**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 June 30, 2008**


**OR**





**o TRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





**FOR
      THE TRANSITION PERIOD FROM ___________________TO
      _______________________**




Commission
      File number 0-2500111




21stCentury
      Holding Company


(Exact
      name of registrant as specified in its charter)





**Florida**
              **65-0248866**(State
                  or Other Jurisdiction of
              (IRS
                  EmployerIncorporation
                  or Organization)
              Identification
                  Number)





3661
      West Oakland Park Boulevard, Suite 300, Lauderdale Lakes, Florida
      33311


(Address
      of principal executive offices) (Zip Code)





954-581-9993


(Registrant's
      telephone number, including area code)




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 o





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 o  Accelerated
      filer
x  Non-accelerated
      filer o  Smaller
      reporting company
o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).





Yes
o
      No x





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.





Common
      Stock, $. 0 1 par
      value
      - 8,013,894 outstanding as of August 11, 2008





**21** **ST** **CENTURY HOLDING COMPANY**





**INDEX**


**PAGE****PART
                  I: FINANCIAL INFORMATION****ITEM
                  1**
              Financial
                  Statements and Supplementary Data
              3**ITEM
                  2**
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              21**ITEM
                  3**
              Quantitative
                  and Qualitative Disclosures about Market Risk
              42**ITEM
                  4**
              Controls
                  and Procedures
              42**PART
                  II: OTHER INFORMATION****ITEM
                  1**
              Legal
                  Proceedings
              44**ITEM
                  1A**
              Risk
                  Factors
              44**ITEM
                  2**
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              45**ITEM
                  3**
              Defaults
                  upon Senior Securities
              46**ITEM
                  4**
              Submission
                  of Matters to a Vote of Security Holders
              46**ITEM
                  5**
              Other
                  Information
              46**ITEM
                  6**
              Exhibits
              47**SIGNATURES**
              48


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          2 -


**PART
      I: FINANCIAL INFORMATION**


**Item
      1**





21 st CENTURY
      HOLDING COMPANY


CONSOLIDATED
      BALANCE SHEETS


(UNAUDITED)





Period EndingJune 30, 2008
            
            December 31, 2007(Dollars
                in Thousands)ASSETSInvestmentsFixed
                maturities, available for sale, at fair value
            
            $
            68,102
            
            $
            99,484Fixed
                maturities, held to maturity, at amoritized cost
            
            
            23,157
            
            
            20,210Equity
                securities, available for sale, at fair value
            
            
            12,125
            
            
            16,530Total
                investments
            
            
            103,384
            
            
            136,224Cash
                and short term investments
            
            
            63,794
            
            
            22,524Receivable
                for investments sold
            
            
            -
            
            
            6,420Finance
                contracts, net of allowance for credit losses of $26 in 2008 and
                $38
                in2007,
                and net of unearned finance charges of $11 in 2008 and $15 in
                2007
            
            
            201
            
            
            420Prepaid
                reinsurance premiums
            
            
            790
            
            
            8,471Premiums
                receivable, net of allowance for credit losses of $229 and $288,
                respectively
            
            
            5,164
            
            
            3,797Reinsurance
                recoverable, net
            
            
            16,796
            
            
            22,942Deferred
                policy acquisition costs
            
            
            8,806
            
            
            8,958Deferred
                income taxes, net
            
            
            8,155
            
            
            5,640Income
                taxes receivable
            
            
            1,710
            
            
            -Property,
                plant and equipment, net
            
            
            923
            
            
            1,046Other
                assets
            
            
            2,878
            
            
            2,918Total
                assets
            
            $
            212,602
            
            $
            219,361LIABILITIES
                AND SHAREHOLDERS' EQUITYUnpaid
                losses and LAE
            
            $
            58,347
            
            $
            59,685Unearned
                premiums
            
            
            55,421
            
            
            56,394Premiums
                deposits and customer credit balances
            
            
            2,141
            
            
            2,761Bank
                overdraft
            
            
            9,016
            
            
            8,695Income
                taxes payable
            
            
            -
            
            
            4,226Deferred
                gain from sale of property
            
            
            1,735
            
            
            1,998Accounts
                payable and accrued expenses
            
            
            3,115
            
            
            4,346Total
                liabilities
            
            
            129,776
            
            
            138,104Commitments
                and Contingencies
            
            
            -
            
            
            -Shareholders'
                equity:Common
                  stock, $0.01 par value. Authorized 37,500,000 shares; issued and
                  outstanding 8,013,894 and 7,871,234, respectively
            
            
            80
            
            
            79Additional
                paid-in capital
            
            
            49,727
            
            
            48,240Accumulated
                other comprehensive (deficit)
            
            
            (1,510
            )
            
            (2,596
            )Retained
                earnings
            
            
            34,528
            
            
            35,534Total
                shareholders' equity
            
            
            82,826
            
            
            81,257Total
                liabilities and shareholders' equity
            
            $
            212,602
            
            $
            219,361





**SEE
      ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS**


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          3 -





21 ST CENTURY
      HOLDING COMPANY


CONSOLIDATED
      STATEMENTS OF OPERATIONS


(UNAUDITED)





Three
                Months Ended June 30,
            
            Six
                Months Ended June 30,2008
            
            2007
            
            2008
            
            2007(Dollars in Thousands except EPS and dividend data)
            
            (Dollars in Thousands except EPS and dividend data)Revenue:Gross
                premiums written
            
            $
            27,241
            
            $
            44,462
            
            $
            54,844
            
            $
            93,652Gross
                premiums ceded
            
            
            (8,233
            )
            
            (15,803
            )
            
            (8,233
            )
            
            (15,809
            )Net
                premiums written
            
            
            19,008
            
            
            28,658
            
            
            46,611
            
            
            77,843(Decrease)
                in prepaid reinsurance premiums
            
            
            (2,366
            )
            
            (846
            )
            
            (13,520
            )
            
            (17,818
            )(Increase)
                Decrease in unearned premiums
            
            
            (1,183
            )
            
            (2,999
            )
            
            973
            
            
            (12,839
            )Net
                change in prepaid reinsurance premiums and unearned
                premiums
            
            
            (3,549
            )
            
            (3,845
            )
            
            (12,547
            )
            
            (30,657
            )Net
                premiums earned
            
            
            15,459
            
            
            24,814
            
            
            34,065
            
            
            47,187Commission
                income
            
            
            964
            
            
            5,987
            
            
            1,027
            
            
            6,491Finance
                revenue
            
            
            92
            
            
            160
            
            
            177
            
            
            347Managing
                general agent fees
            
            
            530
            
            
            804
            
            
            1,029
            
            
            1,422Net
                investment income
            
            
            1,899
            
            
            2,131
            
            
            3,775
            
            
            3,700Net
                realized investment (losses) gains
            
            
            (4,664
            )
            
            80
            
            
            (6,313
            )
            
            (48
            )Regulatory
                assessments recovered
            
            
            912
            
            
            415
            
            
            1,234
            
            
            682Other
                income
            
            
            235
            
            
            102
            
            
            474
            
            
            297Total
                revenue
            
            
            15,427
            
            
            34,493
            
            
            35,469
            
            
            60,078Expenses:Losses
                and LAE
            
            
            12,493
            
            
            9,658
            
            
            20,368
            
            
            23,760Operating
                and underwriting expenses
            
            
            1,473
            
            
            3,100
            
            
            3,029
            
            
            7,065Salaries
                and wages
            
            
            1,763
            
            
            1,734
            
            
            3,521
            
            
            3,290Interest
                expense
            
            
            -
            
            
            60
            
            
            -
            
            
            145Policy
                acquisition costs, net of amortization
            
            
            3,787
            
            
            4,909
            
            
            7,623
            
            
            9,517Total
                expenses
            
            
            19,517
            
            
            19,460
            
            
            34,541
            
            
            43,777(Loss)
                Income before provision for income tax (benefit) expense
            
            
            (4,090
            )
            
            15,033
            
            
            928
            
            
            16,300Provision
                for income tax (benefit) expense
            
            
            (1,590
            )
            
            4,555
            
            
            (881
            )
            
            4,979Net
                (loss) income
            
            $
            (2,500
            )
            $
            10,478
            
            $
            1,809
            
            $
            11,321Basic
                net (loss) income per share
            
            $
            (0.31
            )
            $
            1.32
            
            $
            0.23
            
            $
            1.42Fully
                diluted net (loss) income per share
            
            $
            (0.31
            )
            $
            1.31
            
            $
            0.23
            
            $
            1.40Weighted
                average number of common shares outstanding
            
            
            7,974,053
            
            
            7,930,964
            
            
            7,944,305
            
            
            7,944,933Weighted
                average number of common shares outstanding (assuming
                dilution)
            
            
            7,974,053
            
            
            8,014,947
            
            
            7,975,057
            
            
            8,099,187Dividends
                paid per share
            
            $
            0.18
            
            $
            0.18
            
            $
            0.36
            
            $
            0.36





**SEE
      ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**


-
          4 -





21 ST CENTURY
      HOLDING COMPANY


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(UNAUDITED)





Six
                Months Ended June 30,2008
            
            2007(Dollars
                in Thousands)Cash
                flow from operating activities:Net
                income
            
            $
            1,809
            
            $
            11,321Adjustments
                to reconcile net income to net cash (used) provided by operating
                activities:Amortization
                of investment (discount), net
            
            
            (106
            )
            
            (180
            )Depreciation
                and amortization of property plant and equipment, net
            
            
            166
            
            
            155Net
                realized investment (losses)
            
            
            (6,313
            )
            
            (48
            )Common
                Stock issued for interest on Notes
            
            
            -
            
            
            109(Recovery)
                for credit losses, net
            
            
            (7
            )
            
            (6
            )Provision
                for uncollectible premiums receivable
            
            
            50
            
            
            397Non-cash
                compensation
            
            
            503
            
            
            143Changes
                in operating assets and liabilities:
            
            
            -
            
            
            -Premiums
                receivable
            
            
            (1,417
            )
            
            (222
            )Prepaid
                reinsurance premiums
            
            
            7,680
            
            
            17,561Reinsurance
                recoverable, net
            
            
            6,146
            
            
            (7,284
            )Income
                taxes recoverable
            
            
            (1,710
            )
            
            (316
            )Deferred
                income tax expense
            
            
            (2,515
            )
            
            (2,518
            )Policy
                acquisition costs, net of amortization
            
            
            152
            
            
            (1,317
            )Premium
                finance contracts receivable
            
            
            226
            
            
            354Other
                assets
            
            
            (223
            )
            
            (6,392
            )Unpaid
                losses and LAE
            
            
            (1,337
            )
            
            5,591Unearned
                premiums
            
            
            (973
            )
            
            12,839Premium
                deposits and customer credit balances
            
            
            (620
            )
            
            376Income
                taxes payable
            
            
            (4,226
            )
            
            -Bank
                overdraft
            
            
            321
            
            
            2,466Accounts
                payable and accrued expenses
            
            
            (1,230
            )
            
            (2,318
            )Net
                cash (used) provided by operating activities
            
            
            (3,625
            )
            
            30,711Cash
                flow provided by (used in) investing activities:Proceeds
                from sale of investment securities available for sale
            
            
            81,595
            
            
            72,033Purchases
                of investment securities available for sale
            
            
            (34,829
            )
            
            (108,708
            )Purchases
                of property and equipment
            
            
            (42
            )
            
            (31
            )Net
                cash provided by (used) in investing activities
            
            
            46,723
            
            
            (36,705
            )Cash
                flow (used in) financing activities:Exercised
                stock options
            
            
            1,337
            
            
            89Dividends
                paid
            
            
            (2,814
            )
            
            (2,876
            )Purchase
                of treasury stock
            
            
            (144
            )
            
            (1,518
            )Tax
                benefit related to non-cash compensation
            
            
            (207
            )
            
            63Revolving
                credit outstanding
            
            
            -
            
            
            -Net
                cash (used in) financing activities
            
            
            (1,828
            )
            
            (4,242
            )Net
                increase (decrease) in cash and short term investments
            
            
            41,270
            
            
            (10,236
            )Cash
                and short term investments at beginning of period
            
            
            22,524
            
            
            17,917Cash
                and short term investments at end of period
            
            $
            63,794
            
            $
            7,680





**SEE
      ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**


-
          5 -


21 ST CENTURY
      HOLDING COMPANY


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(UNAUDITED)





Six
                Months Ended June 30,(continued)
            
            2008
            
            2007(Dollars
                in Thousands)Supplemental
                disclosure of cash flow information:Cash
                paid during the period for:Interest
            
            $
            -
            
            $
            2Income
                taxes
            
            $
            8,125
            
            $
            7,300Non-cash
                investing and finance activities:Accrued
                dividends payable
            
            $
            1,445
            
            $
            1,444Retirement
                of subordinated debt by Common Stock issuance
            
            $
            -
            
            $
            2,083Stock
                issued to pay interest on subordinated debt
            
            $
            -
            
            $
            109





**SEE
      ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**


-
          6 -




**21** **st** **Century Holding Company**


**Notes
      to Consolidated Financial Statements**





**(1)**  **Organization
      and Business**





The
      accompanying unaudited consolidated financial statements of 21 st Century
      Holding Company have been prepared in accordance with generally accepted
      accounting principles (“GAAP”) for interim financial information and with the
      instructions for Form 10-Q and Rule 10-01 of Regulation S-X. These financial
      statements do not include all information and notes required by GAAP for
      complete financial statements, and should be read in conjunction with the
      audited consolidated financial statements and notes thereto included in the
      Company's annual report on Form 10-K for the year ended December 31, 2007.
      The
      December 31, 2007 year-end balance sheet data was derived from audited financial
      statements but does not include all disclosures required by GAAP. The financial
      information furnished reflects all adjustments, consisting only of normal
      recurring accruals, which are, in the opinion of management, necessary for
      a
      fair presentation of the financial position, results of operations and cash
      flows for the periods presented. The results of operations are not necessarily
      indicative of the results of operations that may be achieved in the
      future. ****





21 st Century
      Holding Company (“21 st Century,” “Company,” “we,” “us”) is an insurance holding company, which, through
      our subsidiaries and our contractual relationships with our independent agents
      and general agents, controls substantially all aspects of the insurance
      underwriting, distribution and claims processes. We are authorized to underwrite
      homeowners’ property and casualty insurance, commercial general liability
      insurance, personal automobile insurance and commercial automobile insurance
      in
      various states with various lines of authority through our wholly owned
      subsidiaries, Federated National Insurance Company (“Federated National”) and
      American Vehicle Insurance Company (“American Vehicle”). We market and
      distribute our own and third-party insurers’ products and our other services
      primarily in Florida, through contractual relationships with a network of
      approximately 1,500 independent agents and a select number of general agents.





Federated
      National is authorized to underwrite homeowners’ property and casualty insurance
      in Florida as an admitted carrier. American Vehicle is authorized in several
      states to underwrite commercial general liability coverage as either an admitted
      or non-admitted carrier. A n
      admitted carrier is an insurance company that has received a license from the
      state department of insurance giving the company the authority to write specific
      lines of insurance in that state. These companies are also bound by rate and
      form regulations, and are strictly regulated to protect policyholders from
      a
      variety of illegal and unethical practices, including fraud. Admitted carriers
      are also required to financially contribute to the state guarantee fund, which
      is used to pay for losses if an insurance carrier becomes insolvent or unable
      to
      pay the losses due their policyholders. A non-admitted carrier is not licensed
      by the state, but is allowed to do business in that state and is strictly
      regulated to protect policyholders from a variety of illegal and unethical
      practices, including fraud. Sometimes, non-admitted carriers are referred to
      as
“excess and surplus” lines carriers. Non-admitted carriers are subject to
      considerably less regulation with respect to policy rates and forms. Additionally,
      both Federated National and American Vehicle are authorized to underwrite
      personal and commercial automobile insurance in Florida as an admitted carrier.





During
      the six months ended June 30, 2008, 72.8%, 26.6% and 0.6% of the premiums we
      underwrote were for homeowners’ property and casualty insurance, commercial
      general liability insurance and personal automobile insurance, respectively.
      During the six months ended June 30, 2007, 79.0%, 19.5% and 1.5% of the premiums
      we underwrote were for homeowners’ property and casualty insurance, commercial
      general liability insurance and personal automobile insurance, respectively.
      Our
      business, results of operations and financial condition are subject to
      fluctuations due to a variety of factors. Abnormally high severity or frequency
      of claims in any period could have a material adverse effect on our business,
      results of operations and financial condition. In addition, if our estimated
      liabilities for unpaid losses and loss adjustment expenses (“LAE”) are less than
      actual losses and LAE, we will be required to increase reserves with a
      corresponding reduction in our net income in the period in which the deficiency
      is identified.




American
      Vehicle has either ongoing operations or operations expected to commence this
      year in several states. The table below denotes by state American Vehicle’s
      authority, status of operations and where new applications are pending. We
      may
      not receive authority to write in every state to which we make application
      due
      to state specific guidelines.


-
          7 -


**21** **st** **Century Holding Company**


**Notes
      to Consolidated Financial Statements**











In
      January 2008, the State of Florida granted American Vehicle licenses to
      underwrite commercial multiple peril, inland marine and surety lines of business
      as an admitted carrier.




Assurance
      Managing General Agents, Inc. (“Assurance MGA”), a wholly owned subsidiary, acts
      as Federated National’s and American Vehicle’s exclusive managing general agent
      in the state of Florida. As American Vehicle continues its expansion into other
      states, we intend to retain other general agents to market our commercial
      general liability insurance product. Effective June 23, 2008 Assurance MGA
      became licensed in the state of Georgia as a non-resident General Agency.
      Assurance MGA currently provides underwriting policy administration, marketing,
      accounting and financial services to Federated National and American Vehicle,
      and participates in the negotiation of reinsurance contracts. For the
      above-mentioned services, Assurance MGA generates revenue through a 6%
      commission fee from the insurance companies’ gross written premium, policy fee
      income of $25 per policy and other administrative fees. The 6% commission fee
      from Federated National and American Vehicle became effective January 1, 2005.
      Assurance MGA plans to establish relationships with additional carriers and
      servicing additional insurance products in the future.





**(2)
      Summary of Significant Accounting Policies and Practices**





**(A)**  **Critical
      Accounting Policies**





The
      preparation of financial statements in conformity with GAAP requires management
      to make estimates and assumptions about future events that affect the amounts
      reported in the financial statements and accompanying notes. Future events
      and
      their effects cannot be determined with absolute certainty. Therefore, the
      determination of estimates requires the exercise of judgment. Actual results
      inevitably will differ from those estimates, and such differences may be
      material to the financial statements.





The
      most
      significant accounting estimates inherent in the preparation of our financial
      statements include estimates associated with management’s evaluation of the
      determination of liability for unpaid losses and LAE and the amount and
      recoverability of amortization of deferred policy acquisition costs (“DPAC”). In
      addition, significant estimates form the basis for our reserves with respect
      to
      finance contracts, premiums receivable and deferred income taxes. Various
      assumptions and other factors underlie the determination of these significant
      estimates, which are


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            8 -


**21** **st** **Century Holding Company**
 **Notes
        to Consolidated Financial Statements**




described
      in greater detail in Footnote 2 of the Company’s audited financial statements
      for the fiscal year ended December 31, 2007 filed on Form 10-K with the
      Securities and Exchange Commission (“SEC”) on March 17, 2008.




The
      process of determining significant estimates is fact specific and takes into
      account factors such as historical experience, current and expected economic
      conditions, and in the case of unpaid losses and LAE, an actuarial valuation.
      Management regularly reevaluates these significant factors and makes adjustments
      where facts and circumstances dictate. In selecting the best estimate, we
      utilize various actuarial methodologies. Each of these methodologies is designed
      to forecast the number of claims we will be called upon to pay and the amounts
      we will pay on average to settle those claims. In arriving at our best estimate,
      our actuaries consider the likely predictive value of the various loss
      development methodologies employed in light of underwriting practices, premium
      rate changes and claim settlement practices that may have occurred, and weight
      the credibility of each methodology. Our actuarial methodologies take into
      account various factors, including, but not limited to, paid losses, liability
      estimates for reported losses, paid allocated LAE, salvage and other recoveries
      received, reported claim counts, open claim counts and counts for claims closed
      with and without payment of loss.





Accounting
      for loss contingencies pursuant to Statements of Financial Accounting Standards
      Number 5, *Accounting
      for Contingencies* (“SFAS
      No. 5”) involves the existence of a condition, situation or set of circumstances
      involving uncertainty as to possible loss that will ultimately be resolved
      when
      one or more future event(s) occur or fail to occur. Additionally, accounting
      for
      a loss contingency requires management to assess each event as probable,
      reasonably possible or remote. Probable is defined as the future event or events
      are likely to occur. Reasonably possible is defined as the chance of the future
      event or events occurring is more than remote but less than probable, while
      remote is defined as the chance of the future event or events occurring is
      slight. An estimated loss in connection with a loss contingency shall be
      recorded by a charge to current operations if both of the following conditions
      are met: First, the amount can be reasonably estimated, and second, the
      information available prior to issuance of the financial statements indicates
      that it is probable that a liability has been incurred at the date of the
      financial statements. It is implicit in this condition that it is probable
      that
      one or more future events will occur confirming the fact of the loss or
      incurrence of a liability.





We
      are
      required to review the contractual terms of all our reinsurance purchases to
      ensure compliance with SFAS No. 113, *Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration
      Contracts* .
      The
      statement establishes the conditions required for a contract with a reinsurer
      to
      be accounted for as reinsurance and prescribes accounting and reporting
      standards for those contracts. Contracts that do not result in the reasonable
      possibility that the reinsurer may realize a significant loss from the insurance
      risk assumed generally do not meet the conditions for reinsurance accounting
      and
      must be accounted for as deposits. SFAS No. 113 also requires us to disclose
      the
      nature, purpose and effect of reinsurance transactions, including the premium
      amounts associated with reinsurance assumed and ceded. It also requires
      disclosure of concentrations of credit risk associated with reinsurance
      receivables and prepaid reinsurance premiums.





**(B)
      Impact of New Accounting Pronouncements**





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 157, *Fair
      Value Measurements* (“SFAS
      No. 157”), which enhances existing guidance for measuring assets and liabilities
      using fair value and requires additional disclosure about the use of fair value
      for measurement. SFAS No. 157 was originally effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years. In February 2008, FASB issued FASB Staff Position
      (“FSP”) FASB 157-2, *Effective
      Date of FASB No. 157* (“FSP
      FASB 157-2”). FSP FASB 157-2, which was effective upon issuance and delayed the
      effective date of SFAS No. 157 for non-financial assets and non-financial
      liabilities, except for items recognized or disclosed at fair value at least
      once a year, to fiscal years beginning after November 15, 2008. FSP FASB No.
      157-2 also covers interim periods within the fiscal years for items within
      the
      scope of this FSP. The adoption of SFAS No. 157 did not have a material impact
      on our financial statements.





In
      February 2007, FASB issued SFAS No. 159 *The
      Fair Value Option for Financial Assets and Financial Liabilities —
Including an Amendment of SFAS No. 115* , which
      permits an entity to measure many financial assets and financial liabilities
      at
      fair value that are not currently required to be measured at fair value.
      Entities that elect the fair value option will report unrealized gains and
      losses in earnings at each subsequent reporting date. The fair value





-
            9 -




**21** **st** **Century Holding Company**
 **Notes
        to Consolidated Financial Statements**




option
      may be elected on an instrument-by-instrument basis, with a few exceptions.
      SFAS No. 159 amends previous guidance to extend the use of the fair
      value option to available-for-sale and held-to-maturity securities. The
      Statement also establishes presentation and disclosure requirements to help
      financial statement users understand the effect of the election. We adopted
      SFAS
      No. 159 on its effective date, January 1, 2008.  The adoption of SFAS
      No. 159 has not had a material impact, to date, on our financial position or
      results of operations.




In
      June
      2006, FASB issued FASB Interpretation No. (“FIN’) 48, *Accounting
      for Uncertainty in Income Taxes* that
      clarifies the accounting for income tax reserves and contingencies recognized
      in
      an enterprise’s financial statements in accordance with SFAS No. 109, *Accounting
      for Income Taxes* .
      This
      Interpretation also provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods, disclosure and transition. This
      Interpretation is effective for fiscal years beginning after December 15, 2006.
      The Company has adopted and concluded that the impact of FIN 48 will be minimal
      and includes a policy of classifying interest and penalties related to income
      tax as elements of income tax expense in the consolidated financial statements.
      As required by FIN 48, this change was done prospectively. Previously, penalties
      and interest were classified as operating and underwriting expenses.





**(C)
      Stock Options**





At
      June
      30, 2008, the Company had two stock-based employee compensation plans and one
      stock-based franchise compensation plan, which are described later in Footnote
      8, Stock Compensation Plans.





Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      SFAS No. 123R using the modified-prospective-transition method. Under that
      transition method, compensation cost recognized during the six months ended
      June
      30, 2008 includes compensation cost for all share-based payments granted
      subsequent to January 1, 2006, based on the grant date fair-value estimated
      in
      accordance with the provisions of SFAS No. 123R.





During
      the six months ended June 30, 2008, we have granted 38,026 qualified stock
      options and 25,474 non-qualified stock options to employees, executive officers
      and directors with an average option price of $12.74 per share. Like all other
      outstanding stock options, these stock options contain service conditions and
      do
      not contain any performance conditions. For a further discussion regarding
      the
      provisions of SFAS No. 123R and its effect on our operations, please refer
      to
      Footnote 6, Stock Compensation Plans.





**(D)** **E** **arnings
      per Share**





Basic
      earnings per share (“Basic EPS”) is computed by dividing net income by the
      weighted average number of common shares outstanding during the period
      presented. Diluted earnings per share (“Diluted EPS”) is computed by dividing
      net income by the weighted average number of shares of common stock and common
      stock equivalents outstanding during the period presented; outstanding warrants
      and stock options are considered common stock equivalents and are included
      in
      the calculation using the treasury stock method. Additionally, when applicable,
      we include in our computation of the weighted average number of common shares
      outstanding all common stock issued in connection with the repayment of our
      Subordinated note.





**(E)
      Reclassifications**





Certain
      amounts in 2007 financial statements have been reclassified to conform to the
      2008 presentation.





**** **(3)
      Commitments and Contingencies**





Management
      has a responsibility to continually measure and monitor its commitments and
      its
      contingencies. The nature of the Company’s commitments and contingencies can be
      grouped into three major categories; insured claim activity, assessment related
      activities and operational matters.


We
        are
        involved in claims and legal actions arising in the ordinary course of business.
        Revisions to our estimates are based on our analysis of subsequent information
        that we receive regarding various factors, including:
  -
            10 -
  **21** **st** **Century Holding Company**
 **Notes
          to Consolidated Financial Statements**
  (i)
        per claim information; (ii) company and industry historical loss experience;
        (iii) legislative enactments, judicial decisions, legal developments in the
        awarding of damages, and (iv) trends in general economic conditions, including
        the effects of inflation. Management revises its estimates based on the results
        of its analysis. This process assumes that past experience, adjusted for
        the
        effects of current developments and anticipated trends, is an appropriate
        basis
        for estimating the ultimate settlement of all claims. There is no precise
        method
        for subsequently evaluating the impact of any specific factor on the adequacy
        of
        the reserves, because the eventual redundancy or deficiency is affected by
        multiple factors. In the opinion of management, the ultimate disposition
        of
        these matters will not have a material adverse effect on our consolidated
        financial position, results of operations, or liquidity.





The
      Company's subsidiaries are, from time to time,
      named as defendants in various lawsuits incidental to their insurance
      operations. Legal actions relating to claims made in the ordinary course of
      seeking indemnification for a loss covered by the insurance policy are
      considered by the Copmany in establishing loss and LAE reserves.




The
      Company also faces in the ordinary course of
      business lawsuits that seeek damages beyond policy limits, commonly known as
      bad
      faith claims. The Company continually evaluates potential liabilities and
      reserves for litigation of these types using the criteria established by SFAS
      No. 5, "Accounting for Contingencies." Under this guidance, reserves for a
      loss
      are recorded if the likelihood of occurrence is probable and the amount can
      be
      reasonably estimated. If a loss, while not probable, is judged to be
      reasonably possible, management will disclose, if it can be estimated, a
      possible range of loss or state that an estimate cannot be made. Management
      considers each legal action using this guidance and records reserves for losses
      as warranted.  Certain claims and legal actions have been brought against
      the Company for which no loss has been accrued, and for which an estimate of
      a
      possible range of loss cannot be made under the rules described above. 
While it is not possible to predict the ultimate outcome of these claims or
      lawsuits, management does not believe they are likely to have a material effect
      on the Company's financial condition or liquidity.  Losses incurred as
      a result of these cases could, however, have a material adverse impact on
      net earnings.




We
      operate in a regulatory environment where certain entities and organizations
      have the authority to require us to participate in assessments. Currently these
      entities and organizations include, but are not limited to, the Florida
      Insurance Guarantee Association (“FIGA”), Citizens Property Insurance
      Corporation (“Citizens”) the Florida Hurricane Catastrophe Fund (“FHCF”) and the
      Florida Joint Underwriters Association (“JUA”).





As
      a
      direct premium writer in the state of Florida, we are required to participate
      in
      certain insurer solvency associations under Florida Statutes 631.57(3) (a).
      Participation in these pools is based on our written premiums by line of
      business compared to total premiums written statewide by all insurers.
      Participation may result in assessments against us as it did in 2006. On October
      11, 2007, FIGA’s Board certified the need to assess each member an amount equal
      to two percent (2%) of the member’s Florida net direct written premiums for the
      calendar year 2006. Both American Vehicle and Federated National are considered
      members of FIGA. Florida’s Insurance Commissioner approved FIGA’s certification
      on October 29, 2007. Our participation with this assessment totaled
      approximately $2.8 million and was paid November 30, 2007. During 2006, we
      were
      assessed $3.9 million in connection with the FIGA. For statutory accounting
      purposes, these assessments are not charged to operations, in contrast GAAP
      treatment is to charge current operations for the assessments. Through
      policyholder surcharges, as approved by the Florida Office of Insurance
      Regulation (“OIR”), during the twelve months ended December 31, 2007, we
      recouped approximately $1.8 million. FIGA’s October 11, 2007 assessment was
      charged to operations during the period ended September 30, 2007. Future
      assessments by this association are undeterminable at this time. There were
      no
      assessments made for the years ended December 31, 2007 or 2005.





During
      its regularly scheduled meeting on August 17, 2005, the Board of Governors
      of
      Citizens determined a 2004 plan year deficit existed in the High Risk Account.
      Citizens decided that a $515 million Regular Assessment was in the best interest
      of Citizens and consistent with Florida Statutes. On this basis, Citizens
      certified for a Regular Assessment. Federated National’s participation in this
      assessment totaled $2.0 million.





During
      a
      subsequent regularly scheduled meeting on or about December 18, 2006, Citizens’
Board determined an additional 2004 plan year deficit existed in the High Risk
      Account. Citizens decided that an additional $515 million Regular Assessment
      was
      in the best interest of Citizens and consistent with Florida Statutes. On this
      basis, Citizens was certified for a Regular Assessment. Federated National’s
      participation in this assessment totaled $0.3 million. Future assessments by
      this association are undeterminable at this time.





Pursuant
      to Section 627.3512, Florida Statutes, insurers are permitted to recoup the
      assessment by adding a surcharge to policies in an amount not to exceed the
      amount paid by the insurer to Citizens. Federated National is currently
      underwriting the recoupment in connection with these assessments and has
      recouped less than $0.1 million during 2008, $0.4 million during 2007 and $1.3
      million during 2006. Pursuant to provisions contained in our excess of loss
      reinsurance contracts, Federated National has subrogated $0.6 million to our
      reinsurers as of June 30, 2008.





The
      OIR
      issued Information Memorandum OIR-06-008M, titled *Notice
      of Anticipated Florida Hurricane Catastrophe Fund Assessment,* dated
      May
      4, 2006, to all property and casualty insurers, surplus lines insurers, and
      surplus lines agents in the state of Florida placing them on notice of an
      anticipated FHCF assessment. Sighting the unprecedented hurricane seasons of
      2004 and 2005, the FHCF exhausted nearly all of the $6 billion in reserves
      it
      had accumulated since its inception in 1993. The Florida State Board of
      Administration, the body that oversees the FHCF, issued its directive to levy
      an
      emergency assessment upon all property and casualty business in the state of
      Florida. There is no statutory requirement that policyholders be notified of
      the
      FHCF assessment. The FHCF and OIR are, however, recommending that insurers
      include the FHCF assessment in a line item on the declaration page for two
      reasons: (1) this is a multi-year assessment and (2) there may be concurrent
      assessments and the insureds should know what amount is for which assessment.
      The assessment became effective on all policies effective after





-
            11 -




**21** **st** **Century Holding Company**
 **Notes
        to Consolidated Financial Statements**


January
      1, 2007 and will be remitted to the administrator of the assessment as collected
      and therefore accounted for in a manner such that amounts collected or
      receivable are not recorded as revenues and amounts due or paid are not
      expensed.





In
      addition to the assessments noted above, the OIR has also issued Information
      Memorandum OIR -07-02M, titled *Information
      Regarding Emergency Assessment by Citizens Property Insurance
      Corporation,* dated
      January 11, 2007, to all property and casualty insurers in the state of Florida
      placing them on notice that an order had been approved for an emergency
      assessment by Citizens for its High Risk Account. This order requires insurers
      to begin collecting the emergency assessment for policies issued or renewed
      on
      or after July 1, 2007. Similar to the FHCF assessment discussed above, the
      Citizens emergency assessment will be remitted to the administrator of the
      assessment as collected.





Federated
      National and American Vehicle are also required to participate in an insurance
      apportionment plan under Florida Statutes Section 627.351, which is referred
      to
      as a JUA Plan. The JUA Plan provides for the equitable apportionment of any
      profits realized, or losses and expenses incurred, among participating motor
      vehicle insurers. In the event of an underwriting deficit incurred by the JUA
      Plan, which is not recovered through the policyholders in the JUA Plan, such
      deficit shall be recovered from the companies participating in the JUA Plan
      in
      the proportion that the net direct written premiums of each such member during
      the preceding calendar year bear to the aggregate net direct premiums written
      in
      this state by all members of the JUA Plan. During the year ended December 31,
      2007, Federated National was assessed $7,470 and American Vehicle recovered
      $842, by and from the JUA Plan based on its December 2007 Cash Activity Report.
      During the year ended December 31, 2006 Federated National and American Vehicle
      were assessed $221,765 and $1,579, respectively. These charges are contained
      in
      Operating and Underwriting Expenses in the Statement of Operations. Future
      assessments by this association are undeterminable at this time.





Bonds
      totaling $13.4 million secure a $3.0 million irrevocable letter of credit,
      which
      was reduced from $10.0 million in February 2008, in order to facilitate business
      opportunities in connection with our commercial general liability program
      agreement with Republic Underwriters
      Insurance Company ("Republic"). Our agreement with Republic was terminated
      effective as of June 30, 2007. See Footnote 6 in our unaudited financial
      statements for the quarter ended June 30, 2008, which are included in Item
      I,
      Part 1 hereof.





The
      2004,
      2003 and 2002 consolidated Federal Income Tax Returns filed by the Company
      have
      been examined by the Internal Revenue Service (“IRS”) during 2006 and 2005. We
      have concurred with certain IRS conclusions and have appealed other conclusions.
      Irrespective of the ongoing appellate process, we do not believe that a material
      adjustment will occur. Income taxes receivable are net of $160,000 valuation
      allowance established during the year ended December 31, 2007 in conjunction
      with this process. The Company records valuation allowances to reduce deferred
      tax assets to the amount that is more likely than not to be realized. When
      assessing the need for valuation allowances, the Company considers future
      taxable income and ongoing prudent and feasible tax planning strategies. Should
      a change in circumstances lead to a change in judgment about the realizability
      of deferred tax assets in future years, the Company would adjust related
      valuation allowances in the period that the change in circumstances occurs,
      along with a corresponding increase or charge to net income. The resolution
      of
      tax reserves and changes in valuation allowances could be material to the
      Company’s results of operations for any period, but is not expected to be
      material to the Company’s financial position.




Relative
      to the Company’s commitments stemming from operational matters, effective on or
      about March 1, 2006, 21 st Century
      sold its interest in the Lauderdale Lakes property to an unrelated party. As
      part of this transaction, 21 st Century
      has agreed to lease the same facilities for a five-year term. Our lease for
      this
      office space expires in December 2011.


-
          12 -


**21** **st** **Century Holding Company**


**Notes
      to Consolidated Financial Statements**





The
      expected future lease payouts in connection with this lease are as
      follows:





Fiscal
                Year
            
            Lease payments2008
            
            
            307,4582009
            
            
            625,1652010
            
            
            637,6682011
            
            
            648,331Total
            
            $
            2,218,622





We
      are
      involved in various claims and legal actions arising in the ordinary course
      of
      business. These proceedings are set forth below as either resolved or ongoing.





**Resolved
      legal proceeding:**





None





**Ongoing
      legal proceedings:**





From
      July
      27, 2007 to August 7, 2007, several securities class action lawsuits were filed
      against the Company and certain of its executive officers in the United States
      District Court for the Southern District of Florida (the “Court”) on behalf of
      all persons and entities who purchased the Company's securities during the
      various class periods specified in the complaints.  A consolidated amended
      complaint was filed on behalf of the class on January 22, 2008.  The
      complaint alleges that the Defendants made false and misleading statements
      and
      failed to accurately project the Company's business and financial performance
      during the putative class period. The complaint seeks an unspecified amount
      of
      damages and claim violations of Sections 10(b) and 20(a) of the Securities
      Exchange Act of 1934 and Rule 10b-5.  The Defendants filed their motion to
      dismiss the consolidated amended complaint on February 25, 2008.  The
      Plaintiff’s response to Defendant’s motion to dismiss was
      filed
      April 22, 2008. The Court has set the hearing date for oral arguments on the
      motion to dismiss for August 20, 2008.





On
      March
      18, 2008, a verified shareholder derivative lawsuit was filed against certain
      current or former officers and directors of the Company in the United States
      District Court for the Southern District of Florida by Anthony Neil Sellers,
      derivatively on behalf of nominal Defendant 21 st Century
      Holding Company. The complaint alleges breaches of fiduciary duties, abuse
      of
      control, gross mismanagement, waste of corporate assets and unjust enrichment
      occurring form October 3, 2006 through the present. The complaint seeks an
      unspecified amount of damages. On
      July
      29, 2008, the Court dismissed the Plaintiff’s complaint , but
      provided the Plaintiff with 30 days to amend the complaint. We have been advised
      that the Plaintiff will amend its complaint during this time
      period.





While
      the
      Company believes that the allegations in these complaints are without merit,
      an
      unfavorable resolution of pending litigation could have a material adverse
      effect on our financial condition. Litigation may result in substantial costs
      and expenses and significantly divert the attention of the Company's management
      regardless of the outcome. There can be no assurance that the Company will
      be
      able to achieve a favorable settlement of pending litigation or obtain a
      favorable resolution of this litigation if it is not settled. In addition,
      current litigation could lead to increased costs or interruptions of normal
      business operations of the Company.





**(4)
      Fair Value Disclosure** ****





In
      September 2006, FASB issued SFAS No. 157. SFAS No. 157 defines fair value as
      the
      exchange price that would be received for an asset or paid to transfer a
      liability (an exit price) in the principal or most advantageous market for
      the
      asset or liability in an orderly transaction between market participants on
      the
      measurement date. SFAS No. 157 also establishes a fair value hierarchy which
      requires an entity to maximize the use of observable inputs and minimize the
      use
      of unobservable inputs when measuring fair value. SFAS No. 157 categorizes
      assets and liabilities at fair value into one of three different levels
      depending on the observability of the inputs employed in the measurement, as
      follows:


-
          13 -


**21** **st** **Century Holding Company**


**Notes
      to Consolidated Financial Statements**





Level
      1 —
inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active markets. A quoted price for an
      identical asset or liability in an active market provides the most reliable
      fair
      value measurement because it is directly observable to the market.




Level
      2 —
inputs to the valuation methodology include quoted prices for similar assets
      and
      liabilities in active markets, and inputs are observable for the asset or
      liability, either directly or indirectly, for substantially the full term of
      the
      financial instrument.





Level
      3 —
inputs to the valuation methodology are unobservable and significant to the
      fair
      value measurement





**Securities
      available for sale** :
      The
      fair value of securities available for sale is determined by obtaining quoted
      prices on nationally recognized security exchanges.





Assets
      measured at fair value on a recurring basis, for which the Company has elected
      the fair value option, are summarized below:





(Dollars
                in thousands)Level
                1
            
            Level
                2
            
            Level
                3
            
            Balance at
              June30, 2008US
                government obligations and agencies
            
            $
            21,579
            
            $
            -
            
            $
            -
            
            $
            21,579Corporate
                securities and other
            
            
            46,523
            
            
            -
            
            
            -
            
            
            46,523$
            68,102
            
            $
            -
            
            $
            -
            
            $
            68,102Equity
                securities
            
            
            12,125
            
            
            -
            
            
            -
            
            
            12,125$
            12,125
            
            $
            -
            
            $
            -
            
            $
            12,125





**(5)
      Comprehensive Income**





For
      the
      three and six months ended June 30, 2008 and 2007, comprehensive income
      consisted of the following:





For the three months ended June 30,
            
            For the six months ended June 30,2008
            
            2007
            
            2008
            
            2007Net
                (loss) income
            
            $
            (2,500,031
            )
            $
            10,478,429
            
            $
            1,808,558
            
            $
            11,321,234Change
                in net unrealized gains on investments available for sale
            
            
            1,602,055
            
            
            (939,137
            )
            
            1,675,083
            
            
            (1,203,126
            )Comprehensive
                (loss) income, before tax
            
            
            (897,976
            )
            
            9,539,292
            
            
            3,483,641
            
            
            10,118,108Income
                tax (benefit) expense related to items of other comprehensive
                income
            
            
            (634,210
            )
            
            430,812
            
            
            (588,807
            )
            
            530,151Comprehensive
                income
            
            $
            (1,532,186
            )
            $
            9,970,104
            
            $
            2,894,834
            
            $
            10,648,259





**(6)
      Reinsurance Agreements**





We
      follow
      industry practice of reinsuring a portion of our risks and paying for that
      protection based primarily upon total insured values of all policies in effect
      and subject to such reinsurance. Reinsurance involves an insurance company
      transferring or “ceding” all or a portion of its exposure on insurance
      underwritten by it to another insurer, known as a “reinsurer.” The ceding of
      insurance does not legally discharge the insurer from its primary liability
      for
      the full amount of the policies. If the reinsurer fails to meet its obligations
      under the reinsurance agreement, the ceding company is still required to pay
      the
      insured for the loss. Our reinsurance agreements are designed to coincide with
      the June through November Florida hurricane season.





The
      availability and costs associated with the acquisition of reinsurance will
      vary
      year to year. These fluctuations, which can be significant, are not subject
      to
      our control and may limit our ability to purchase adequate coverage. The
      recovery of increased reinsurance costs through rate action is not immediate
      and
      can not be presumed, as it is subject to OIR approval.


-
          14 -


**21** **st** **Century Holding Company**


**Notes
      to Consolidated Financial Statements**





For
      the
      2008-2009 hurricane season, the excess of loss and FHCF treaties will insure
      us
      for approximately $297.0 million of aggregate catastrophic losses and LAE with
      a
      maximum single event coverage totaling approximately $235.0 million, with the
      Company retaining the first $3.0 million of losses and LAE. Our reinsurance
      program included coverage purchased from the private market, which afforded
      optional Reinstatement Premium Protection that provides coverage beyond the
      first event, along with coverage from the FHCF. Coverage afforded by the FHCF
      totals approximately $167.0 million or 56% of the $297.0 million of aggregate
      catastrophic losses and LAE. The FHCF affords coverage for the entire season,
      subject to maximum payouts, without regard to any particular insurable event.





For
      the
      2007-2008 hurricane season, the excess of loss and FHCF treaties insured us
      for
      approximately $403.0 million of aggregate catastrophic losses and LAE with
      a
      maximum single event coverage totaling approximately $320.0 million, with the
      Company retaining the first $3.0 million of losses and LAE. Our reinsurance
      program included coverage purchased from the private market, which afforded
      optional Reinstatement Premium Protection that provided coverage beyond the
      first event, along with coverage from the FHCF. Coverage afforded by the FHCF
      totaled approximately $261.0 million or 65% of the $403.0 million of aggregate
      catastrophic losses and LAE. The FHCF afforded coverage for the entire season,
      subject to maximum payouts, without regard to any particular insurable event.





The
      cost
      to the Company for these reinsurance products for the 2008-2009 and
      2007-2008 hurricane seasons, including the prepaid automatic premium
      reinstatement protection totals approximately $31.1 million and $46.5 million,
      respectively.





Our
      reinsurance structure has significant risks, including the fact that the FHCF
      may not be able to raise sufficient money to pay their claims or impair their
      ability to pay their claims in a timely manner. This could result in significant
      financial, legal and operational challenges to all companies, including ours.
      It
      is our understanding, based upon a memo from The Florida House of
      Representatives, Committee on Insurance, to House Speaker Marco Rubio, dated
      April 2, 2008, that it is probable, under the current FHCF structure, that
      hundreds of millions of dollars of FHCF claims in Florida will go unpaid for
      some time. The FHCF currently has limited cash available to pay claims in
      connection with a catastrophic event. The FHCF has the authority to raise
      additional cash to pay claims through the issuance of FHCF bonds. The retirement
      of these bonds would be funded by imposing additional assessments on future
      insurance premiums written in the state.


-
          15 -





**21** **st** **Century Holding Company**


**Notes
      to Consolidated Financial Statements**





The
      private reinsurance companies and their respective A. M. Best rating are listed
      in the table as follows:





**Reinsurer**
            **A.M. Best Rating****UNITED
                STATES**Everest
                Reinsurance Company
            
            A+GMAC
                Re/Motors Insurance Corporation
            
            A-Munich
                Reinsurance America, Inc.
            
            A+QBE
                Reinsurance Corporation
            
            A
            ***BERMUDA**Actua
                Re Limited
            
            NR
            *Ariel
                Reinsurance Company Limited
            
            A-
            *DaVinci
                Reinsurance Limited
            
            A
            *Flagstone
                Reinsurance Limited
            
            A-Hiscox
                Insurance Company Limited
            
            A-Max
                Bermuda Limited
            
            A-New
                Castle Reinsurance Company Limited
            
            A-
            *Renaissance
                Reinsurance Limited
            
            A+
            *Amlin
                Bermuda Limited
            
            A**EUROPE**Lansforsakringar
                Sak Forsakringsaktiebolag
            
            NRSCOR
                Switzerland AG
            
            A-*
                2008 Reinstatement Premium Protection Program Participants





To
      date,
      there have been no claims asserted against the reinsurers in connection with
      the
      2007-2008 excess of loss and FHCF treaties.





We
      are
      selective in choosing reinsurers and consider numerous factors, the most
      important of which are the financial stability of the reinsurer, their history
      of responding to claims and their overall reputation. In an effort to minimize
      our exposure to the insolvency of a reinsurer, we evaluate the acceptability
      and
      review the financial condition of the reinsurer at least annually.





In
      order
      to expand our commercial general liability business, we entered into a 100%
      quota-share reinsurance treaty with Republic on March 28, 2006. This
      agreement was in place for approximately one year until March 31, 2007, when
      it
      was cancelled at the request of Republic. Republic
      is domiciled in the State of Texas and licensed both directly and on a surplus
      lines basis in approximately 32 states. Republic has a financial rating of
“A-”
Excellent with A.M. Best. This arrangement would have facilitated the
      policyholder who requires their commercial general liability insurance policy
      to
      come from an insurance company with an A.M. Best rating.





Our
      arrangement with Republic allowed for a 4.75% commission on net written premium
      and reimbursement for all other costs in connection with the treaty such as
      premium taxes and assessments. We also remitted a 1% commission to the
      intermediary broker on the same net written premium. Under this agreement,
      the
      Company assumed approximately $325,000 and $23,000 in premiums in connection
      with its operations in the State of Texas during the years ending December
      31,
      2007 and 2006, respectively. Our operations in Texas began in December 2006.
      During the three months ended March 31, 2007, this 100% quota-sharing
      reinsurance treaty with Republic was cancelled, on a run-off basis, at their
      request, effective June 30, 2007.





Our
      automobile quota-share reinsurance treaties for 2003 included loss corridors
      with varying layers of coverage based on ultimate incurred loss ratio results
      whereby the two insurance companies will retain 100% of the losses between
      incurred loss ratios of 66% and 86% for policies with an effective date of
      2003.
      Despite the loss corridor,
      the reinsurer assumes significant insurance risk under the reinsured portions
      of
      the underlying insurance contracts and it is reasonably possible that the
      reinsurer will realize a significant loss from the transaction. Our ultimate
      incurred loss ratios for these treaties as of June 30, 2008 are estimated to
      be
      67.8% and 79.3% for Federated National and American Vehicle,
      respectively.


-
            16 -




**21** **st** **Century Holding Company**
 **Notes
        to Consolidated Financial Statements**






**(7)
      Stock Compensation Plans**





We
      implemented a stock option plan in November 1998 that provides for the granting
      of stock options to officers, key employees and consultants. The objectives
      of
      this plan include attracting and retaining the best personnel, providing for
      additional performance incentives, and promoting our success by providing
      employees the opportunity to acquire common stock. Options outstanding under
      this plan have been granted at prices, which are either equal to or above the
      market value of the stock on the date of grant, typically vest over a four-year
      or five-year period and expire six or ten years after the grant date. Under
      this
      plan, we are authorized to grant options to purchase up to 900,000 common
      shares, and, as of June 30, 2008 and December 31, 2007, we had outstanding
      exercisable options to purchase 129,099 and 152,599 shares,
      respectively.





In
      2001,
      we implemented a franchisee stock option plan that provides for the granting
      of
      stock options to individuals purchasing Company owned agencies that were then
      converted to franchised agencies. The purpose of the plan was to advance our
      interests by providing an additional incentive to encourage managers of Company
      owned agencies to purchase the agencies and convert them to franchises. Options
      outstanding under the plan have been granted at prices, which were above the
      market value of the stock on the date of grant, vested over a ten-year period,
      and expired ten years after the grant date. Under this plan, we are authorized
      to grant options to purchase up to 988,500 common shares, and, as of June 30,
      2008, we had no outstanding exercisable options to purchase shares.





In
      2002,
      we implemented the 2002 Option Plan. The purpose of this plan is to advance
      our
      interests by providing an additional incentive to attract, retain and motivate
      highly qualified and competent persons who are key to the Company, including
      key
      employees, consultants, independent contractors, Officers and Directors. Our
      success is largely dependent upon their efforts and judgment therefore, by
      authorizing the grant of options to purchase common stock we encourage stock
      ownership. Options outstanding under the plan were granted at prices that are
      above the market value of the stock on the date of grant, vest over a five-year
      period, and expire six years after the grant date. Under this plan, we are
      authorized to grant options to purchase up to 1,800,000 common shares, and,
      as
      of June 30, 2008 and December 31, 2007, we had outstanding exercisable options
      to purchase 569,251 and 660,309 shares, respectively.





Activity
      in the Company’s stock option plans for the period from January 1, 2006 to June
      30, 2008, is summarized below:





**1998
                  Plan**
            
            **2001 Franchisee Plan**
            
            **2002
                  Plan**Number****of
              Shares
            
            Weighted
              Average
              Option
              Exercise Price
            
            Number****of
              Shares
            
            Weighted
              Average
              Option
              Exercise Price
            
            Number****of
              Shares
            
            Weighted
              Average
              Option
              Exercise PriceOutstanding
                at January 1, 2006
            
            
            97,650
            
            $
            6.67
            
            
            15,000
            
            $
            9.17
            
            
            823,608
            
            $
            12.35Granted
            
            
            25,000
            
            $
            27.79
            
            
            -
            
            $
            -
            
            
            86,000
            
            $
            16.44Exercised
            
            
            (77,900
            )
            $
            6.67
            
            
            (15,000
            )
            $
            9.17
            
            
            (212,350
            )
            $
            8.98Cancelled
            
            
            -
            
            
            
            
            
            -
            
            $
            -
            
            
            (59,900
            )
            $
            14.98Outstanding
                at January 1, 2007
            
            
            44,750
            
            $
            18.47
            
            
            -
            
            $
            -
            
            
            637,358
            
            $
            13.80Granted
            
            
            109,849
            
            $
            13.32
            
            
            -
            
            $
            -
            
            
            57,151
            
            $
            13.18Exercised
            
            
            (2,000
            )
            $
            6.67
            
            
            -
            
            $
            -
            
            
            (16,300
            )
            $
            10.02Cancelled
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            (17,900
            )
            $
            15.82Outstanding
                at January 1, 2008
            
            
            152,599
            
            $
            14.92
            
            
            -
            
            $
            -
            
            
            660,309
            
            $
            13.78Granted
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            63,500
            
            $
            12.74Exercised
            
            
            (13,500
            )
            $
            6.67
            
            
            -
            
            $
            -
            
            
            (141,458
            )
            $
            8.81Cancelled
            
            
            (10,000
            )
            $
            11.11
            
            
            -
            
            $
            -
            
            
            (13,100
            )
            $
            14.25Outstanding
                at June 30, 2008
            
            
            129,099
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            569,251
            
            $
            14.89


-
          17 -





**21** **st** **Century Holding Company**


**Notes
      to Consolidated Financial Statements**





Options
      outstanding as of June 30, 2008 are exercisable as follows :





**1998
                Plan**
            
            **2001
                Franchisee Plan**
            
            **2002
                Plan**Options
                Exercisable at:
            
            Number of
              Shares
            
            Weighted
              Average
              Option
              Exercise Price
            
            Number of
              Shares
            
            Weighted
              Average
              Option
              Exercise Price
            
            Number of
              Shares
            
            Weighted
              Average
              Option
              Exercise PriceJune
                30, 2008
            
            
            35,250
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            254,699
            
            $
            14.89December
                31, 2008
            
            
            13,969
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            61,930
            
            $
            14.89December
                31, 2009
            
            
            19,970
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            102,554
            
            $
            14.89December
                31, 2010
            
            
            19,970
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            80,256
            
            $
            14.89December
                31, 2011
            
            
            19,970
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            36,056
            
            $
            14.89December
                31, 2012
            
            
            19,970
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            22,856
            
            $
            14.89Thereafter
            
            
            -
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            10,900
            
            $
            14.89Total
                options exercisible
            
            
            129,099
            
            
            
            
            
            -
            
            
            
            
            
            569,251





At
      June
      30, 2008, the Company has two stock-based employee compensation plans and one
      stock-based franchise compensation plan, which are described above. Prior to
      January 1, 2006, we accounted for those plans under the recognition and
      measurement provisions of stock-based compensation using the intrinsic value
      method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, *Accounting
      for Stock Issued to Employees,* and
      related Interpretations, as permitted by SFAS No. 123, *Accounting
      for Stock-Based Compensation.* Under
      these provisions, no stock-based employee compensation cost was recognized
      in
      the Statement of Operations as all options granted under those plans had an
      exercise price equal to or less than the market value of the underlying common
      stock on the date of grant.





Effective
      January 1, 2006, the Company adopted the fair value recognitions provisions
      of
      SFAS No. 123R using the modified-prospective-transition method. Under that
      transition method, compensation cost recognized during the six months ended
      June
      30, 2008 and 2007 includes:





·
            Compensation
                cost for all share-based payments granted prior to, but not yet vested
                as
                of January 1, 2006, based on the grant date fair value estimated
                in
                accordance with the original provisions of Statement 123, and





·
            Compensation
                cost for all share-based payments granted subsequent to January 1,
                2006,
                based on the grant-date fair-value estimated in accordance with the
                provisions of SFAS No. 123R. Results for prior periods have not been
                restated, as not required to by the
                pronouncement.





As
      a
      result of adopting SFAS No. 123R on January 1, 2006, the Company’s income from
      continuing operations before provision for income taxes and net income for
      the
      six months ended June 30, 2008 and 2007, are lower by approximately $258,000
      and
      $503,000, and $205,000 and $143,000, respectively, than if it had continued
      to
      account for share-base compensation under ABP Opinion No. 25.





Basic
      and
      diluted earnings per share for the six months ended June 30, 2008 and 2007
      would
      have been $0.29 and $0.29, and $1.44 and $1.42, respectively, if the Company
      had
      not adopted SFAS No. 123R, compared to reported basic and diluted earnings
      per
      share of $0.23 and $0.23, and $1.42 and $1.40, respectively.





Basic
      and
      diluted earnings per share for the three months ended June 30, 2008 and 2007
      would have been ($0.30) and ($0.30), and $1.34 and $1.33, respectively, if
      the
      Company had not adopted SFAS No. 123R, compared to reported basic and diluted
      earnings per share of ($0.31) and ($0.31), and $1.32 and $1.31, respectively.





Because
      the change in income taxes payable includes the effect of excess tax benefits,
      those excess tax benefits also must be shown as a separate operating cash
      outflow so that operating cash flows exclude the effect of excess tax benefits.
      SFAS No. 123R requires the cash flows resulting from the tax benefits resulting
      from tax deductions in excess of the compensation cost recognized for those
      options (excess tax benefits) to be classified as financing cash
      flows.


-
          18 -


**21** **st** **Century Holding Company**


**Notes
      to Consolidated Financial Statements**





The
      weighted average fair value for the 17,500 new options granted during the three
      months ended June 30, 2008, estimated on the dates of grant using the
      Black-Scholes option-pricing model was $3.09 per option. The weighted average
      fair value for the 40,000 new options granted during the three months ended
      June
      30, 2007, estimated on the dates of grant using the Black-Scholes option-pricing
      model was $2.92 per option.





The
      fair
      value of options granted is estimated on the date of grant using the following
      assumptions:





June
                30, 2008
            
            June
                30, 2007Dividend
                yield
            
            
            5.50% - 8.30%
            
            
            3.20% - 6.70%Expected volatility
            
            
            54.65% - 54.83%
            
            
            42.87% - 54.77%Risk-free interest rate
            
            
            1.60% - 2.24%
            
            
            4.79% - 4.86%Expected life (in years)
            
            
            3.18 - 3.19
            
            
            2.58





Volatility
      of a share price is the standard deviation of the continuously compounded rates
      of return on the share over a specified period. The higher the volatility,
      the
      more returns on the shares can be expected to vary - up or down. The expected
      volatility is a measure of the amount by which a financial variable such as
      a
      share price has fluctuated (historical volatility) or is expected to fluctuate
      (expected volatility) during a period. Our volatility as reflected above
      contemplates only historical volatility.





Summary
      information about the Company’s stock options outstanding as of June 30,
      2008:





Weighted Average
            
            WeightedRange of
            
            Outstanding at
            
            Contractual
            
            Average
            
            Exercisable atExercise Price
            
            June 30, 2008
            
            Periods in Years
            
            Exercise Price
            
            June 30, 20081998
                Plan
            
            
            $6.67 - $27.79
            
            
            129,099
            
            
            4.72
            
            $
            16.08
            
            
            35,2502001
                Franchise Plan
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -2002
                Plan
            
            
            $9.17 - $18.21
            
            
            569,251
            
            
            3.35
            
            $
            14.89
            
            
            254,699





**(8)
      Subordinated Debt**





On
      September 30, 2004, we completed a private placement of 6% Senior Subordinated
      Notes due September 30, 2007 (the “September 2004 Notes”). These notes were
      offered and sold to accredited investors as units consisting of one September
      2004 Note with a principal amount of $1,000 and
      warrants to purchase shares of our Common Stock (the “2004
      Warrants”) .
      We sold
      an aggregate of $12.5 million of units in this placement, which resulted in
      proceeds (net of placement agent fees of $700,000 and offering expenses of
      $32,500) to us of $11,767,500.





On
      September 30, 2007, we made the final principal payment of $1,041,667 on the
      September 2004 notes and the September 2004 warrants expired. Of the 1,019,608
      shares that could have been issued in connection with the September 2004
      warrants, 911,270 were exercised and 108,338 were unexercised. The unexercised
      warrants were cancelled as of September 30, 2007.





During
      2007, we paid, pursuant to the terms of the September 2004 Notes and in
      accordance with the contractual computations, our first and second quarterly
      regularly scheduled payments of principal and interest due in shares of our
      common stock. Common stock issued in connection with the first and second
      quarter of 2007 payments totaled 54,211 and 63,114 shares, respectively. Our
      third and fourth regularly scheduled payments of principal and interest during
      2007 were paid in cash and totaled $1.1 million per payment. The last
      installment was paid on September 30, 2007.


-
          19 -


**21** **st** **Century Holding Company**


**Notes
      to Consolidated Financial Statements**





**(9)
      Stockholder’s Equity**





**Capital
      Stock**





The
      Company’s authorized capital consists of 1 million shares of preferred stock,
      par value $0.01 per share, and 25,000,000 shares of common stock, par value
      $0.01 per share. As of June 30, 2008, there were no preferred shares issued
      or
      outstanding and there were 8,013,894 shares of common stock outstanding.





**(10)
      Subsequent Event**





None


-
          20 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





*General
      information about 21* *st* *Century Holding Company can be found at* *www.21stcenturyholding.com* *however, the information that can be accessed through our web site is not part
      of our report. We make our annual report on Form 10-K, quarterly reports on
      Form
      10-Q, current reports on Form 8-K and amendments to these reports filed or
      furnished pursuant to Section 13 or 15(d) of the Securities and Exchange Act
      of
      1934 available free of charge on our web site, as soon as reasonably practicable
      after they are electronically filed with the SEC.*





**Item
      2**





**Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations**





**Forward-Looking
      Statements**




Statements
      in this Quarterly Report on Form 10-Q for the six months ended June 30, 2008
      (“Form 10-Q”) or in documents that are incorporated by reference that are not
      historical fact are forward-looking statements that are subject to certain
      risks
      and uncertainties that could cause actual events and results to differ
      materially from those discussed herein. Without limiting the generality of
      the
      foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,”
“intend,” “could,” “would,” “estimate,” or “continue” or the negative other
      variations thereof or comparable terminology are intended to identify
      forward-looking statements. The risks and uncertainties include, without
      limitation, uncertainties related to estimates, assumptions and projections
      relating to unpaid losses and loss adjustment expenses and other accounting
      policies, losses from the nine hurricanes that occurred in fiscal years 2005
      and
      2004 and in other estimates, assumptions and projections contained in this
      Form
      10-Q; inflation and other changes in economic conditions (including changes
      in
      interest rates and financial markets); the impact of new regulations adopted
      in
      Florida which affect the property and casualty insurance market; the costs
      of
      reinsurance, assessments charged by various governmental agencies; pricing
      competition and other initiatives by competitors; our ability to obtain
      regulatory approval for requested rate changes and the timing thereof;
      legislative and regulatory developments; the outcome of litigation pending
      against us, including the terms of any settlements; risks related to the nature
      of our business; dependence on investment income and the composition of our
      investment portfolio; the adequacy of our liability for loss and loss adjustment
      expense; insurance agents; claims experience; ratings by industry services;
      catastrophe losses; reliance on key personnel; weather conditions (including
      the
      severity and frequency of storms, hurricanes, tornadoes and hail); changes
      in
      driving patterns and loss trends; acts of war and terrorist activities; court
      decisions and trends in litigation and health care and auto repair costs; and
      other matters described from time to time by us in this report, and our other
      filings with the SEC, including the Company’s Annual Report on Form 10-K for the
      year ended December 31, 2007.




You
      are
      cautioned not to place reliance on these forward-looking statements, which
      are
      valid only as of the date they were made. The Company undertakes no obligation
      to update or revise any forward-looking statements to reflect new information
      or
      the occurrence of unanticipated events or otherwise. In addition, readers should
      be aware that GAAP prescribes when a company may reserve for particular risks,
      including litigation exposures. Accordingly, results for a given reporting
      period could be significantly affected if and when a reserve is established
      for
      a major contingency. Reported results may therefore appear to be volatile in
      certain accounting periods.





The
      unaudited consolidated financial statements of 21 st Century
      Holding Company have been prepared in accordance with GAAP for interim financial
      information and with the instructions for Form 10-Q and Rule 10-01 of Regulation
      S-X. These financial statements do not include all information and notes
      required by GAAP for complete financial statements, and should be read in
      conjunction with the audited consolidated financial statements and notes thereto
      included in the Company's annual report on Form 10-K for the year ended December
      31, 2007. The December 31, 2007 year-end balance sheet data was derived from
      audited financial statements but does not include all disclosures required
      by
      GAAP. The financial information furnished reflects all adjustments, consisting
      only of normal recurring accruals, which are, in the opinion of management,
      necessary for a fair presentation of the financial position, results of
      operations and cash flows for the periods presented. The results of operations
      are not necessarily indicative of the results of operations that may be achieved
      in the future. ****





**Overview**





We
      are an
      insurance holding company, which, through our subsidiaries and our contractual
      relationships with our independent agents and general agents, control
      substantially all aspects of the insurance underwriting, distribution and claims
      processes. We are authorized to underwrite homeowners’ property and casualty
      insurance, commercial general liability insurance, and personal automobile
      insurance and commercial automobile insurance in various states with various
      lines of authority through our wholly owned subsidiaries, Federated National
      and


-
            21 -




**21** **st** **Century Holding Company**
 Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operations




American
      Vehicle. We internally process claims made by our own and third-party insureds
      through our wholly owned claims adjusting company, Superior Adjusting, Inc.
      (“Superior”). We also offer premium financing to our own and third-party
      insureds through our wholly owned subsidiary, Federated Premium Finance, Inc.
      (“Federated Premium”). We market and distribute our own and third-party
      insurers’ products and our other services primarily in Florida, through
      contractual relationships with a network of approximately 1,500 independent
      agents and a select number of general agents.





Federated
      National is authorized to underwrite homeowners’ property and casualty insurance
      in Florida as an admitted carrier. American Vehicle is authorized in several
      states to underwrite commercial general liability coverage as either an admitted
      or non-admitted carrier. A n
      admitted carrier is an insurance company that has received a license from the
      state department of insurance giving the company the authority to write specific
      lines of insurance in that state. These companies are also bound by rate and
      form regulations, and are strictly regulated to protect policyholders from
      a
      variety of illegal and unethical practices, including fraud. Admitted carriers
      are also required to financially contribute to the state guarantee fund, which
      is used to pay for losses if an insurance carrier becomes insolvent or unable
      to
      pay the losses due their policyholders. A non-admitted carrier is not licensed
      by the state, but is allowed to do business in that state and is strictly
      regulated to protect policyholders from a variety of illegal and unethical
      practices, including fraud. Sometimes, non-admitted carriers are referred to
      as
“excess and surplus” lines carriers. Non-admitted carriers are subject to
      considerably less regulation with respect to policy rates and forms. Additionally,
      both Federated National and American Vehicle are authorized to underwrite
      personal and commercial automobile insurance in Florida as an admitted carrier.





During
      the six months ended June 30, 2008, 72.8%, 26.6% and 0.6% of the premiums we
      underwrote were for homeowners’ property and casualty insurance, commercial
      general liability insurance and personal automobile insurance, respectively.
      During the six months ended June 30, 2007, 79.0%, 19.5% and 1.5% of the premiums
      we underwrote were for homeowners’ property and casualty insurance, commercial
      general liability insurance and personal automobile insurance, respectively.
      Our
      business, results of operations and financial condition are subject to
      fluctuations due to a variety of factors. Abnormally high severity or frequency
      of claims in any period could have a material adverse effect on our business,
      results of operations and financial condition. In addition, if our estimated
      liabilities for unpaid losses and LAE are less than actual losses and LAE,
      we
      will be required to increase reserves with a corresponding reduction in our
      net
      income in the period in which the deficiency is identified.





We
      operate in highly competitive markets and face competition from national,
      regional and residual market insurance companies in the property and casualty,
      commercial general liability and automobile markets, many of whom are larger
      and
      have greater financial and other resources, have better ratings and offer more
      diversified insurance coverage. Our competitors include companies that market
      their products through agents, as well as companies that sell insurance directly
      to their customers. Large national writers may have certain competitive
      advantages over agency writers, including increased name recognition, increased
      loyalty of their customer base and reduced policy acquisition costs. Competition
      is having a material adverse effect on our business, results of operations
      and
      financial condition.





Significant
      competition has emerged as a result of the January 2007 emergency Florida
      legislation session wherein it passed, and the Governor signed into law, a
      bill
      known as “CS/HB-1A.”. This law made fundamental changes to the property and
      casualty insurance business in Florida and undertook a multi-pronged approach
      to
      address the cost of residential property insurance in Florida. First, the law
      increased the capacity of reinsurance that stabilized the reinsurance market
      to
      the benefit of the insurance companies writing properties lines in the state
      of
      Florida. Secondly, the law provided for rate relief to all
      policyholders.





The
      law
      also authorized the state-owned insurance company, Citizens, which is free
      of
      many of the restraints on private carriers such as surplus, ratios, income
      taxes
      and reinsurance expense, to reduce its premium rates and begin competing against
      private insurers in the residential property insurance market and expands the
      authority of Citizens to write commercial insurance.





Additionally,
      in an effort to foster competition in the Florida homeowners’ property insurance
      market, the State of Florida created a Capital Build-Up incentive program in
      response to the catastrophic events that occurred during 2004 and 2005. This
      program provides matching statutory capital to any new or existing carrier
      licensed to write homeowners insurance in the state of Florida. This Capital
      Build-Up incentive program has certain default covenants that require
      participating carriers to maintain minimum net written premium ratios.


-
          22 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





Finally,
      during 2007 and 2008, more than a dozen new homeowner insurance companies have
      received authority by the Florida OIR to commence business.





We
      believe that these aggressive marketplace changes have forced some carriers
      to
      pursue market share based on “best case” pricing models that may ultimately
      prove unprofitable from an underwriting perspective.





We
      have
      not participated in the Capital Build-Up incentive program and therefore have
      been able to remain committed to the discipline of writing business that is
      profitable from an underwriting perspective. This commitment has resulted in
      a
      significant erosion of our homeowners’ property insurance market share. Although
      our pricing is inevitably influenced to some degree by that of our competitors,
      we believe that it is generally not in our shareholders’ best interest to
      compete solely on price. We compete on the basis of underwriting criteria,
      our
      distribution network and superior service to our agents and
      insureds.





In
      Florida, more than 200 companies are authorized to underwrite homeowners’
insurance. National and regional companies that compete with us in the
      homeowners’ market include Allstate Insurance Company, State Farm Insurance
      Company and First Floridian Insurance Company. In addition to these nationally
      recognized names, we also compete with several Florida domestic property and
      casualty companies such as Universal Insurance Company of North America,
      Universal Property and Casualty Insurance Company, Royal Palm Insurance Company,
      Coral Insurance Company, Edison Insurance Company, Olympus Insurance Company,
      St. Johns Insurance Company, Cypress Property and Casualty Insurance Company,
      Tower Hill Insurance Company, Florida Family Insurance Company and American
      Strategic Insurance Company.





During
      calendar year 2006, the Florida OIR announced the take over of several of our
      major competitors due to the poor financial condition stemming from the effects
      of the 2005 catastrophic hurricanes.





American
      Vehicle has either ongoing operations or operations expected to commence this
      year in several states. The table below denotes by state American Vehicle’s
      authority, status of operations and where new applications are pending. We
      may
      not receive authority to write in every state where we have an application
      pending due to state specific guidelines.











In
      January 2008, the State of Florida granted American Vehicle licenses to
      underwrite commercial multiple peril, inland marine and surety lines of business
      as an admitted carrier.


-
          23 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





Comparable
      companies which compete with us in the commercial general liability insurance
      market include Century Surety Insurance Company, Atlantic Casualty Insurance
      Company, Colony Insurance Company and Burlington/First Financial Insurance
      Companies. We also face new competition in Florida from such companies as
      Seminole Property and Casualty Insurance Company and U.S. Security Insurance
      Company.





Assurance
      MGA, a wholly owned subsidiary, acts as Federated National’s and American
      Vehicle’s exclusive managing general agent in the state of Florida. As
      American Vehicle continues its expansion into other states, we intend to retain
      other general agents to market our commercial general liability insurance
      products. Effective June 23, 2008 Assurance MGA became licensed in the state
      of
      Georgia as a Non-resident General Agency. Assurance MGA currently provides underwriting policy administration, marketing,
      accounting and financial services to Federated National and American Vehicle,
      and participates in the negotiation of reinsurance contracts.  For
      the
      above-mentioned services, Assurance MGA generates revenue through a 6%
      commission fee from the insurance companies’ gross written premium, policy fee
      income of $25 per policy and other administrative fees. The 6% commission fee
      from Federated National and American Vehicle was made effective January 1,
      2005.
      Assurance MGA plans to establish relationships with additional carriers and
      add
      additional insurance products in the future.





With
      respect to automobile insurance in Florida, we intentionally market only to
      our
      existing policyholders by offering to renew the existing policy. Temporarily,
      we
      have chosen not to compete with the more than 100 companies, which underwrite
      personal automobile insurance in Florida. Comparable companies in the personal
      automobile insurance market include Affirmative Insurance Holdings, Inc., which
      acquired our non-standard automobile agency business in Florida in December
      2004, U.S. Security Insurance Company, United Automobile Insurance Company,
      Direct General Insurance Company and Security National Insurance Company, as
      well as major insurers such as Progressive Casualty Insurance
      Company.





Our
      executive offices are located at 3661 West Oakland Park Boulevard, Suite 300,
      Lauderdale Lakes, Florida and our telephone number is (954)
      581-9993.




**Critical
      Accounting Policies**




The
      preparation of financial statements in conformity with GAAP requires management
      to make estimates and assumptions about future events that affect the amounts
      reported in the financial statements and accompanying notes. Future events
      and
      their effects cannot be determined with absolute certainty. Therefore, the
      determination of estimates requires the exercise of judgment. Actual results
      inevitably will differ from those estimates, and such differences may be
      material to the financial statements.





The
      most
      significant accounting estimates inherent in the preparation of our financial
      statements include estimates associated with management’s evaluation of the
      determination of liability for unpaid losses and LAE and the amount and
      recoverability of amortization of deferred polcy acquisition costs. In addition,
      significant estimates form the basis for our reserves with respect to finance
      contracts, premiums receivable and deferred income taxes. Various assumptions
      and other factors underlie the determination of these significant estimates
      that
      are described in greater detail in Footnote 2 of the Company’s audited financial
      statements for the fiscal year ended December 31, 2007 included in our Annual
      Report on Form 10-K filed with the SEC on March 17, 2008.





Except
      as
      described below, we believe that during the first six months of fiscal 2008
      there were no significant changes in those critical accounting policies and
      estimates. Senior management has reviewed the development and selection of
      our
      critical accounting policies and estimates and their disclosure in this Form
      10-Q with the Audit Committee of our Board of Directors.





The
      process of determining significant estimates is fact specific and takes into
      account factors such as historical experience, current and expected economic
      conditions, and in the case of unpaid losses and LAE, an actuarial valuation.
      Management regularly reevaluates these significant factors and makes adjustments
      where facts and circumstances dictate. In selecting the best estimate, we
      utilize various actuarial methodologies. Each of these methodologies is designed
      to forecast the number of claims we will be called upon to pay and the amounts
      we will pay on average to settle those claims. In arriving at our best estimate,
      our actuaries consider the likely predictive value of the various loss
      development methodologies employed in light of underwriting practices, premium
      rate changes and claim settlement practices that may have occurred, and weight
      the credibility of each methodology. Our actuarial methodologies take into
      account various factors, including, but not limited to, paid losses, liability


-
          24 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations




estimates
      for reported losses, paid allocated LAE, salvage and other recoveries received,
      reported claim counts, open claim counts and counts for claims closed with
      and
      without payment of loss.





Accounting
      for loss contingencies pursuant to SFAS No. 5 involves the existence of a
      condition, situation or set of circumstances involving uncertainty as to
      possible loss that will ultimately be resolved when one or more future event(s)
      occur or fail to occur. Additionally, accounting for a loss contingency requires
      management to assess each event as probable, reasonably possible or remote.
      Probable is defined as the future event or events are likely to occur.
      Reasonably possible is defined as the chance of the future event or events
      occurring is more than remote but less than probable, while remote is defined
      as
      the chance of the future event or events occurring is slight. An estimated
      loss
      in connection with a loss contingency shall be recorded by a charge to current
      operations if both of the following conditions are met: First, the amount can
      be
      reasonably estimated, and second, the information available prior to issuance
      of
      the financial statements indicates that it is probable that a liability has
      been
      incurred at the date of the financial statements. It is implicit in this
      condition that it is probable that one or more future events will occur
      confirming the fact of the loss or incurrence of a liability.





We
      are
      required to review the contractual terms of all our reinsurance purchases to
      ensure compliance with SFAS No. 113, *Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration
      Contracts* .
      The
      statement establishes the conditions required for a contract with a reinsurer
      to
      be accounted for as reinsurance and prescribes accounting and reporting
      standards for those contracts. Contracts that do not result in the reasonable
      possibility that the reinsurer may realize a significant loss from the insurance
      risk assumed generally do not meet the conditions for reinsurance accounting
      and
      must be accounted for as deposits. SFAS No. 113 also requires us to disclose
      the
      nature, purpose and effect of reinsurance transactions, including the premium
      amounts associated with reinsurance assumed and ceded. It also requires
      disclosure of concentrations of credit risk associated with reinsurance
      receivables and prepaid reinsurance premiums.




**New
      Accounting Pronouncements**




In
      February 2008, FASB issued FSP FASB 157-2, which was effective upon issuance
      and
      delayed the effective date of SFAS No. 157 for non-financial assets and
      non-financial liabilities, except for items recognized or disclosed at fair
      value at least once a year, to fiscal years beginning after November 15, 2008.
      FSP FASB No. 157-2 also covers interim periods within the fiscal years for
      items
      within the scope of this FSP. We adopted SFAS No. 157 effective with the first
      interim period beginning after January 1, 2008. The adoption of SFAS No. 157
      has
      not had a material impact, to date, on our financial position or results of
      operations.





In
      February 2007, FASB issued SFAS No. 159 *The
      Fair Value Option for Financial Assets and Financial Liabilities —
Including an Amendment of SFAS No. 115* ,
      which
      permits an entity to measure many financial assets and financial liabilities
      at
      fair value that are not currently required to be measured at fair value.
      Entities that elect the fair value option will report unrealized gains and
      losses in earnings at each subsequent reporting date. The fair value option
      may
      be elected on an instrument-by-instrument basis, with a few exceptions.
      SFAS No. 159 amends previous guidance to extend the use of the fair
      value option to available-for-sale and held-to-maturity securities. The
      Statement also establishes presentation and disclosure requirements to help
      financial statement users understand the effect of the election. We adopted
      SFAS
      No. 159 on its effective date, January 1, 2008.  The adoption of SFAS
      No. 159 has not had a material impact, to date, on our financial position or
      results of operations.





In
      June
      2006, FASB issued FIN 48, *Accounting
      for Uncertainty in Income Taxes* that
      clarifies the accounting for income tax reserves and contingencies recognized
      in
      an enterprise’s financial statements in accordance with SFAS No. 109, *Accounting
      for Income Taxes* .
      This
      Interpretation also provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods, disclosure and transition. This
      Interpretation is effective for fiscal years beginning after December 15, 2006.
      The Company has adopted and concluded that the impact of FIN 48 will be minimal
      and includes a policy of classifying interest and penalties related to income
      tax as elements of income tax expense in the consolidated financial statements.
      As required by FIN 48, this change will be done prospectively. Previously,
      penalties and interest were classified as operating and underwriting expenses.


-
          25 -







**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





**Analysis
      of Financial Condition**


**As
      of June 30, 2008 Compared to December 31, 2007**





**Total
      Investments**


SFAS
      No.
      115 addresses accounting and reporting for (a) investments in equity securities
      that have readily determinable fair values and (b) all investments in debt
      securities. SFAS No. 115 requires that these securities be classified into
      one
      of three categories: (i) held-to-maturity, (ii) trading securities or (iii)
      available-for-sale.





Investments
      classified as held-to-maturity include debt securities wherein the Company’s
      intent and ability are to hold the investment until maturity. The accounting
      treatment for held-to-maturity investments is to carry them at amortized cost
      without consideration to unrealized gains or losses. Investments classified
      as
      trading securities include debt and equity securities bought and held primarily
      for the sale in the near term. The accounting treatment for trading securities
      is to carry them at fair value with unrealized holding gains and losses included
      in current period operations. Investments classified as available-for-sale
      include debt and equity securities that are not classified as held-to-maturity
      or as trading security investments. The accounting treatment for
      available-for-sale securities is to carry them at fair value with unrealized
      holding gains and losses excluded from earnings and reported as a separate
      component of shareholders’ equity, namely “Other Comprehensive
      Income”.





Total
      Investments decreased $32.8 million,
      or 24.1%, to $103.4 million as of June 30, 2008, compared to $136.2 million
      as
      of December 31, 2007. Our fixed income portfolio contained callable features
      exercised during the six months ended June 30, 2008. The proceeds from these
      called securities are currently in cash and short-term investments. We are
      currently evaluating long and short-term investment options for best yields
      that
      match our liquidity needs.





The
      fixed
      maturities and the equity securities that are available for sale and carried
      at
      fair value represent 78% of total investments as of June 30, 2008, compared
      to
      85% as of December 31, 2007.





We
      did
      not hold any non-trading investment securities during 2008 or 2007.





Below
      is
      a summary of net unrealized gains and (losses) at June 30, 2008 and December
      31,
      2007 by category.





Unrealized
                Gains and (Losses)June
                30, 2008
            
            December
                31, 2007Fixed
                maturities:U.S.
                government obligations
            
            $
            (63,948
            )
            $
            (68,974
            )Obligations
                of states and political subdivisions
            
            
            16,567
            
            
            (1,706
            )(47,381
            )
            
            (70,680
            )Corporate
                securities:Communications
            
            
            (73,001
            )
            
            (3,481
            )Financial
            
            
            (52,743
            )
            
            (16,984
            )Other
            
            
            (382,388
            )
            
            (25,852
            )(508,132
            )
            
            (46,317
            )Equity
                securities:Common
                stocks
            
            
            (1,875,719
            )
            
            (3,989,319
            )Total
                fixed, corporate and equity securities
            
            $
            (2,431,232
            )
            $
            (4,106,316
            )





Pursuant
      to FASB SFAS No. 115, the Company records the unrealized losses, net of
      estimated income taxes that are associated with that part of our portfolio
      classified as available for sale through the shareholders' equity account titled
      “Other Comprehensive Income”. Management periodically reviews the individual
      investments that comprise our portfolio in order to determine whether a decline
      in fair value below our cost either is other than temporary or permanently
      impaired. Factors used in such consideration include, but are not limited to,
      the extent and length of time over which the market value has been less than
      cost, the financial condition and near-term prospects


-
            26 -




**21** **st** **Century Holding Company**
 Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operations




of
      the
      issuer and our ability and intent to keep the investment for a period sufficient
      to allow for an anticipated recovery in market value.





In
      reaching a conclusion that a security is either other than temporary or
      permanently impaired we consider such factors as the timeliness and completeness
      of expected dividends, principal and interest payments, ratings from nationally
      recognized statistical rating organizations such as Standard and Poor’s and
      Moody’s, as well as information released via the general media channels. During
      the six months ended June
      30,
      2008 ,
      in
      connection with this process, we have charged to operations a net realized
      investment loss totaling approximately $6.5 million with an estimated
      provisional tax effect of approximately $2.5 million .  The
      charge relates to short-term investments in connection with the common stocks
      of
      financial and pharmaceutical industries.





The
      investments held at June 30, 2008 and December 31, 2007 were comprised mainly
      of
      United States government and agency bonds, as well as municipal bonds which
      are
      viewed by the Company as conservative and less risky holdings, though sensitive
      to interest rate changes. There is a smaller concentration of corporate bonds,
      predominantly held in the financial and conglomerate industries. At June 30,
      2008, approximately 55% of the equity holdings are in mutual funds and 45%
      are
      in equities related to the financial industry and insurance industry.





All
      of
      our securities, except as noted above, are in good standing and are not impaired
      as defined by FASB SFAS No. 115.





During
      June 2008, we reclassified $7.2 million of our bond portfolio as
      held-to-maturity because we decided that we had the ability to hold them until
      maturity.





**Cash
      and Short Term Investments**





Cash
      and
      short-term investments, which include cash, certificates of deposits, and money
      market accounts , increased
      $41.3 million, or 183.2%, to $63.8 million as of June 30, 2008, compared to
      $22.5 million as of December 31, 2007. These balances are held primarily in
      money market accounts at amounts deemed sufficient to meet short-term cash
      requirements. Our excess cash and cash equivalents are invested in accordance
      with our long-term liquidity requirements.





Our
      fixed
      income portfolio contained callable features exercised during the six months
      ended June 30, 2008. The proceeds from these called securities are currently
      in
      cash and short-term investments. We are currently evaluating long and short-
      term investment options for best yields that match our liquidity needs.





**Receivable
      for Investments Sold**





Receivable
      for investments sold decreased to nothing as of June 30, 2008, compared to
      $6.4
      million as of December 31, 2007. The decrease is a result of investment trading
      activity that occurred in late December and settled during early January
      2008.





**Finance
      Contracts Receivable, Net of Allowance for Credit Losses**





Finance
      contracts receivable, net of allowance for credit losses, decreased $0.2
      million, or 52.1%, to $0.2 million as of June 30, 2008, compared to $0.4 million
      as of December 31, 2007.  The
      decrease is primarily due to our sale in December 2004 of our assets related
      to
      our non-standard automobile insurance agency business in Florida and the
      associated financed contracts. We anticipate a continued decline in the financed
      contracts receivable, net over the future short term and its related conversion
      to cash, cash equivalents and investments.





**Prepaid
      Reinsurance Premiums**





Prepaid
      reinsurance premiums  decreased
      $7.7 million, or 90.7%, to $0.8 million as of June 30, 2008, compared to $8.5
      million as of December 31, 2007. The decrease is due to our payments and
      amortization of prepaid reinsurance premiums associated with our homeowners’
book of business.




-
          27 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





**Premiums
      Receivable, Net of Allowance for Credit Losses**





Premiums
      receivable, net of allowance for credit losses, increased $1.4 million, or
      36.0%, to $5.2 million as of June 30, 2008, compared to $3.8 million as of
      December 31, 2007. Our homeowners’ insurance premiums receivable increased $0.8
      million, or 70.7%, to $2.0 million as of June 30, 2008, compared to $1.2 million
      as of December 31, 2007. Our commercial general liability insurance premiums
      receivable increased $0.6 million, or 24.6%, to $3.2 million as of June 30,
      2008, compared to $2.6 million as of December 31, 2007. Premiums receivable
      in
      connection with our automobile line of business decreased $0.2 million, or
      42.9%, to $0.2 million as of June 30, 2008, compared to $0.4 million as of
      December 31, 2007. These changes are attributed to the seasonality of the
      purchasing patterns of our policyholders and our insurance policy marketing
      efforts.




**Reinsurance
      Recoverable, net**





Reinsurance
      Recoverable, net,  decreased
      $6.1 million, or 26.8%, to $16.8 million as of June 30, 2008, compared to $22.9
      million as of December 31, 2007. The decrease  is
      due to
      payment patterns by our reinsurers. All amounts are current and deemed
      collectable. We have not recorded a valuation allowance in connection with
      our
      reinsurance recoverable, net.





**Deferred
      Policy Acquisition Costs**





Deferred
      policy acquisition costs  decreased
      $0.2 million, or 1.7%, to $8.8 million as of June 30, 2008, compared to $9.0
      million as of December 31, 2007. The recent decreased production volume for
      both
      the homeowners’ and commercial general liability product lines is the reason for
      the decrease in this asset.





**Deferred
      Income Taxes, net**





Deferred
      income taxes, net, increased $2.5 million, or 44.6%, to $8.2 million as of
      June
      30, 2008, compared to $5.6 million as of December 31, 2007. Deferred income
      taxes, net is comprised of approximately $11.4 million and $8.9 million of
      deferred tax assets, net of approximately $3.2 million and $3.2 million of
      deferred tax liabilities as of June 30, 2008 and December 31, 2007 ,
      respectively.





**Income
      Taxes Receivable**





Income
      taxes receivable increased $1.7 million as of June 30, 2008, compared to nothing
      as of December 31, 2007. The change is due to tax payment patterns in connection
      with our tax liabilities. See income taxes payable, below.





**Property,
      Plant and Equipment, net**





Property,
      plant and equipment, net, decreased $0.1 million, or 11.8%, to less than $1.0
      million as of June 30, 2008 compared to more than $1.0 million as of December
      31, 2007. The decrease is primarily due to depreciation and amortization of
      our
      existing property, plant and equipment.





**Other
      Assets**





Other
      assets remained unchanged at $2.9 million as of June 30, 2008, compared to
      $2.9
      million as of December 31, 2007. Major components of other assets are as
      follows:





June 30, 2008
            
            December 31, 2007Accrued
                interest income receivable
            
            $
            639,171
            
            $
            1,429,844Notes
                receivable
            
            
            686,234
            
            
            807,275Prepaid
                expenses
            
            
            533,084
            
            
            547,542Insurance
                Receivables
            
            
            962,616
            
            
            -Other
            
            
            57,196
            
            
            133,639Total
            
            $
            2,878,301
            
            $
            2,918,300




-
          28 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





**Unpaid
      Losses and LAE**





Unpaid
      losses and LAE decreased $1.3 million, or 2.3%, to $58.3 million as of June
      30,
      2008, compared to $59.7 million as of December 31, 2007. The composition of
      unpaid losses and LAE by product line is as follows:





June 30, 2008
            
            December 31, 2007Case
            
            Bulk
            
            Total
            
            Case
            
            Bulk
            
            TotalHomeowners'
            
            $
            7,923,980
            
            $
            19,608,725
            
            $
            27,532,705
            
            $
            7,775,769
            
            $
            24,599,142
            
            $
            32,374,911Commercial
                General Liability
            
            
            6,346,703
            
            
            21,818,145
            
            
            28,164,848
            
            
            5,414,633
            
            
            17,870,404
            
            
            23,285,037Automobile
            
            
            269,341
            
            
            2,380,451
            
            
            2,649,792
            
            
            530,308
            
            
            3,494,534
            
            
            4,024,842$
            14,540,024
            
            $
            43,807,321
            
            $
            58,347,345
            
            $
            13,720,710
            
            $
            45,964,080
            
            $
            59,684,790








Factors
      that affect unpaid losses and LAE include the estimates made on a claim-by-claim
      basis known as “case reserves” coupled with bulk estimates known as incurred but
      not yet reported (“IBNR”). Periodic estimates by management of the ultimate
      costs required to settle all claim files are based on the Company’s analysis of
      historical data and estimations of the impact of numerous factors such as (i)
      per claim information; (ii) company and industry historical loss experience;
      (iii) legislative enactments, judicial decisions, legal developments in the
      awarding of damages, and changes in political attitudes; and (iv) trends in
      general economic conditions, including the effects of inflation.





Management
      revises its estimates based on the results of its analysis. This process assumes
      that past experience, adjusted for the effects of current developments and
      anticipated trends, is an appropriate basis for estimating the ultimate
      settlement of all claims. There is no precise method for subsequently evaluating
      the impact of any specific factor on the adequacy of the reserves, because
      the
      eventual redundancy or deficiency is affected by multiple factors. Because
      of
      our process, reserves were decreased by approximately $1.3 million during the
      six months ended June 30, 2008.





**Unearned
      Premium**





Unearned
      premiums decreased $1.0 million, or 1.7%, to $55.4 million as of June 30, 2008,
      compared to $56.4 million as of December 31, 2007. The decrease was due to
      a
      $0.8 million decrease in unearned homeowners’ insurance premiums, a $0.1 million
      increase in unearned commercial general liability premiums, and a $0.3 million
      decrease in unearned automobile premiums. Generally, as is in this case, a
      decrease in unearned premium directly relates to a decrease in written premium
      on a rolling twelve-month basis. Competition could continue to negatively affect
      our unearned premium.





**Premium
      Deposits and Customer Credit Balances**





Premium
      deposits and customer credit balances decreased $0.6 million, or 22.5%, to
      $2.1
      million as of June 30, 2008, compared to $2.8 million as of December 31, 2007.
      Premium deposits are monies received on policies not yet in force as of June
      30,
      2008.





**Bank
      Overdraft**





Bank
      overdraft increased $0.3 million, or 3.7%, to $9.0 million as of June 30, 2008,
      compared to $8.7 million as of December 31, 2007. The bank overdraft relates
      primarily to losses and LAE disbursements paid but not yet presented for payment
      by the policyholder or vendor. The increase relates to our payment patterns
      in
      relationship to the rate at which those cash disbursements are presented to
      the
      bank for payment.




**Income
      Taxes Payable**





Income
      taxes payable was nothing as of June 30, 2008, compared to $4.2 million as
      of
      December 31, 2007. The change is due to tax payment patterns in connection
      with
      our tax liabilities. See income taxes receivable, above.


-
          29 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





**Deferred
      Gain from Sale of Property**





Deferred
      gain from sale of property decreased $0.3 million, or 13.1%, to $1.7 million
      as
      of June 30, 2008, compared to $2.0 million as of December 31, 2007. In
      accordance with the provisions of SFAS No. 13, we are amortizing the deferred
      gain over the term of the leaseback, which is scheduled to end in December
      2011.




**Accounts
      Payable and Accrued Expenses**





Accounts
      payable and accrued expenses  decreased
      $1.2 million, or 28.3%, to $3.1 million as of June 30, 2008, compared to $4.3
      million as of December 31, 2007. This decrease is due to our cash management
      efforts and timing of payments with our trade vendors.





**Results
      of Operations**


**Three
      Months Ended June 30, 2008 Compared to Three Months Ended June 30,
      2007**





**Gross
      Premiums Written**





Gross
      premiums written decreased $17.2 million, or 38.7%, to $27.2 million for the
      three months ended June 30, 2008, compared to $44.5 million for the three months
      ended June 30, 2007. The following table denotes gross premiums written by
      major
      product line:





Three
                months ended June 30,2008
            
            2007Amount
            
            Percentage
            
            Amount
            
            PercentageHomeowners'
            
            $
            19,930,710
            
            
            73.16
            %
            $
            34,095,538
            
            
            76.68
            %Commercial
                General Liability
            
            
            7,235,074
            
            
            26.56
            %
            
            10,074,519
            
            
            22.66
            %Automobile
            
            
            75,129
            
            
            0.28
            %
            
            291,447
            
            
            0.66
            %Gross
                written premiums
            
            $
            27,240,913
            
            
            100.00
            %
            $
            44,461,504
            
            
            100.00
            %




The
      Company’s sale of homeowners’ policies decreased $14.2 million, or 41.5%, to
      $19.9 million for the three months ended June 30, 2008, compared to $34.1
      million for the three months ended June 30, 2007. The significant erosion is
      primarily due to the soft market conditions prevailing in the state of Florida.
      The soft market conditions are lead by Citizens, the state run insurance
      company. We believe that these marketplace conditions have forced some carriers
      to pursue market share based on “best case” pricing models that may ultimately
      prove unprofitable from an underwriting perspective. We do not intend to compete
      with others solely based on pricing mechanisms. We will continue to market
      our
      property insurance product in territories in Florida where our rates are
      competitive.





Federated
      National and American Vehicle are currently rated by Demotech as "A"
      ("Exceptional"), which is the third of seven ratings, and defined as “Regardless
      of the severity of a general economic downturn or deterioration in the insurance
      cycle, insurers earning a Financial Stability Rating of “A” possess
“Exceptional” financial stability related to maintaining surplus as regards to
      policyholders”. Demotech’s ratings are based upon factors of concern to agents,
      reinsurers and policyholders and are not primarily directed toward the
      protection of investors.





The
      Company’s sale of commercial general liability policies decreased by $2.8
      million to $7.2 million for the three months ended June 30, 2008, compared
      to
      $10.1 million for the three months ended June 30, 2007. This decrease is due
      to
      increased competition in the commercial general liability market. The following
      table sets forth the amounts and percentages of our gross premiums written
      in
      connection with our commercial general liability program by state:


-
          30 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





Three Months Ended June 30,2008
            
            2007Amount
            
            Percentage
            
            Amount
            
            Percentage(Dollars in Thousands)StateAlabama
            
            $
            28
            
            
            0.39
            %
            $
            -
            
            
            -Arkansas
            
            
            4
            
            
            0.06
            %
            
            -
            
            
            -California
            
            
            104
            
            
            1.44
            %
            
            -
            
            
            -Florida
            
            
            4,510
            
            
            62.34
            %
            
            6,881
            
            
            68.30
            %Georgia
            
            
            143
            
            
            1.98
            %
            
            295
            
            
            2.93
            %Kentucky
            
            
            1
            
            
            0.01
            %
            
            4
            
            
            0.04
            %Louisiana
            
            
            1,330
            
            
            18.38
            %
            
            1,481
            
            
            14.70
            %South
                Carolina
            
            
            28
            
            
            0.39
            %
            
            43
            
            
            0.43
            %Texas
            
            
            1,090
            
            
            15.05
            %
            
            1,354
            
            
            13.44
            %Virginia
            
            
            (3
            )
            
            -0.04
            %
            
            17
            
            
            0.16
            %Total
            
            $
            7,235
            
            
            100.0
            %
            $
            10,075
            
            
            100.0
            %




The
      Company’s sale of auto insurance policies decreased by $0.2 million, or 74.2%,
      to less than $0.1 million for the three months ended June 30, 2008, compared
      to
      $0.3 million for the three months ended June 30, 2007. With respect to
      automobile insurance in Florida, we intentionally market only to our existing
      policyholders by offering to renew the existing policy. Temporarily, we have
      chosen not to compete with the more than 100 companies, which underwrite
      personal automobile insurance in Florida.




**Gross
      Premiums Ceded**





Gross
      premiums ceded  decreased
      $7.6 million, or 47.9%, to $8.2 million  for
      the
      three months ended June 30, 2008,  compared
      to $15.8 million for the three months ended June 30, 2007.





**(Decrease)
      in Prepaid Reinsurance Premiums**





The
      decrease in prepaid reinsurance premiums was $2.4 million for the three months
      ended June 30, 2008, compared to $0.8 million for the three months ended June
      30, 2007. The increased charge to written premium is primarily associated with
      the timing of our reinsurance payments measured against the term of the
      underlying reinsurance policies.





**(Increase)
      Decrease in Unearned Premiums**





The
      increase in unearned premiums was $1.2 million for the three months ended
      June 30, 2008, compared to $3.0 million for the three months ended June 30,
      2007. The change was due to a $1.4 million increase in unearned homeowners’
insurance premiums, nearly no change in unearned commercial general liability
      premiums and a 0.2 million decrease in unearned automobile premiums. These
      changes are a result of our decreased premium volume during this period. See
      Gross Premiums Written.





**Net
      Premiums Earned**





Net
      premiums earned decreased $9.4 million, or 37.7%, to $15.5 million for the
      three
      months ended June 30, 2008, compared to $24.8 million for the three months
      ended
      June 30, 2007.  These
      changes are a result of our experienced decreased premium volume. The following
      table denotes net premiums earned by product line:


-
          31 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





Three Months Ended June 30,2008
            
            2007Amount
            
            Percentage
            
            Amount
            
            PercentageHomeowners'
            
            $
            7,975,523
            
            
            51.59
            %
            $
            15,540,963
            
            
            62.63
            %Commercial
                General Liability
            
            
            7,380,265
            
            
            47.74
            %
            
            8,892,955
            
            
            35.84
            %Automobile
            
            
            102,947
            
            
            0.67
            %
            
            379,785
            
            
            1.53
            %Net
                premiums earned
            
            $
            15,458,735
            
            
            100.00
            %
            $
            24,813,703
            
            
            100.00
            %




**Commission
      Income**





Commission
      income decreased $5.0 million, or 83.9%, to $1.0 million for the three months
      ended June 30, 2008, compared to $6.0 million for the three months ended June
      30, 2007. The 2008 commission income is in connection with our reinsurance
      treaties. The primary components of our commission income during 2007 was
      non-reoccurring operating events stemming from two separate events. First and
      pursuant to provisions contained in our three-year reinsurance treaties, we
      were
      afforded the right to cancel the remaining two years and receive a no loss
      experience commission. In connection with these treaties we reported
      approximately $2.8 million in commission income during the three months ended
      June 30, 2007. The second non-reoccurring operating event was $2.4 million
      in
      commissions that we received from our participation in a Citizens take out
      program in May through July 2004, wherein the commissions were only earned
      upon
      the successful retention of the policyholders for thirty-six
      months.





**Finance
      Revenue**





Finance
      revenue decreased $0.1 million, or 42.8%, to $0.1 million for the three months
      ended June 30, 2008, compared to $0.2  million
      for the three months ended June 30, 2007.  The
      change is primarily due to the Company’s decreased emphasis on automobile
      insurance and the finance revenue derived there-from.




**Managing
      General Agent Fees**





Managing
      general agent fees decreased $0.3 million, or 34.0% to $0.5 million for the
      three months ended June 30, 2008, compared to $0.8 million for the three months
      ended June 30, 2007. The recent decreased production volume for both the
      homeowners’ and commercial general liability product lines is the reason for the
      decrease in this account.





**Net
      Investment Income**





Net
      investment income decreased $0.2 million, or 10.9%, to $1.9 million for the
      three months ended June 30, 2008, compared to $2.1 million for the three months
      ended June 30, 2007.





Net
      investment income on corporate bonds, which generally provide a higher yield
      than U.S. government bonds, increased $0.8 million, to $0.9 million for the
      three months ended June 30, 2008, compared to less than $0.1 million for the
      three months ended June 30, 2007. Net investment income on U.S. government
      bonds
      decreased $1.2 million, to less than $0.1 million for the three months ended
      June 30, 2008, compared to $2.0 million for the three months ended June 30,
      2007.





Affecting
      our net investment income was a decrease in the overall yield to 4.53% for
      the
      three months ended June 30, 2008 compared to a yield of 5.49% for the three
      months ended June 30, 2007.





**Net
      Realized Investment (Losses) Gains**





Net
      realized investment losses were $4.7 million for the three months ended June
      30,
      2008, compared to gains of $0.1 million for the three months ended June 30,
      2007. The table below depicts the net realized investment (losses) gains by
      investment category for the three months ended June 30, 2008 as compared to
      the
      same period during 2007. During the quarter ended June 30, 2008, we marked
      four
      equity investments to market value pursuant to guidelines prescribed in SFAS
      no.
      115. The pretax charge to operations was approximately $4.7 million in
      connection with our estimates of the net realizable value of these
      investments.


-
          32 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations








Net Realized (Losses) GainsThree Months Ended June 30,2008
            
            2007Equity
                securities:Common
                stocks
            
            $
            (4,663,912
            )
            $
            80,087Total
                net realized (losses) gains
            
            $
            (4,663,912
            )
            $
            80,087





**Regulatory
      Assessments Recovered**





Regulatory
      assessments recovered increased $0.5 million, or 120.0%, to $0.9 million for
      the
      three months ended June 30, 2008, compared to $0.4 million for the three months
      ended June 30, 2007.





**Other
      Income**





Other
      income increased $0.1 million, or 129.0%, to $0.2 million for the three months
      ended June 30, 2008, compared to $0.1 million for the three months ended June
      30, 2007.





Major
      components of other income for the three months ended June 30, 2008 included
      approximately $0.1 million in partial recognition of our gain on the sale of
      our
      Lauderdale Lakes property and $0.1 million in connection with rental income,
      interest income and miscellaneous income.





**Losses
      and LAE**





Losses
      and LAE, our most significant expense, represent actual payments made and
      changes in estimated future payments to be made to or on behalf of our
      policyholders, including expenses required to settle claims and losses. We
      revise our estimates based on the results of analysis of estimated future
      payments to be made. This process assumes that past experience, adjusted for
      the
      effects of current developments and anticipated trends, is an appropriate basis
      for predicting future events.





Losses
      and LAE increased by $2.8 million, or 29.4%, to $12.5 million for the three
      months ended June 30, 2008, compared to $9.7 million for the three months ended
      June 30, 2007. The overall change includes a $0.3 million increase in our
      homeowners’ program, a $3.2 million increase in our commercial general liability
      program and a $0.7 million decrease in connection with our automobile
      program.





We
      continue to revise our estimates of the ultimate financial impact of past
      storms. The revisions to our estimates are based on our analysis of subsequent
      information that we receive regarding various factors, including: (i) per claim
      information; (ii) company and industry historical loss experience; (iii)
      legislative enactments, judicial decisions, legal developments in the awarding
      of damages, and (iv) trends in general economic conditions, including the
      effects of inflation.





Management
      revises its estimates based on the results of its analysis. This process assumes
      that past experience, adjusted for the effects of current developments and
      anticipated trends, is an appropriate basis for estimating the ultimate
      settlement of all claims. There is no precise method for subsequently evaluating
      the impact of any specific factor on the adequacy of the reserves, because
      the
      eventual redundancy or deficiency is affected by multiple factors. Because
      of
      our process, reserves were increased by approximately $0.6 million during the
      quarter ended June 30, 2008.





In
      accordance with GAAP, our loss ratio is computed as losses and LAE divided
      by
      net premiums earned. A lower loss ratio generally results in higher operating
      income. Our loss ratio for the three-month period ended  June
      30,
      2008 was 80.8% compared with 38.9% for the same period in 2007. The table below
      reflects the loss ratios by product line.


-
          33 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations


Three
                  Months Ended June 30,2008
              
              2007Homeowners'
              
              
              77.50
              %
              
              37.50
              %Commercial
                  General Liability
              
              
              91.02
              %
              
              40.00
              %Automobile
              
              
              -114.70
              %
              
              54.70
              %All
                  lines
              
              
              80.81
              %
              
              38.90
              %





**Operating
      and Underwriting Expenses**





Operating
      and underwriting expenses decreased $1.6 million, or 52.5%, to $1.5 million
      for
      the three months ended June 30, 2008, compared to $3.1 million for the three
      months ended June 30, 2007. The change is primarily due to a $1.0 million
      decrease in premium tax expense which is a result of decreased written premiums
      in this period. Also contributing to the change is a $0.7 million decrease
      in
      bad debts expense.





**Salaries
      and Wages**





Salaries
      and wages increased 1.7%, to $1.8 million for the three months ended June 30,
      2008, compared to $1.7 million for the three months ended June 30, 2007. The
      charge to operations for stock based compensation, in accordance with the
      provisions of SFAS No. 123R, was approximately $120,000 during the three months
      ended June 30, 2008 compared to approximately $205,000 for the three months
      ended June 30, 2007.




**Interest
      Expense**





Interest
      expense decreased to nothing for the three months ended June 30, 2008, compared
      to $0.1 million for the three months ended June 30, 2007. The decrease is in
      correlation to our subordinated debt that was satisfied in September
      2007.





**Policy
      Acquisition Costs, Net of Amortization**





Policy
      acquisition costs, net of amortization, decreased $1.1 million, or 22.8%, to
      $3.8 million for the three months ended June 30, 2008, compared to $4.9 million
      for the three months ended June 30, 2007. Policy acquisition costs, net of
      amortization, consists of the actual policy acquisition costs, including
      commissions, payroll and premium taxes, less commissions earned on reinsurance
      ceded and policy fees earned.




**Provision
      for Income Tax (Benefit) Expense**





The
      provision for income tax benefit was $1.6 million for the three months ended
      June 30, 2008, compared to an income tax expense of $4.6 million for the three
      months ended June 30, 2007. The effective rate for income taxes was 38.8% for
      the three months ended June 30, 2008, compared to 30.3% for the same three-month
      period in 2007.




**Net
      (Loss) Income**





As
      a
      result of the foregoing, the Company’s net loss income for the three months
      ended June 30, 2008, was $2.5 million compared to net income of $10.5 million
      for the three months ended June 30, 2007.


-
          34 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





**Results
      of Operations**


**Six
      Months Ended June 30, 2008 Compared to Six Months Ended June 30,
      2007**





**Gross
      Premiums Written**





Gross
      premiums written decreased $38.8 million, or 41.4%, to $54.8 million for the
      six
      months ended June 30, 2008, compared to $93.7 million for the six months ended
      June 30, 2007.  The
      following table denotes gross premiums written by major product
      line:





Six months ended June 30,2008
            
            2007Amount
            
            Percentage
            
            Amount
            
            PercentageHomeowners'
            
            $
            39,920,446
            
            
            72.79
            %
            $
            73,959,159
            
            
            78.97
            %Commercial
                General Liability
            
            
            14,589,929
            
            
            26.60
            %
            
            18,224,617
            
            
            19.46
            %Automobile
            
            
            333,934
            
            
            0.61
            %
            
            1,468,457
            
            
            1.57
            %Gross
                written premiums
            
            $
            54,844,309
            
            
            100.00
            %
            $
            93,652,233
            
            
            100.00
            %




The
      Company’s sale of homeowners’ policies decreased $34.0 million, or 46.0% to
      $39.9 million for the six months ended June 30, 2008, compared to $74.0 million
      for the six months ended June 30, 2007. The significant erosion is primarily
      due
      to the soft market conditions prevailing in the state of Florida. The soft
      market conditions are lead by Citizens, the state run insurance company. We
      believe that these marketplace conditions have forced some carriers to pursue
      market share based on “best case” pricing models that may ultimately prove
      unprofitable from an underwriting perspective. We do not intend to compete
      with
      others solely based on pricing mechanisms. We will continue to market our
      property insurance product in territories in Florida where our rates are
      competitive.





Federated
      National and American Vehicle are currently rated by Demotech as "A"
      ("Exceptional"), which is the third of seven ratings, and defined as “Regardless
      of the severity of a general economic downturn or deterioration in the insurance
      cycle, insurers earning a Financial Stability Rating of “A” possess
“Exceptional” financial stability related to maintaining surplus as regards to
      policyholders”. Demotech’s ratings are based upon factors of concern to agents,
      reinsurers and policyholders and are not primarily directed toward the
      protection of investors.





The
      Company’s sale of commercial general liability policies decreased by $3.6
      million to $14.6 million for the six months ended June 30, 2008, compared to
      $18.2 million for the three months ended June 30, 2007. This decrease is due
      to
      increased competition in the commercial general liability market. The following
      table sets forth the amounts and percentages of our gross premiums written
      in
      connection with our commercial general liability program by state:




Six Months Ended June 30,2008
            
            2007Amount
            
            Percentage
            
            Amount
            
            Percentage(Dollars in Thousands)StateAlabama
            
            $
            72
            
            
            0.49
            %
            $
            -
            
            
            -Arkansas
            
            
            12
            
            
            0.08
            %
            
            -
            
            
            -California
            
            
            200
            
            
            1.37
            %
            
            -
            
            
            -Florida
            
            
            9,394
            
            
            64.41
            %
            
            12,505
            
            
            68.61
            %Georgia
            
            
            329
            
            
            2.25
            %
            
            592
            
            
            3.25
            %Kentucky
            
            
            1
            
            
            0.01
            %
            
            5
            
            
            0.03
            %Louisiana
            
            
            2,514
            
            
            17.22
            %
            
            2,682
            
            
            14.71
            %South
                Carolina
            
            
            60
            
            
            0.41
            %
            
            87
            
            
            0.48
            %Texas
            
            
            2,000
            
            
            13.71
            %
            
            2,322
            
            
            12.74
            %Virginia
            
            
            8
            
            
            0.05
            %
            
            32
            
            
            0.18
            %Total
            
            $
            14,590
            
            
            100.0
            %
            $
            18,225
            
            
            100.0
            %




-
          35 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations




The
      Company’s sale of auto insurance policies decreased by $1.1 million, or 77.3%,
      to $0.3 million for the six months ended June 30, 2008, compared to $1.5 million
      for the six months ended June 30, 2007. With respect to automobile insurance
      in
      Florida, we intentionally market only to our existing policyholders by offering
      to renew the existing policy. Temporarily, we have chosen not to compete with
      the more than 100 companies, which underwrite personal automobile insurance
      in
      Florida.





**Gross
      Premiums Ceded**





Gross
      premiums ceded  decreased
      $7.6 million, or 47.9%, to $8.2 million  for
      the
      six months ended June 30, 2008,  compared
      to $15.8 million for the six months ended June 30, 2007.





**(Decrease)
      in Prepaid Reinsurance Premiums**





The
      decrease in prepaid reinsurance premiums was $13.5 million for the six months
      ended June 30, 2008, compared to $17.8 million for the six months ended June
      30,
      2007. The decreased charge to written premium is primarily associated with
      the
      timing of our reinsurance payments measured against the term of the underlying
      reinsurance policies.





**** **(Increase)
      Decrease in Unearned Premiums**





The
      decrease in unearned premiums was $1.0 million for the six months ended June
      30,
      2008, compared to an increase of $12.8 million for the six months ended June
      30,
      2007. The 2008 amount was due to a $0.8 million decrease in unearned homeowners’
insurance premiums, a $0.1 million increase in unearned commercial general
      liability premiums and a $0.3 million decrease in unearned automobile premiums.
      These changes are a result of our decreased premium volume during this period.
      See Gross Premiums Written.





**Net
      Premiums Earned**





Net
      premiums earned decreased $13.1 million, or 27.8%, to $34.1 million for the
      six
      months ended June 30, 2008, compared to $47.2 million for the six months ended
      June 30, 2007.  The
      following table denotes net premiums earned by product line:





Six Months Ended June 30,2008
            
            2007Amount
            
            Percentage
            
            Amount
            
            PercentageHomeowners'
            
            $
            18,946,664
            
            
            55.62
            %
            $
            28,351,820
            
            
            60.08
            %Commercial
                General Liability
            
            
            14,731,926
            
            
            43.25
            %
            
            17,249,935
            
            
            36.56
            %Automobile
            
            
            385,986
            
            
            1.13
            %
            
            1,584,976
            
            
            3.36
            %Net
                premiums earned
            
            $
            34,064,576
            
            
            100.00
            %
            $
            47,186,731
            
            
            100.00
            %




**Commission
      Income**





Commission
      income decreased $5.5 million, or 84.2%, to $1.0 million for the six months
      ended June 30, 2008, compared to $6.5 million for the six months ended June
      30,
      2007. The 2008 commission income is in connection with our reinsurance
      treaties.





**Finance
      Revenue**





Finance
      revenue decreased $0.2 million, or 48.9%, to $0.2 million for the six months
      ended June 30, 2008, compared to $0.3 million for the six months ended June
      30,
      2007. The change is primarily due to the Company’s decreased emphasis on
      automobile insurance and the finance revenue derived there-from.




**Managing
      General Agent Fees**





Managing
      general agent fees decreased $0.4 million, or 27.6%, to $1.0 million for the
      six
      months ended June 30, 2008, compared to $1.4 million for the six months ended
      June 30, 2007. The recent decreased production




-
            36 -





**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations




volume
      for both the homeowners’ and commercial general liability product lines is the
      reason for the decrease in this account.




**Net
      Investment Income**





Net
      investment income increased $0.1 million, or 2.0%, to $3.8 million for the
      six
      months ended June 30, 2008, compared to $3.7 million for the six months ended
      June 30, 2007.





Net
      investment income on corporate bonds, which generally provide a higher yield
      than U.S. government bonds, increased $0.8 million, to $0.9  million
      for the six months ended June 30, 2008, compared to $0.1  million
      for the six months ended June 30, 2007. Net investment income on U.S. government
      bonds decreased $1.1 million, to $0.1 million for the six months ended June
      30,
      2008, compared to $1.2 million for the six months ended June 30, 2007.





Affecting
      our net investment income was a decrease in the overall yield to 4.63% for
      the
      six months ended June 30, 2008 compared to a yield of 4.83% for the six months
      ended June 30, 2007.





**Net
      Realized Investment (Losses) Gains**





Net
      realized investment losses were $6.3 million for the six months ended June
      30,
      2008, compared to nearly nothing for the six months ended June 30,
      2007.  The
      table
      below depicts the net realized investment (losses) gains by investment category
      for the six months ended June 30, 2008 as compared to the same period during
      2007. During the six months ended June 30, 2008, we marked five equity
      investments to market value pursuant to guidelines prescribed in SFAS No. 115.
      The pretax charge to operations was approximately $6.5 million in connection
      with our estimates of the net realizable value of these
      investments.





Net Realized (Losses) GainsSix Months Ended June 30,2008
            
            2007Fixed
                maturities:U.S.
                government obligations and agencies
            
            $
            16,760
            
            $
            -Obligations
                of states and political subdivisions
            
            
            (4,057
            )
            
            (63
            )Equity
                securities:Common
                stocks
            
            
            (6,325,992
            )
            
            (47,982
            )Total
                net realized (losses) gains
            
            $
            (6,313,289
            )
            $
            (48,045
            )





**Regulatory
      Assessments Recovered**





Regulatory
      assessments recovered increased $0.6 million, or 81.1%, to $1.2 million for
      the
      six months ended June 30, 2008, compared to  $0.7
      million for the six months ended June 30, 2007.




**Other
      Income**





Other
      income increased $0.2 million, or 59.4%, to $0.5 million for the six months
      ended June 30, 2008, compared to  $0.3
      million for the six months ended June 30, 2007.





Major
      components of other income for the six months ended June 30, 2008 included
      approximately $0.2 million in partial recognition of our gain on the sale of
      our
      Lauderdale Lakes property and $0.2 million in connection with rental income,
      interest income and miscellaneous income.




**Losses
        and LAE**
 
 Losses
        and LAE, our most significant expense, represent actual payments made and
        changes in estimated future payments to be made to or on behalf of our
        policyholders, including expenses required to settle claims and


-
          37 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





losses.
      We revise our estimates based on the results of analysis of estimated future
      payments to be made. This process assumes that past experience, adjusted for
      the
      effects of current developments and anticipated trends, is an appropriate basis
      for predicting future events.





Losses
      and LAE decreased by $3.4 million, or 14.3%, to $20.4 million for the six months
      ended June 30, 2008, compared to $23.8 million for the six months ended June
      30,
      2007. The overall change includes a $4.4 million decrease in our homeowners’
program, a $4.2 million increase in our commercial general liability program
      and
      a $3.2 million decrease in connection with our automobile program.





We
      continue to revise our estimates of the ultimate financial impact of past
      storms. The revisions to our estimates are based on our analysis of subsequent
      information that we receive regarding various factors, including: (i) per claim
      information; (ii) company and industry historical loss experience; (iii)
      legislative enactments, judicial decisions, legal developments in the awarding
      of damages, and (iv) trends in general economic conditions, including the
      effects of inflation.





Management
      revises its estimates based on the results of its analysis. This process assumes
      that past experience, adjusted for the effects of current developments and
      anticipated trends, is an appropriate basis for estimating the ultimate
      settlement of all claims. There is no precise method for subsequently evaluating
      the impact of any specific factor on the adequacy of the reserves, because
      the
      eventual redundancy or deficiency is affected by multiple factors.  Because
      of our process, reserves were decreased by approximately $1.3 million during
      the
      six months ended June 30, 2008.





In
      accordance with GAAP, our loss ratio is computed as losses and LAE divided
      by
      net premiums earned. A lower loss ratio generally results in higher operating
      income. Our loss ratio for the six -month period ended  June
      30,
      2008 was 59.8% compared with 50.3% for the same period in 2007. The table below
      reflects the loss ratios by product line.


Six Months Ended June 30,2008
              
              2007Homeowners'
              
              
              55.0%
              
              
              52.3%Commercial
                  General Liability
              
              
              70.4%
              
              
              36.1%Automobile
              
              
              -45.1%
              
              
              135.2%All
                  lines
              
              
              59.8%
              
              
              50.3%





**Operating
      and Underwriting Expenses**





Operating
      and underwriting expenses decreased $4.0 million, or 57.1%, to $3.0 million
      for
      the six months ended June 30, 2008, compared to $7.1 million for the six months
      ended June 30, 2007.  The
      change is primarily due to a $2.1 million decrease in premium tax expense,
      a
      result of decreased written premium. Also contributing to the change is a $1.3
      million decrease in bad debts expense, a $0.1 million decrease in bank fees
      and
      a $0.2 million decrease in licenses and fees.





**Salaries
      and Wages**





Salaries
      and wages increased $0.2 million, or 7.0%, to $3.5 million for the six months
      ended June 30, 2008, compared to $3.3 million for the six months ended June
      30,
      2007. The charge to operations for stock-based compensation, in accordance
      with
      the provisions of SFAS No. 123R, was approximately $258,000 during the six
      months ended June 30, 2008 compared to approximately $206,000 for the six months
      ended June 30, 2007.




**Interest
      Expense**





Interest
      expense decreased to nothing for the six months ended June 30, 2008, compared
      to
      $0.1 million for the six months ended June 30, 2007. The decrease is in
      correlation to our subordinated debt that was satisfied during
      2007.


-
          38 -





**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





**Policy
      Acquisition Costs, Net of Amortization**





Policy
      acquisition costs, net of amortization, decreased $1.9 million, or 19.9%, to
      $7.6 million for the six months ended June 30, 2008, compared to $9.5 million
      for the six months ended June 30, 2007. Policy acquisition costs, net of
      amortization, consists of the actual policy acquisition costs, including
      commissions, payroll and premium taxes, less commissions earned on reinsurance
      ceded and policy fees earned.





**Provision
      for Income Tax (Benefit) Expense**





The
      provision for income tax benefit was $0.9 million for the six months ended
      June
      30, 2008, compared to an expense of $5.0 million for the six months ended June
      30, 2007. The effective rate for income taxes was 94.9% for the six months
      ended
      June 30, 2008, compared to 30.3% for the same six -month period in 2007. The
      unusual provision for the six months ended June 30, 2008 is due to a $6.5
      million investment impairment adjustment and the related deferred tax asset.
      Also affecting the 2008 rate was a one-time $1.0 million benefit in connection
      with the estimation of the previous years’ income taxes.





A
      summary
      of the provision for income tax benefit for the six months ended June 30, 2008
      is as follows:




Six
                Month Ended June 30, 2008Federal:Current
            
            $
            2,671,722Deferred
            
            
            (2,621,751
            )Provision
                for Federal income tax expense
            
            
            49,971State:Current
            
            
            471,605Deferred
            
            
            (436,625
            )Provision
                for state income tax expense
            
            
            34,980Subtotal
            
            
            84,951Prior
                year credit to provision
            
            
            (965,555
            )Provision
                for income tax (benefit)
            
            $
            (880,604
            )




The
      actual provision for income tax (benefit) differs from the "expected" provision
      for income tax expense (computed by applying the combined applicable effective
      federal and state tax rates to income before provision for income tax expense)
      as follows:





Six
                Month Ended June 30, 2008Computed
                expected provision for income tax expense, at federal rate
            
            $
            318,196State
                tax, net of federal deduction benefit
            
            
            33,685Tax-exempt
                interest
            
            
            (111,635
            )Dividend
                received deduction
            
            
            (124,713
            )Stock
                option expense and other permanent differences
            
            
            (56,939
            )Other,
                net
            
            
            26,358Subtotal
            
            $
            84,951Prior
                year credit to provision
            
            
            (965,555
            )Provision
                for income tax (benefit)
            
            $
            (880,604
            )




Deferred
        income taxes reflect the net tax effects of temporary differences between
        the
        carrying amounts of assets and liabilities for financial reporting purposes
        and
        the amounts used for income tax purposes. Significant components of our net
        deferred tax asset are as follows:




-
          39 -


**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





Six
                Month Ended June 30, 2008Deferred
                tax assets:Unpaid
                losses and loss adjustment expenses
            
            $
            1,913,941Unearned
                premiums
            
            
            3,640,963Unrealized
                loss on investment securities
            
            
            921,631Allowance
                for credit losses
            
            
            96,499Allowance
                for impairments
            
            
            2,471,286Regulatory
                assessments
            
            
            1,651,851Discount
                on advance premiums
            
            
            (42,514
            )Deferred
                gain on sale and leaseback
            
            
            539,004Stock
                option expense per FASB 123 R
            
            
            210,426Total
                deferred tax assets
            
            
            11,403,088




**Net
      Income**





As
      a
      result of the foregoing, the Company’s net income for the six months ended June
      30, 2008, was $1.8 million compared to net income of $11.3 million for the
      six
      months ended June 30, 2007.





**Liquidity
      and Capital Resources**





For
      the
      six months ended June 30, 2008, our primary sources of capital were revenues
      generated from operations, including decreased prepaid reinsurance premiums,
      decreased reinsurance recoverable, net, non-cash compensation, increased bank
      overdraft, decreased finance contracts receivable, depreciation and
      amortization, decreased policy acquisition costs, net of amortization and an
      increase in the provision for uncollectible premiums receivable.  Also
      contributing to our liquidity were proceeds from the sale of investments and
      exercised stock options. Because we are a holding company, we are largely
      dependent upon fees and commissions from our subsidiaries for cash flow.





For
      the
      six months ended June 30, 2008, operations used net operating cash flow of
      $3.6
      million, compared to provided $30.7 million for the six months ended June 30,
      2007.





For
      the
      six months ended June 30, 2008, operations generated $17.1 million of gross
      cash
      flow due to a $7.7 million decrease in prepaid reinsurance premiums, a $6.1
      million decrease in reinsurance recoverable, net, $0.5 million in non-cash
      compensation and a $0.3 million increase in bank overdraft. To a much less
      significant extent, operations generated additional sources of cash via a $0.2
      million decrease in finance contracts receivable, $0.2 million in depreciation
      and amortization, a $0.2 million decrease in policy acquisition costs, net
      of
      amortization, and a $0.1 million increase in the provision for uncollectible
      premiums receivable, all in conjunction with net income of $1.8
      million.





For
      the
      six months ended June 30, 2008, operations used $20.7 million of gross cash
      flow
      primarily due to $6.3 million in net realized investment losses, a $4.2 million
      decrease in income taxes payable, a $2.5 million increase in deferred income
      tax
      expense, a $1.7 million increase in income taxes recoverable, a $1.4 million
      increase in premiums receivable, a $1.3 million decrease in unpaid losses and
      LAE, a $1.2 million decrease in accounts payable and accrued expenses, a $1.0
      million decrease in unearned premiums, a $0.6 million decrease in premium
      deposits and customer credit balances, a $0.2 million increase in other assets,
      $0.1 million in amortization of investment discount, net, and a $0.1 million
      increase in recovery for credit losses, net.





Subject
      to catastrophic occurrences, net operating cash flow is expected to be slightly
      positive in the short-term and continue to deteriorate while the soft market
      conditions prevail.





For
      the
      six months ended June 30, 2008, net investing activities provided $46.7 million,
      compared to having used $36.7 million for the six months ended June 30, 2007.
      Our available for sale investment portfolio is highly liquid as it consists
      entirely of readily marketable securities.





For
      the
      six months ended June 30, 2008, investing activities generated $81.6 million
      and
      used $34.9 million from the maturity several times over of our very short
      municipal portfolio. Our fixed income portfolio contained




-
            40 -





**21** **st** **Century Holding Company**


Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations




callable
      features exercised during the six months ended June 30, 2008. The proceeds
      from
      these called securities are currently in cash and short-term investments. We
      are
      currently evaluating long and short- term investment options for best yields
      that match our liquidity needs.




For
      the
      six months ended June 30, 2008, net financing activities used $1.8 million,
      compared to used $4.2 million for the six months ended June 30, 2007. For the
      six months ended June 30, 2008, the sources of cash in connection with financing
      activities included $1.3 million from the exercise of stock options. The uses
      of
      cash in connection with financing activities included $2.8 million in dividends
      paid, $0.2 million from the tax benefit related to non-cash compensation and
      $0.1 million for the purchase of treasury stock.





We
      offer
      direct billing in connection with our automobile and homeowner programs, where
      the insurance company accepts from the insured, as a receivable, a promise
      to
      pay the premium, as opposed to requiring the full amount of the policy at policy
      inception, either directly from the insured or from a premium finance company.
      The advantage of direct billing a policyholder by the insurance company is
      that
      we are not reliant on a credit facility, but remain able to charge and collect
      interest from the policyholder.





We
      believe that our current capital resources, together with cash flow from
      operations, will be sufficient to meet currently anticipated working capital
      requirements. There can be no assurances, however, that such will be the case.





As
      of
      June 30, 2008, we did not have any relationships with unconsolidated entities
      or
      financial partnerships, such as entities often referred to as “structured
      finance” or “special purpose” entities, which were established for the purpose
      of facilitating off-balance-sheet arrangements or other contractually narrow
      or
      limited purposes. As such, management believes that we currently are not exposed
      to any financing, liquidity, market or credit risks that could arise if we
      had
      engaged in transactions of that type requiring disclosure herein.





**Impact
      of Inflation and Changing Prices**





The
      consolidated financial statements and related data presented herein have been
      prepared in accordance with GAAP, which requires the measurement of financial
      position and operating results in terms of historical dollars without
      considering changes in the relative purchasing power of money over time due
      to
      inflation. Our primary assets and liabilities are monetary in nature. As a
      result, interest rates have a more significant impact on performance than the
      effects of general levels of inflation. Interest rates do not necessarily move
      in the same direction or with the same magnitude as the inflationary effect
      on
      the cost of paying losses and LAE.





Insurance
      premiums are established before we know the amount of losses and LAE and the
      extent to which inflation may affect such expenses. Consequently, we attempt
      to
      anticipate the future impact of inflation when establishing rate levels. While
      we attempt to charge adequate premiums, we may be limited in raising premium
      levels for competitive and regulatory reasons. Inflation also affects the market
      value of our investment portfolio and the investment rate of return. Any future
      economic changes that result in prolonged and increasing levels of inflation
      could cause increases in the dollar amount of incurred losses and LAE and
      thereby materially adversely affect future liability
      requirements.


-
          41 -


**21** **st** **Century Holding Company**





**Item
      3**





**Quantitative
      and Qualitative Disclosures about Market Risk**





Information
      related to quantitative and qualitative disclosures about market risk was
      included under Item 7A, “Quantitative and Qualitative Disclosures about Market
      Risk”, in our Annual Report on Form 10-K for the year ended December 31, 2007.
      No material changes have occurred in market risk since this information was
      disclosed except as discussed below.





Our
      investment portfolio is available for sale and carried at fair value, except
      for
      that portion deemed as held to maturity. Gains that represent securities with
      a
      fair value in excess of amortized cost, and losses (amortized cost is in excess
      of fair value) that are deemed temporary by management are recorded in
      shareholders’ equity in accumulated other comprehensive income. Losses deemed
      other than temporary by management are recorded as net realized losses in the
      consolidated statement of operations. A summary of the investment portfolio
      as
      of June 30, 2008 follows:


Book Value
              
              Fair / Amortized Value
              
              Unrealized
                Gain(Loss)Fixed
                  maturities:U.S.
                  government obligations and agencies available for sale
              
              $
              5,812,335
              
              
              5.49
              %
              $
              5,748,389
              
              
              5.56
              %
              $
              (63,946
              )U.S.
                  government obligations and agencies held to maturity
              
              
              8,613,366
              
              
              8.14
              %
              
              8,613,365
              
              
              8.33
              %
              
              (1
              )Obligations
                  of states and political subdivisions available for sale
              
              
              15,814,349
              
              
              14.95
              %
              
              15,830,914
              
              
              15.31
              %
              
              16,565Obligations
                  of states and political subdivisions held to maturity
              
              
              501,090
              
              
              0.47
              %
              
              501,090
              
              
              0.48
              %
              
              -30,741,140
              
              
              29.05
              %
              
              30,693,758
              
              
              29.68
              %
              
              (47,382
              )Corporate
                  securities:Communications
                  available for sale
              
              
              741,561
              
              
              0.70
              %
              
              668,560
              
              
              0.65
              %
              
              (73,001
              )Financial
                  available for sale
              
              
              4,129,426
              
              
              3.90
              %
              
              4,076,683
              
              
              3.94
              %
              
              (52,743
              )Other
                  available for sale
              
              
              42,159,749
              
              
              39.84
              %
              
              41,777,361
              
              
              40.41
              %
              
              (382,388
              )Other
                  held to maturity
              
              
              14,042,790
              
              
              13.28
              %
              
              14,042,790
              
              
              13.58
              %
              
              -61,073,526
              
              
              57.72
              %
              
              60,565,394
              
              
              58.58
              %
              
              (508,132
              )Equity
                  securities:Common
                  stocks available for sale
              
              
              14,000,453
              
              
              13.23
              %
              
              12,124,735
              
              
              11.74
              %
              
              (1,875,718
              )Total
                  fixed, corporate and equity securities
              
              $
              105,815,119
              
              
              100.00
              %
              $
              103,383,887
              
              
              100.00
              %
              $
              (2,431,232
              )





For
      our
      held to maturity portfolio as of June 30, 2008, the unrealized loss totaled
      approximately $141,000 and was almost entirely in connection with our U.S.
      government obligations and agencies.





As
      of
      June 30, 2008, there were no  concentrations
      greater than 5% of total investments in any single investment other than United
      States government and agency obligations and obligations of states and political
      subdivisions.





**Item
      4**





**Controls
      and Procedures**




We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in the reports that the Company files
      or
      submits under the Securities and Exchange Act is recorded, processed,
      summarized, and reported within the time periods specified in the SEC’s rules
      and forms, and that such information is accumulated and communicated to the
      Company’s management, including its Chief Executive Officer and Chief Financial
      Officer, as appropriate, to allow timely decisions regarding required
      disclosures.




Our
      management, with the participation of its Chief Executive Officer and Chief
      Financial Officer, has evaluated the effectiveness of our disclosure controls
      and procedures as defined in Rules 13a-15(e) under the Securities Exchange
      Act
      of 1934, as of June 30, 2008.  Based upon their evaluation, the Chief
      Executive Officer and Chief Financial Officer concluded that the Company’s
      disclosure controls and procedures, as of June 30, 2008, were




-
          42 -


**21** **st** **Century Holding Company**




effective
      to provide reasonable assurance that information required to be disclosed by
      the
      Company in the reports filed or submitted by it under the Exchange Act is
      recorded, processed, summarized and reported within the time periods specified
      in the SEC’s rules and forms, and to provide reasonable assurance that
      information required to be disclosed by the Company in such reports is
      accumulated and communicated to our management, including its Chief Executive
      Officer and Chief Financial Officer, as appropriate to allow timely decisions
      regarding required disclosure. Except for our ongoing efforts, there were no
      changes during the quarter that have materially affected, or are reasonably
      likely to materially affect, our internal controls over financial
      reporting.




-
          43 -




**21st
      Century Holding Company**




**Part
      II: OTHER INFORMATION**





**Item
      1**





**Legal
      Proceedings**





See
      Item
      1 of Part I, "Financial Statements - Note 3 - Comitments and
      Contingencies"




**Item
      1A**





**Risk
      Factors**





Except
      as
      disclosed below, there have been no material changes from the risk factors
      previously disclosed in Item 1, Risk Factors, in the Company’s Form 10-K for the
      fiscal year ended December 31, 2007.





**We
      have filed for a petition for hearing in connection with a notice from the
      OIR
      stating that on a preliminary basis excessive profits of $1.8 million have
      been
      realized for private passenger automobile business during prior periods. We
      face
      the possible risk of having to restate our audited financial statements for
      fiscal years 2005, 2006 and 2007 if we are unsuccessful in our petition for
      hearing.**





On
      April
      22, 2008, Federated received a notice from the OIR stating that on a preliminary
      basis excessive profits of $1.8 million have been realized for private passenger
      automobile business for the statutory review period covering calendar / accident
      years 2004, 2005 and 2006, valued at March 31, 2007 pursuant to Section 627.066
      of the Florida Statutes. We are disputing the preliminary findings and have
      filed for a petition for hearing in connection with this matter. Specifically,
      Section 627.066 of the Florida Statutes calls for the consolidation of the
      individual insurers of the group. Federated and its affiliate American Vehicle
      form an insurer group. Both Federated and




-
            44 -





**21** **st** **Century Holding Company**




American
      Vehicle incorrectly filed unconsolidated reports last year. The examination
      of a
      consolidated filing of the same data for the same periods clearly demonstrates
      that the group did not realize excess profit during the period in question
      and
      accordingly we have requested that the agency rescind and/or vacate its
      notice.




If
      we are
      unsuccessful in our petition for hearing, we face the possible risk of having
      to
      restate our audited financial statements for fiscal years 2005, 2006 and 2007
      and filing amended Annual Reports on Form 10-K and Quarterly Reports on Form
      10-Q for these periods.





**We
      are named as a Defendant in a securities class action lawsuit and a derivative
      lawsuit and it may have an adverse impact on our business.**





We
      are
      named as a Defendant in a securities class action lawsuit and a shareholder’s
      derivative lawsuit. For more information about the status of these lawsuits,
      see
“Part II, Item 1. Legal Proceedings.” An unfavorable resolution of this pending
      litigation could have a material adverse effect on our financial condition. Litigation
      may result in substantial costs and expenses and significantly divert the
      attention of the Company's management regardless of the outcome. There can
      be no
      assurance that the Company will be able to achieve a favorable settlement of
      pending litigation or obtain a favorable resolution of litigation if it is
      not
      settled. In addition, current litigation could lead to increased costs or
      interruptions of normal business operations of the Company.





**We
      face a risk of non-collectibility of reinsurance, which could materially and
      adversely affect our business, results of operations and/or financial
      condition** .





As
      is
      common practice within the insurance industry, we transfer a portion of the
      risks insured under our policies to other companies through the purchase of
      reinsurance. This reinsurance is maintained to protect our insurance subsidiary
      against the severity of losses on individual claims, unusually serious
      occurrences in which a number of claims produce an aggregate extraordinary
      loss
      and catastrophic events. Although reinsurance does not discharge our insurance
      subsidiary from its primary obligation to pay for losses insured under the
      policies it issues, reinsurance does make the assuming reinsurer liable to
      the
      insurance subsidiary for the reinsured portion of the risk. A credit exposure
      exists with respect to ceded losses to the extent that any reinsurer is unable
      or unwilling to meet the obligations assumed under the reinsurance contracts.
      The collectibility of reinsurance is subject to the solvency of the reinsurers,
      interpretation of contract language and other factors. A reinsurer's insolvency
      or inability to make payments under the terms of a reinsurance contract could
      have a material adverse effect on our results of operations and financial
      condition.





We
      also
      obtain a significant portion of our reinsurance through the FHCF program. For
      the 2008-2009 hurricane season, coverage afforded by FHCF totals approximately
      $167.0 million, or 56% of the $297.0 million of aggregate catastrophic losses
      and LAE. For the 2007-2008 hurricane season, coverage afforded by the FHCF
      totaled approximately $261.0 million or 65% of the $403.0 of aggregate
      catastrophic losses and LAE.





Therefore,
      in the event of a catastrophic loss, we may become dependent upon the FHCF's
      ability to pay, which may, in turn, be dependent upon the FHCF's ability to
      issue bonds in amounts that would be required to meet its reinsurance
      obligations in the event of such a catastrophic loss. There is no assurance
      that
      the FHCF will be able to do this.





**Additional
      Risk Factors**





The
      risks
      described in this Quarterly Report on Form 10-Q and in our Annual Report on
      Form
      10-K for the fiscal year ended December 31, 2007 are not the only risks facing
      our Company. Additional risks and uncertainties not currently known to us or
      that we currently deem to be immaterial also may materially adversely affect
      our
      business, financial condition and/or operating results.





**Item
      2**





**(a)**
            **Unregistered
                Sales of Equity Securities and Use of Proceeds**





During
      the three months ended June 30, 2008, certain non-executive employees, an
      executive and directors  exercised
      options to acquire an aggregate of  87,683
      shares of the Company's common stock with proceeds to the Company aggregating
      to
      approximately  $784,000.  All
      of
      the option holders paid cash for these shares. The shares




-
            45 -





**21** **st** **Century Holding Company**




underlying
      the options were registered on registration statements on Form S-8 and the
      shares issued to these persons do not contain any restrictive legends.





During
      the three months ended June 30, 2008, we have issued an aggregate  of
      17,500  options
      to employees of the Company under our 2002 stock option plan. The options have
      an exercise price between $12.37 and $13.24  per
      share, vest over five years at 20% per year and expire six years from the grant
      date.





**(b)
      None**





**(c)
      Market for the Company’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities**




On
      May
      14, 2007, the Company’s Board of Directors authorized, the repurchase of up to
      $5.0 million of its common stock. During the three months ended June 30,
      2008, the Company did not repurchase any shares of its common stock under
      the Plan.




During
      the period between May 14, 2007 and March 31,
      2008, the Company has repurchased an aggregate of $3.9 million of its
      common stock under the Plan.





**Item
      3**





**Defaults
      upon Senior Securities**





None





**Item
      4**




**Submission
      of Matters to a Vote of Security Holders**





Our
      annual meeting of shareholders was held on June 3, 2008. Proxies for the meeting
      were solicited pursuant to Regulation 14A of the Securities Exchange Act of
      1934
      and there were no solicitation in opposition to that of management.




Both
      of
      management’s nominees for directors as listed in the proxy statement were
      elected. Carl Dorf and Charles B. Hart, Jr. were elected as Class III directors
      to serve until the Annual Shareholder’s Meeting to be held in 2011 or until
      their successors are qualified and elected. The number of votes cast for each
      nominee is as follows:


Shares Voted
              
              Votes"FOR"
              
              WithheldCharles
                  B. Hart, Jr.
              
              
              5,846,768
              
              
              405,544Carl
                  Dorf
              
              
              5,905,107
              
              
              347,205




The
      proposal to approve the appointment of DeMeo, Young, and McGrath as the
      Company’s independent auditors for the fiscal year ended December 31, 2008, was
      ratified by the following votes:





Shares Voted
            
            Shares Voted
            
            Shares"FOR"
            
            "AGAINST"
            
            "ABSTAINING"6,170,724
            
            
            65,781
            
            
            17,804





**Item
      5**





**Other
      Information**





None


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**21** **st** **Century Holding Company**





**Item
      6**





**Exhibits**




10.1
      Employment Agreement dated as of May 5, 2008 between Michael H. Braun and the
      Company dated May 5, 2008 (incorporated by reference from Exhibit 10.1 in the
      Company's Form 8-K filed with the SEC on May 6, 2008).




10.2
      Transition Agreement dated as of May 6, 2008 between the Company and Edward
      J.
      Lawson (incorporated by reference from Exhibit 10.1 in the Company's Form 8-K/A
      filed with the SEC on May 9, 2008).




10.3
      Reimbursement Contract effective as of June 1, 2008 between Federated National
      Insurance Company and The State Board of Administration of Florida (SBA) which
      administers the Florida Hurricane Catastrophe Fund and Addendum No. 1 and
      Addendum No. 2, effective as of June 1, 2008 (incorporated by reference to
      Exhibits 10.1, 10.2 and 10.3 in the Company's Form 8-K filed with the SEC on
      June 2, 2008).




10.4
      Addendum No. 4 to the Reimbursement Contract between Federated National
      Insurance Company and The State Board of Administration of Florida (SBA) which
      administers the Florida Hurricane Catastrophe Fund (FHCF), effective June 1,
      2008 (incorporated by reference to Exhibit 10.1 contained in the Company’s Form
      8-K filed on July 2, 2008).




31.1
      Certification of Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act. *




31.2
      Certification of Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act. *




32.1
      Certification of Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act. *




32.2
      Certification of Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act. *




*Filed
      herewith




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**21** **st** **Century Holding Company**




**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 hereunto
      duly authorized.





**21st
                CENTURY HOLDING COMPANY**By:
            */s/
                Michael H. Braun*Michael
                H. Braun, Chief Executive Officer*/s/
                Peter J. Prygelski, III*Peter
                J. Prygelski, III, Chief Financial
                Officer





Date:
      August 11, 2008


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**21** **st** **Century Holding Company**




**EXHIBIT
      INDEX**





31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act. *31.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act. *32.1
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act. *32.2
            Certification
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act. *





* **** filed
      herewith





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