjustment expenses based on
historical experience and payment and reporting patterns for the type of risk
involved.  These estimates are based on data available at the time of the
estimate and are periodically reviewed by independent professional actuaries.
Although such estimates are management's best estimates of the expected
values, the ultimate liability for unpaid claims may vary from these values.

     The percentage of losses and loss adjustment expenses to net premiums
earned ("loss ratio") was 64.2% and 62.0% for the third quarter and first
nine months of 2010, compared to 60.6% and 60.9% in the corresponding 2009
periods.  During the third quarter of 2010, NAICO experienced an increase
in losses incurred related to prior accident years totaling $965,000 which
increased the loss ratio by 6.2 percentage points.  Loss reserve development
for the first nine months of 2010 was $695,000 which increased the loss
ratio by 1.6 percentage points.  The adverse loss reserve development
resulted primarily from the workers compensation and automobile liability
lines of business in the standard lines program.  The adverse loss reserve
development was partially offset by favorable development in the other
liability line of business.  In the third quarter of 2009, NAICO experienced
a decrease in losses incurred related to prior accident years totaling
$87,000 which decreased the loss ratio by 0.7 percentage points.  Loss
reserve development for the first nine months of 2009 was redundant by
$102,000.

     Weather-related losses from wind and hail totaled $46,000 and $240,000
in the third quarter and first nine months of 2010, respectively, and
increased the respective loss ratios by 0.3 and 0.6 percentage points.
Weather-related losses totaled $13,000 and $92,000 in the third quarter and
first nine months of 2009, and increased the respective 2009 loss ratios by
0.1 and 0.2 percentage points.

POLICY ACQUISITION COSTS

     Policy acquisition costs consist of costs associated with the acquisition
of new and renewal business and generally include direct costs such as premium
taxes, commissions to agents and ceding companies and premium-related
assessments and indirect costs such as salaries and expenses of personnel who
perform and support underwriting activities. NAICO also receives ceding
commissions from the reinsurers who assume premiums from NAICO under certain
reinsurance contracts and the ceding commissions are accounted for as a
reduction of policy acquisition costs.  Direct policy acquisition costs and
ceding commissions are deferred and amortized over the terms of the policies.
When the sum of anticipated losses, loss adjustment expenses and unamortized
policy acquisition costs exceeds the related unearned premiums, including
anticipated investment income, a provision for the indicated deficiency is
recorded.

     The following table sets forth Chandler USA's policy acquisition costs for
each of the periods indicated:

<TABLE>
<CAPTION>

                                                     THREE MONTHS ENDED   NINE MONTHS ENDED
                                                        SEPTEMBER 30,       SEPTEMBER 30,
                                                     ------------------  ------------------
                                                       2010      2009      2010      2009
                                                     --------  --------  --------  --------
                                                                 (In thousands)
<S>                                                  <C>       <C>       <C>       <C>
      Commissions expense .......................... $ 3,887   $ 3,049   $10,339   $ 9,667
      Other premium related assessments ............     370       324       845       863
      Premium taxes ................................     513       394     1,431     1,328
      Excise taxes .................................      73        53       189       174
      Other expense ................................      83       110       359       357
                                                     --------  --------  --------  --------

      Total direct expenses ........................   4,926     3,930    13,163    12,389

      Indirect underwriting expenses ...............   1,563     1,491     4,506     4,381
      Commissions received from reinsurers .........  (2,754)   (2,473)   (7,072)   (8,007)
      Adjustment for deferred acquisition costs ....     (82)       (7)     (875)      (28)
                                                     --------  --------  --------  --------
      Net policy acquisition costs ................. $ 3,653   $ 2,941   $ 9,722   $ 8,735
                                                     ========  ========  ========  ========

</TABLE>

<PAGE>
                                                                     PAGE 20

     Total gross direct and indirect expenses as a percentage of direct written
and assumed premiums were 23.7% and 24.8% for the third quarter and first nine
months of 2010, compared to 26.6% and 25.3% in the corresponding year ago
periods.  Commissions expense as a percentage of gross written and assumed
premiums was 14.2% and 14.5% in the third quarter and first nine months of
2010, compared to 14.9% and 14.6% in the corresponding 2009 periods.

     Indirect underwriting expenses increased $72,000 and $125,000 in the third
quarter and first nine months of 2010, respectively, and were 5.7% and 6.3% of
total direct written and assumed premiums in the third quarter and first nine
months of 2010, respectively, compared to 7.3% and 6.6% in the corresponding
2009 periods.  Indirect expenses include general overhead and administrative
costs associated with the acquisition of new and renewal business, some of
which is relatively fixed in nature, thus, the percentage of such expenses to
direct written and assumed premiums will vary depending on Chandler USA's
overall premium volume.  Commissions received from reinsurers as a percent of
ceded reinsurance premiums were 26.1% and 26.0% in the third quarter and first
nine months of 2010, respectively, compared to 31.0% and 31.5% in the
corresponding 2009 periods due to a reduction in the ceding commission rate
on premiums ceded to related parties.

GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses increased $313,000 and $665,000 in
the third quarter and first nine months of 2010, respectively, and were 11.7%
and 13.1% of gross premiums earned and other income in the third quarter and
first nine months of 2010, respectively, compared to 12.1% and 12.3% for the
corresponding 2009 periods.  General and administrative expenses have
historically not varied in direct proportion to Chandler USA's revenues. A
portion of such expenses is allocated to policy acquisition costs (indirect
underwriting expenses) and loss and loss adjustment expenses based on various
factors including employee counts, salaries, occupancy and specific
identification.  Because certain types of expenses are fixed in nature, the
percentage of such expenses to revenues will vary depending on Chandler USA's
overall premium volume.

INTEREST EXPENSE

     Interest expense decreased $4,000 and $42,000 in the third quarter and
first nine months of 2010, respectively, compared to the 2009 periods.
Substantially all of Chandler USA's interest expense is related to its
outstanding senior debentures and junior subordinated debentures.  The
decrease in the 2010 periods was due to lower interest rates during 2010, as
a portion of Chandler USA's junior subordinated debentures were issued with
a floating interest rate.

LIQUIDITY AND CAPITAL RESOURCES

     In the first nine months of 2010, Chandler USA used $4.0 million in cash
from operations.  Reinsurance recoverable on unpaid losses increased $3.6
million, reinsurance recoverable on paid losses increased $3.0 million,
premiums payable decreased $1.6 million and policyholder deposits decreased
$1.3 million during the first nine months of 2010.  These were partially
offset by an increase in unpaid losses of $3.3 million and an increase in
unearned premiums of $2.7 million.  In the first nine months of 2009, Chandler
USA provided $5.5 million in cash from operations.  Unpaid losses and loss
adjustment expenses increased $3.7 million, premiums receivable decreased
$4.9 million and policyholder deposits increased $1.1 million during the
first nine months of 2009.  These were partially offset by an increase in
reinsurance recoverable on unpaid losses of $3.8 million and a decrease in
unearned premiums of $1.6 million.

     NAICO is required to deposit cash and securities with regulatory agencies
in which it is licensed as a condition of conducting operations in the state.
In addition, NAICO has deposited cash and securities into a trust account as
collateral for a reinsurance agreement in which NAICO is the assuming
reinsurer.  NAICO has also established a letter of credit in the amount of
$500,000 and pledged cash and investments in this amount to secure reserves
assumed under a reinsurance agreement.  Certain insurance companies require
CIMI to hold unremitted net insurance premiums in a fiduciary capacity until
disbursed by CIMI.  At September 30, 2010, the total amount of cash and
securities restricted as a result of these arrangements was $31.3 million
which was a decrease of $6.2 million from December 31, 2009.

     At September 30, 2010, Chandler USA's parent company, Chandler Insurance
Company, Ltd. ("CICL"), owed approximately $11.3 million to Chandler USA
versus $12.7 million at December 31, 2009 under an Intercompany Credit
Agreement (the "Credit Agreement") covering intercompany loans between the
parties.  The Credit Agreement requires interest to be paid at the prime
interest rate published in the Wall Street Journal each month, and balances
owed by either party are payable at any time upon demand.  At September 30,
2010, CICL also owed approximately $2.9 million to NAICO for reinsurance
recoverable on paid losses.  At December 31, 2009, NAICO owed CICL
approximately $522,000 for premiums payable.

<PAGE>
                                                                     PAGE 21

     During March 2001, Chandler USA entered into a $3.8 million sale and
leaseback transaction for certain owned equipment for three years.  During
March 2004 and March 2007, the lease was extended for three years and during
March 2010, the lease was extended for an additional three years with monthly
rental installments equal to the sum of (i) $10,929 plus (ii) interest on the
unpaid lease balance at 1% over JP Morgan Chase Bank prime which was 4.25% at
September 30, 2010.  The interest rate is subject to a minimum rate of 5.5%.
Chandler USA has the option to repurchase the equipment at the end of the
lease for approximately $1.5 million (the "Balloon Payment"), or may elect to
have the lessor sell the equipment. If the election to sell the equipment is
made, Chandler USA would retain any proceeds exceeding the Balloon Payment.
If the proceeds were less than the Balloon Payment, Chandler USA would be
required to pay the difference between the proceeds and the Balloon Payment,
not to exceed approximately $1.2 million.

     Chandler USA is a holding company receiving cash principally through
borrowings, subsidiary dividends and other payments, subject to various
regulatory restrictions.  The capacity of insurance companies to write
insurance is based on maintaining liquidity and capital resources sufficient
to pay claims and expenses as they become due.  The primary sources of
liquidity for Chandler USA's subsidiaries are funds generated from insurance
premiums, investment income, capital contributions from Chandler USA and
proceeds from sales and maturities of portfolio investments.  The principal
expenditures are payment of losses and loss adjustment expenses, insurance
operating expenses and commissions.

     A significant portion of Chandler USA's consolidated assets represents
assets of NAICO that may not be immediately transferable to Chandler USA in
the form of shareholder dividends, loans, advances or other payments.

     Statutes and regulations governing NAICO and other insurance companies
domiciled in Oklahoma regulate the payment of shareholder dividends and other
payments by NAICO to Chandler USA.  Under applicable Oklahoma statutes and
regulations, NAICO is permitted to pay shareholder dividends only out of
statutory earned surplus.  To the extent NAICO has statutory earned surplus,
NAICO may pay shareholder dividends only to the extent that such dividends
are not defined as extraordinary dividends or distributions.  If the dividends
are, under applicable statutes and regulations, extraordinary dividends or
distributions, regulatory approval must be obtained.  Under the applicable
Oklahoma statute, and subject to the availability of statutory earned surplus,
the maximum shareholder dividend that may be declared (or cash or property
distribution that may be made) by NAICO in any one calendar year without
regulatory approval is the greater of (i) NAICO's statutory net income,
excluding realized capital gains, for the preceding calendar year; or (ii)
10% of NAICO's statutory policyholders' surplus as of the preceding calendar
year end, not to exceed NAICO's statutory earned surplus.

     As of December 31, 2009, NAICO had statutory earned surplus of $15.5
million.  Applying the Oklahoma statutory limits described above, the maximum
shareholder dividend NAICO may pay in 2010 without the approval of the
Oklahoma Department of Insurance is $5.4 million.  NAICO paid cash shareholder
dividends of $300,000 to Chandler USA in March 2010, $1.1 million in June
2010 and $550,000 in September 2010.  NAICO paid cash shareholder dividends
of $500,000 to Chandler USA in March 2009 and $900,000 in June 2009.

     In addition to the statutory limits described above, the amount of
shareholder dividends and other payments to affiliates can be further limited
by contractual or regulatory restrictions or other agreements with regulatory
authorities restricting dividends and other payments, including regulatory
restrictions that are imposed as a matter of administrative policy. If
insurance regulators determine that payment of a shareholder dividend or
other payments to an affiliate (such as payments under a tax sharing agreement,
payments for employee or other services, or payments pursuant to a surplus
note) would be hazardous to such insurance company's policyholders or
creditors, the regulators may block such payments that would otherwise be
permitted without prior approval.

     Historically, NAICO has played a significant role in the servicing of debt
and other obligations of Chandler USA through the payment of shareholder
dividends.  These obligations include $7.0 million of 8.75% senior debentures
due in 2014, $13.4 million of 9.75% junior subordinated debentures due in 2033,
$7.2 million of floating rate junior subordinated debentures due in 2034 and
the obligations under the sale and leaseback transaction discussed previously.
To the extent that the restrictions discussed previously limit NAICO's ability
to pay shareholder dividends or other payments to Chandler USA, Chandler USA's
ability to satisfy the debt obligations may also be limited.

<PAGE>
                                                                     PAGE 22

LITIGATION

     In October 1999, NAICO provided surety bonds for Gulsby Engineering, Inc.
("Gulsby") in connection with contracts between Gulf Liquids New River Project,
LLC ("Gulf Liquids") and Gulsby for the construction of two gas processing
plants in Louisiana.  During 2001, Gulsby became unable to pay various vendors
resulting in payments to vendors by NAICO totaling $20,182,499.  In August
2001, NAICO filed suit in federal court in Louisiana alleging that Gulf Liquids
had breached its obligations under the bonds by materially altering certain
contracts and that as a result, NAICO was exonerated on the bonds and should
recover the amounts paid to vendors.  In the fall of 2001, Gulsby and Bay
Limited, another contractor with whom Gulsby had entered into a joint venture
for the construction of other gas processing plants for Gulf Liquids, filed
lawsuits relating to those plants in Houston, Texas.  Gulf Liquids filed
original actions and counterclaims.  NAICO intervened in the Texas lawsuits
and, in addition, sued Williams Energy Marketing and Trading (which later
became Williams Power Company, Inc.) ("Williams") alleging fraud, breach of
contract, tortious interference with contractual relations, conspiracy and
alter ego.  These claims were asserted against both Gulf Liquids and Williams.
Gulf Liquids asserted counterclaims alleging breach of contract against NAICO
and requesting contractual and statutory damages ranging from $40 million to
$80 million.  The cases were consolidated for trial in the 215th Judicial
District Court in Harris County, Texas.  On August 1, 2006, the jury trial
concluded in Harris County, Texas, related to the construction of two gas
processing plants in Louisiana.  The amounts the jury found owing to NAICO
included approximately $20.2 million in actual damages and $70.0 million in
punitive damages.  See Note 4 of Notes to Interim Consolidated Financial
Statements for a discussion of this jury verdict.

     On January 28, 2008, the court entered a final judgment denying Gulf
Liquid's claims against NAICO and Gulsby, denying all of NAICO's claims
against Gulf Liquids and Williams, and entering judgment for Gulsby against
Gulf Liquids for $15,651,927 plus interest at 7.25% compounded annually from
January 28, 2008 until paid.  The court also ordered Gulf Liquids to pay
Gulsby's taxable court costs, estimated at $100,000.  Gulf Liquids has
appealed the judgment entered in favor of Gulsby and the denial of its claims
against NAICO and Gulsby.  NAICO has appealed the trial court's denial of its
claims against Gulf Liquids and Williams and seeks entry of judgment upon the
jury verdicts for the amounts the jury found should be awarded to NAICO.
Gulsby has also appealed the trial court's final judgment, contending that
judgment should be entered in its favor against Gulf Liquids and Williams in
accordance with the jury verdicts.  The recoverable amounts deducted from
Chandler USA's net liability for losses and loss adjustment expenses related
to this litigation were approximately $10.1 million at September 30, 2010
and December 31, 2009.

ITEM 4.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

     As of the end of the period covered by this report and pursuant to Rule
13a-15 of the Securities Exchange Act of 1934 (the "Exchange Act"), Chandler
USA's management, including the Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness and design of Chandler
USA's disclosure controls and procedures (as that term is defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act).  Based upon that evaluation,
Chandler USA's Chief Executive Officer and Chief Financial Officer concluded,
as of the end of the period covered by this report, that Chandler USA's
disclosure controls and procedures were effective in recording, processing,
summarizing and reporting information required to be disclosed by Chandler
USA, within the time periods specified in the Securities and Exchange
Commission's rules and forms.

CHANGES IN INTERNAL CONTROLS

     In addition and as of the end of the period covered by this report, there
have been no changes in internal control over financial reporting (as defined
in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter to
which this report relates that have materially affected or are reasonably
likely to materially affect, the internal control over financial reporting.


<PAGE>
                                                                     PAGE 23

PART II.                        OTHER INFORMATION
                                -----------------

Item 1.    LEGAL PROCEEDINGS
           -----------------
           Chandler USA and its subsidiaries are not parties to any material
           litigation other than as is routinely encountered in their
           respective business activities.  While the outcome of these matters
           cannot be predicted with certainty, Chandler USA does not expect
           these matters to have a material adverse effect on its financial
           condition, results of operations or cash flows.  See Note 4 of
           Notes to Interim Consolidated Financial Statements for a discussion
           of a favorable jury verdict in civil litigation regarding certain
           surety bond claims.

Item 1A.   RISK FACTORS
           ------------
           There have been no material changes from risk factors previously
           disclosed in our Annual Report on Form 10-K for the year ended
           December 31, 2009.

Item 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
           -----------------------------------------------------------
           None.

Item 3.    DEFAULTS UPON SENIOR SECURITIES
           -------------------------------
           None.

Item 4.    RESERVED
           --------

Item 5.    OTHER INFORMATION
           -----------------
           None.

Item 6.    EXHIBITS
           --------
           31.1  Rule 13a-14(a)/15d-14(a) Certifications.
           32.1  Section 1350 Certifications.

<PAGE>
                                                                     PAGE 24

                                   SIGNATURES
                                   ----------


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


Date:   November 9, 2010           CHANDLER (U.S.A.), INC.



                                   By: /s/ W. Brent LaGere
                                       --------------------------------------
                                       W. Brent LaGere
                                       Chairman of the Board and
                                       Chief Executive Officer
                                       (Principal Executive Officer)



                                   By: /s/ Mark C. Hart
                                       --------------------------------------
                                       Mark C. Hart
                                       Senior Vice President - Finance, Chief
                                       Financial Officer and Treasurer
                                       (Principal Accounting Officer