**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 March 31, 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




21 st Century 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 – 7,940,919 outstanding as of May 08, 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
            22**ITEM
                3**
            Quantitative
                and Qualitative Disclosures about Market Risk
            37**ITEM
                4**
            Controls
                and Procedures
            37**PART
                II: OTHER INFORMATION****ITEM
                1**
            Legal
                Proceedings
            39**ITEM
                1A**
            Risk
                Factors
            39**ITEM
                2**
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            40**ITEM
                3**
            Defaults
                upon Senior Securities
            41**ITEM
                4**
            Submission
                of Matters to a Vote of Security Holders
            41**ITEM
                5**
            Other
                Information
            41**ITEM
                6**
            Exhibits
            41**SIGNATURES**
            42




-
          2
          -





**PART
      I: FINANCIAL INFORMATION**


**Item
      1**





21 st CENTURY
      HOLDING COMPANY


CONSOLIDATED
      BALANCE SHEETS


(UNAUDITED)




March 31, 2008
            
            December 31, 2007(Dollars in Thousands)ASSETSInvestmentsFixed
                maturities, available for sale, at fair value
            
            $
            88,885
            
            $
            99,484Fixed
                maturities, held to maturity, at amoritized cost
            
            
            17,261
            
            
            20,210Equity
                securities, available for sale, at fair value
            
            
            14,339
            
            
            16,530Total
                investments
            
            
            120,486
            
            
            136,224Cash
                and short term investments
            
            
            47,859
            
            
            22,524Receivable
                for investments sold
            
            
            -
            
            
            6,420Finance
                contracts, net of allowance for credit losses of $27 in 2008 and
                $38 in
                2007, and net of unearned finance charges of $10 in 2008 and $15
                in
                2007
            
            
            212
            
            
            420Prepaid
                reinsurance premiums
            
            
            5,513
            
            
            8,471Premiums
                receivable, net of allowance for credit losses of $207 and $288,
                respectively
            
            
            5,044
            
            
            3,797Reinsurance
                recoverable, net
            
            
            19,645
            
            
            22,942Deferred
                policy acquisition costs
            
            
            8,754
            
            
            8,958Deferred
                income taxes, net
            
            
            7,194
            
            
            5,640Property,
                plant and equipment, net
            
            
            966
            
            
            1,046Other
                assets
            
            
            2,016
            
            
            2,918Total
                assets
            
            $
            217,689
            
            $
            219,361LIABILITIES
                AND SHAREHOLDERS' EQUITYUnpaid
                losses and LAE
            
            $
            57,698
            
            $
            59,685Unearned
                premiums
            
            
            54,238
            
            
            56,394Premiums
                deposits and customer credit balances
            
            
            2,981
            
            
            2,761Bank
                overdraft
            
            
            9,013
            
            
            8,695Income
                taxes payable
            
            
            3,180
            
            
            4,226Deferred
                gain from sale of property
            
            
            1,855
            
            
            1,998Accounts
                payable and accrued expenses
            
            
            3,837
            
            
            4,346Total
                liabilities
            
            
            132,802
            
            
            138,104Commitments
                and Contingencies
            
            
            -
            
            
            -Shareholders'
                equity:Common
                stock, $0.01 par value. Authorized 37,500,000 shares; issued and
                outstanding 7,938,509 and 7,871,234, respectively
            
            
            79
            
            
            79Additional
                paid-in capital
            
            
            48,811
            
            
            48,240Accumulated
                other comprehensive (deficit)
            
            
            (2,477
            )
            
            (2,596
            )Retained
                earnings
            
            
            38,473
            
            
            35,534Total
                shareholders' equity
            
            
            84,886
            
            
            81,257Total
                liabilities and shareholders' equity
            
            $
            217,689
            
            $
            219,361




**SEE
      ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**




-
          3
          -





21 ST CENTURY
      HOLDING COMPANY


CONSOLIDATED
      STATEMENTS OF OPERATIONS


(UNAUDITED)


Three Months Ended March 31,2008
              
              2007(Dollars in Thousands except EPS and dividend data)Revenue:Gross
                  premiums written
              
              $
              27,603
              
              $
              49,191Gross
                  premiums ceded
              
              
              -
              
              
              (6
              )Net
                  premiums written
              
              
              27,603
              
              
              49,185(Decrease)
                  in prepaid reinsurance premiums
              
              
              (11,154
              )
              
              (16,972
              )Decrease
                  (Increase) in unearned premiums
              
              
              2,156
              
              
              (9,840
              )Net
                  change in prepaid reinsurance premiums and unearned
                  premiums
              
              
              (8,998
              )
              
              (26,812
              )Net
                  premiums earned
              
              
              18,606
              
              
              22,373Commission
                  income
              
              
              63
              
              
              505Finance
                  revenue
              
              
              86
              
              
              187Managing
                  general agent fees
              
              
              499
              
              
              618Net
                  investment income
              
              
              1,876
              
              
              1,569Net
                  realized investment (losses)
              
              
              (1,649
              )
              
              (128
              )Other
                  income
              
              
              561
              
              
              462Total
                  revenue
              
              
              20,042
              
              
              25,585Expenses:Losses
                  and LAE
              
              
              7,874
              
              
              14,103Operating
                  and underwriting expenses
              
              
              1,555
              
              
              3,966Salaries
                  and wages
              
              
              1,759
              
              
              1,556Interest
                  expense
              
              
              -
              
              
              85Policy
                  acquisition costs, net of amortization
              
              
              3,836
              
              
              4,608Total
                  expenses
              
              
              15,024
              
              
              24,318Income
                  before provision for income tax expense
              
              
              5,018
              
              
              1,267Provision
                  for income tax expense
              
              
              709
              
              
              425Net
                  income
              
              $
              4,309
              
              $
              843Basic
                  net income per share
              
              $
              0.54
              
              $
              0.11Fully
                  diluted net income per share
              
              $
              0.54
              
              $
              0.10Weighted
                  average number of common shares outstanding
              
              
              7,912,692
              
              
              7,958,366Weighted
                  average number of common shares outstanding (assuming
                  dilution)
              
              
              7,960,313
              
              
              8,187,310Dividends
                  paid per share
              
              $
              0.18
              
              $
              0.18




**SEE
      ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**




-
          4
          -




21 ST CENTURY
      HOLDING COMPANY


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(UNAUDITED)


Three Months Ended March 31,2008
              
              2007(Dollars in Thousands)Cash
                  flow from operating activities:Net
                  income
              
              $
              4,309
              
              $
              843Adjustments
                  to reconcile net income to net cash provided by operating activities:
                  Amortization of investment (discount), net
              
              
              (63
              )
              
              (89
              )Depreciation
                  and amortization of property plant and equipment, net
              
              
              80
              
              
              79Net
                  realized investment (losses)
              
              
              (1,649
              )
              
              (128
              )Common
                  Stock issued for interest on Notes
              
              
              -
              
              
              63Provision
                  (Recovery) for credit losses, net
              
              
              4
              
              
              (19
              )Provision
                  for uncollectible premiums receivable
              
              
              81
              
              
              88Non-cash
                  compensation
              
              
              118
              
              
              1Changes
                  in operating assets and liabilities:Premiums
                  receivable
              
              
              (1,328
              )
              
              837Prepaid
                  reinsurance premiums
              
              
              2,958
              
              
              16,972Reinsurance
                  recoverable, net
              
              
              3,297
              
              
              (16,926
              )Income
                  taxes recoverable
              
              
              -
              
              
              (5,422
              )Deferred
                  income tax expense
              
              
              (1,554
              )
              
              (1,575
              )Policy
                  acquisition costs, net of amortization
              
              
              204
              
              
              (800
              )Premium
                  finance contracts receivable
              
              
              204
              
              
              163Other
                  assets
              
              
              760
              
              
              66Unpaid
                  losses and LAE
              
              
              (1,987
              )
              
              8,566Unearned
                  premiums
              
              
              (2,156
              )
              
              9,840Premium
                  deposits and customer credit balances
              
              
              220
              
              
              47Income
                  taxes payable
              
              
              (1,046
              )
              
              -Bank
                  overdraft
              
              
              318
              
              
              (7,413
              )Accounts
                  payable and accrued expenses
              
              
              (509
              )
              
              (643
              )Net
                  cash provided by operating activities
              
              
              2,261
              
              
              4,547Cash
                  flow (used in) investing activities:Proceeds
                  from sale of investment securities available for sale
              
              
              67,598
              
              
              55,018Purchases
                  of investment securities available for sale
              
              
              (43,608
              )
              
              (71,987
              )Purchases
                  of property and equipment
              
              
              -
              
              
              (3
              )Net
                  cash provided by (used) in investing activities
              
              
              23,989
              
              
              (16,972
              )Cash
                  flow (used in) financing activities:Exercised
                  stock options
              
              
              553
              
              
              78Dividends
                  paid
              
              
              (1,369
              )
              
              (1,421
              )Purchase
                  of treasury stock
              
              
              (144
              )
              
              -Tax
                  benefit related to non-cash compensation
              
              
              44
              
              
              -Net
                  cash (used in) financing activities
              
              
              (916
              )
              
              (1,342
              )Net
                  increase (decrease) in cash and short term investments
              
              
              25,335
              
              
              (13,767
              )Cash
                  and short term investments at beginning of period
              
              
              22,524
              
              
              17,917Cash
                  and short term investments at end of period
              
              $
              47,859
              
              $
              4,149




**SEE
        ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**




-
          5
          -




21 ST CENTURY
        HOLDING COMPANY
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 (UNAUDITED)


Three Months Ended March 31,(continued)
            
            2008
            
            2007(Dollars in Thousands)Supplemental
                disclosure of cash flow information:Cash
                paid during the period for:Interest
            
            $
            -
            
            $
            1Income
                taxes
            
            $
            3,250
            
            $
            7,300Non-cash
                investing and finance activities:Accrued
                dividends payable
            
            $
            1,429
            
            $
            1,433Retirement
                of subordinated debt by Common Stock issuance
            
            $
            -
            
            $
            1,042Stock
                issued to pay interest on subordinated debt
            
            $
            -
            
            $
            63





**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 process. 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 surplus lines 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 are 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 insurers 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 automobile insurance in Florida as an admitted carrier.





During
      the three months ended March 31, 2008, 72.4%, 26.6% and 1.0% of the premiums
      we
      underwrote were for homeowners’ property and casualty insurance, commercial
      general liability insurance and personal automobile insurance, respectively.
      During the three months ended March 31, 2007, 81.0%, 16.6% and 2.4% 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**




States
              
              Admitted
                  carrier
              
              Surplus
                lines
                  carrier
              
              Ongoing
                operations
              
              Operations
                expected to
                commence this
                year
              
              Application
                pendingAlabama
              
              ü
              
              
              
              üArkansas
              
              
              
              ü
              
              üCalifornia
              
              
              
              ü
              
              üFlorida
              
              ü
              
              
              
              üGeorgia
              
              
              
              ü
              
              üKentucky
              
              
              
              ü
              
              üLouisiana
              
              ü
              
              
              
              üMaryland
              
              
              
              ü
              
              
              
              üMissouri
              
              
              
              ü
              
              
              
              üNevada
              
              
              
              ü
              
              
              
              üOhio
              
              
              
              ü
              
              
              
              
              
              üOklahoma
              
              
              
              ü
              
              
              
              
              
              üSouth
                  Carolina
              
              
              
              ü
              
              üTennessee
              
              
              
              ü
              
              
              
              
              
              üTexas
              
              ü
              
              
              
              üVirginia
              
              
              
              ü
              
              ü





During
      2007, American Vehicle applied for and was granted, by the State of Florida
      in
      January 2008, licenses to underwrite commercial multiple peril, inland marine
      and surety lines of business as an admitted carrier. Operations under American
      Vehicle’s newly granted line of authority are expected to begin during
      2008.




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 will continue to contract with general agents to market our
      commercial general liability insurance product outside the state of Florida.
      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. 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 from the marketing of company products through the Company’s
      distribution network. 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 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.


-
          8
          -


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


**Notes
      to Consolidated Financial Statements**





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 (“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
      February 2007, the Financial Accounting Standards Board (“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 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.


-
          9
          -


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


**Notes
      to Consolidated Financial Statements**





**(C)
      Stock Options**





At
      March
      31, 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 three months ended
      March 31, 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 three months ended March 31, 2008, we have granted 21,526 qualified stock
      options to executive officers and a director, and 24,474 non-qualified stock
      options to directors with an average option price of $12.78 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 7, 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: (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.





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 Catastrophic Fund (“FHCF”) and
      the Florida Joint Underwriters Association (“JUA”).


-
          10
          -


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


**Notes
      to Consolidated Financial Statements**





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 year ended 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. Provisions contained in our excess of loss
      reinsurance policies provide for reinsurance participation totaling $1.5
      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. Provisions contained
      in
      our excess of loss reinsurance policies provide for their participation totaling
      $1.5 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 this assessment and has recouped
      approximately $0.4 million and $1.3 million during 2007 and 2006, respectively.
      As noted above, Federated National has subrogated $1.5 million to our
      reinsurers.





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, 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 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 has 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 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.


-
          11
          -


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


**Notes
      to Consolidated Financial Statements**





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 $16.2 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. Our agreement with Republic was terminated effective
      as
      of June 30, 2007. See Footnote 6 in our unaudited financial statements for
      the
      quarter ended March 31, 2008, which are included in Item 1, 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.





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





Fiscal
                Year
            
            Lease payments2008
            
            
            461,1872009
            
            
            625,1652010
            
            
            637,6682011
            
            
            648,331Total
            
            $
            2,372,351




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


-
          12
          -


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


**Notes
      to Consolidated Financial Statements**





**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 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.





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.





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)
      Comprehensive Income**





For
      the
      three months ended March 31, 2008 and 2007, comprehensive income consisted
      of
      the following:





For the three months ended March 31,2008
            
            2007Net
                income
            
            $
            4,308,589
            
            $
            842,805Change
                in net unrealized gains on investments available for sale
            
            
            73,029
            
            
            (263,989
            )Comprehensive
                income, before tax
            
            
            4,381,618
            
            
            578,816Income
                tax benefit related to items of other comprehensive income
            
            
            45,402
            
            
            99,339Comprehensive
                income
            
            $
            4,427,020
            
            $
            678,155





**(5)
      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.





For
      the
      2007-2008 hurricane season, the excess of loss and FHCF treaties will insure
      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 provides coverage beyond the
      first event, along with coverage from the FHCF. Coverage afforded by the FHCF
      totals approximately $261.0 million or 65% of the $403.0 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.


-
          13
          -


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


**Notes
      to Consolidated Financial Statements**





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.





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+Folksamerica
                  Reinsurance Company
              
              A-GMAC
                  Re/Motors Insurance Corporation
              
              A-Munich
                  Reinsurance America, Inc.
              
              AOdyssey
                  America Reinsurance Corporation
              
              AQBE
                  Reinsurance Corporation
              
              A**BERMUDA**ACE
                  Tempest Reinsurance Limited, Bermuda
              
              A+Amlin
                  Bermuda Limited
              
              A-Ariel
                  Reinsurance Company Limited, Bermuda
              
              A-DaVinci
                  Reinsurance Ltd, Bermuda
              
              AFlagstone
                  Reinsurance Limited
              
              A-Max
                  Bermuda Limited
              
              A-New
                  Castle Reinsurance Company Limited
              
              A-Renaissance
                  Reinsurance Ltd, Bermuda
              
              A**UNITED
                  KINGDOM**Amlin
                  Syndicate No. 2001 (AML)
              
              AAscot
                  Underwriting Syndicate No. 1414 (RTH)
              
              AG.S.
                  Christensen and Others Syndicate No. 958 (GSC)
              AMap
                  Underwriting Syndicate No. 2791 (MAP)
              
              ATalbot
                  Underwriting Syndicate No. 1183 (TAL)
              
              A**EUROPE**Converium
                  Limited, Switzerland
              
              B++





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.


-
          14
          -


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


**Notes
      to Consolidated Financial Statements**





The
      cost
      to the Company for these reinsurance products for the 2007-2008 hurricane
      season, including the prepaid automatic premium reinstatement protection will
      be
      approximately $46.5 million.





For
      the
      2006-2007 hurricane season, we assembled a range of reinsurance products
      designed to insure the Company for an aggregate of approximately $414.5 million
      for a minimum of two catastrophic events. The reinsurance treaties contained
      several complex features and through a series of fluid retentions, attachment
      points and limitations, additional coverage may have been afforded Federated
      National for events beyond the first two catastrophic events. Our retention
      would have varied depending on the severity and frequency of each catastrophic
      event. The reinsurance companies and their respective participation in the
      season's program are noted in the table as follows:




First Event Participation
            
            Reinstated Premium ProtectionAM Best
              Rating
            
            Reinsurer
            
            $20m in excess
              of $15m
            
            $40m in excess
              of$35m
            
            $72m in excess
              of $75m and
              FHCF
              participation
            
            $20m in excess
              of $15m
            
            $40m in excess
              of $35mA+
            
            
            Ace
                Tempest Reinsurance Ltd
            
            
            
            
            
            7.5
            %
            
            7.5
            %A
            
            
            Amlin
                2001 Syndicate
            
            
            5.0
            %
            
            5.0
            %
            
            5.0
            %
            
            5.0
            %A-
            
            
            Amlin
                Bermuda Ltd
            
            
            2.5
            %
            
            4.0
            %
            
            4.0
            %
            
            2.5
            %A
            
            
            American
                Reinsurance Company
            
            
            
            
            
            
            
            
            3.5
            %A
            
            
            Ascot
                1414 Syndicate
            
            
            
            
            
            
            
            
            6.5
            %A++
            
            
            National
                Liability and Fire Company
            
            
            
            
            
            33.7
            %
            
            6.5
            %
            
            
            
            
            77.6
            %B++
            
            
            Converium
                AG
            
            
            
            
            
            5.0
            %A+
            
            
            Everest
                Reinsurance Company
            
            
            
            
            
            22.0
            %
            
            4.3
            %
            
            
            
            
            12.0
            %NR
            
            
            Wentworth
                Insurance Company Ltd
            
            
            5.0
            %
            
            
            
            
            .
            
            
            5.0
            %A-
            
            
            Flagstone
                Reinsurance Ltd
            
            
            
            
            
            4.3
            %
            
            4.0
            %A
            
            
            MAP
                2791 Syndicate
            
            
            2.5
            %
            
            2.5
            %
            
            2.5
            %
            
            2.5
            %A-
            
            
            New
                Castle Reinsurance Company Ltd
            
            
            2.0
            %
            
            2.0
            %
            
            2.0
            %
            
            2.0
            %A
            
            
            QBE
                Reinsurance Corporation
            
            
            
            
            
            1.5
            %
            
            1.0
            %A
            
            
            Renaissance
                Reinsurance, Ltd
            
            
            
            
            
            12.5
            %
            
            12.5
            %A+
            
            
            XL
                Re Limited
            
            
            
            
            
            
            
            
            2.5
            %A
            
            
            Odyssey
            
            
            
            
            
            
            
            
            3.5
            %A
            
            
            Catlin
                Insurance Company Ltd
            
            
            25.0
            %
            
            
            
            
            
            
            
            25.0
            %NR
            
            
            Allianz
                Risk Transfer (Bermuda) Ltd
            
            
            33.0
            %
            
            
            
            
            
            
            
            33.0
            %A
            
            
            Liberty
                Mutual Insurance Company
            
            
            
            
            
            
            
            
            34.7
            %NR4
            
            
            American
                Vehicle Insurance Company (Affiliated)
            
            
            25.0
            %
            
            
            
            
            
            
            
            25.0
            %




In
      the
      discussion that follows it should be noted that all amounts of reinsurance
      were
      based on management’s analysis of Federated National’s exposure levels to
      catastrophic risk. Our data was subjected to exposure level data analysis at
      various dates through December 31, 2006.





Our
      overall reinsurance structure was divided into four major layers of financial
      impact in connection with any single catastrophic event. The bottom layer was
      considered the first $15 million of losses. The next layer was considered
      greater than $15 million and less than $35 million. The next layer was
      considered greater than $35 million and less than $233.3 million. The fourth
      layer was considered losses greater than $233.3 million and less than $305.3
      million.





For
      the
      first and second catastrophic events equal to or less than $15 million, the
      bottom layer, Federated National would have retained 100% of the first $4.3
      million and the last $0.7 million of this bottom layer. The FHCF would have
      participated 100% for the $10 million in excess of Federated National’s first
      $4.3 million.


-
          15
          -




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


**Notes
      to Consolidated Financial Statements**





For
      the
      first and second catastrophic events with aggregate losses in excess of the
      first $15.0 million discussed above and less than $35 million, Federated
      National acquired 100% reinsurance protection with a single automatic premium
      reinstatement protection provision. The $20 million of coverage afforded in
      this
      layer was by way of 42% traditional, single season, excess of loss
      (“Traditional”) treaties and 58% structured multi-year, excess of loss
      (“Structured”) treaties. As noted in the chart above, American Vehicle reinsured
      Federated National via a traditional treaty for 25% of this $20 million layer.
      Relative to the structured excess of loss reinsurance treaties, terms contained
      in these treaties afford capacity in this layer beyond the 2006 - 2007 season
      for two additional hurricane seasons. The structured treaties offered respective
      coverage for a single event in each of the three hurricane seasons and one
      additional respective coverage that could be applied as needed in any one of
      the
      three hurricane seasons. One of the structured treaties, representing 25% of
      this layer, contained a provision that prevented the Company from recovery
      if
      any single event resulted in damages that exceed $20 billion in the United
      States and its territories.





For
      the
      first and second catastrophic events where aggregate losses exceeded $35
      million, but were less than $233.3 million, Federated National acquired 100%
      reinsurance protection through a combination of private market reinsurers and
      the FHCF program. The private market reinsurers afforded coverage to insure
      us
      for $40 million against covered losses in excess of $35 million. The FHCF
      afforded coverage to insure us for 90% of loss greater than $55.6 million and
      less than $231.5 million. The private treaties “wrapped around” the FHCF treaty
      afforded coverage, in aggregate, for losses in excess of $35 million but less
      than $233.3 million. The FHCF treaty was an aggregate “for the entire season”
treaty while the private market treaties afforded respective per event coverage.
      As to reinstatement of coverage for the private market treaties, Federated
      National purchased a single automatic premium reinstatement protection provision
      that would have provided for an automatic reinstatement for 89% of the $40
      million coverage. Federated National would have been responsible for the
      remaining premium reinstatement protection and the cost in connection with
      that
      reinstatement was estimated to be approximately $2.1 million. Federated National
      would also have been responsible for seasonal losses beyond what was afforded
      through this part of the FHCF coverage.





If
      an
      event had occurred where aggregate losses exceed $233.3 million, but were less
      than $305.3 million, Federated National had acquired traditional reinsurance
      treaties representing 65.3% of this layer without a provision for premium
      reinstatement protection. Premium reinstatement coverage would have been
      prorated as to amount and if the first event exhausted this coverage, then
      Federated National would have been responsible for approximately $10.4 million
      for reinstatement protection. Additional coverage was afforded to Federated
      National via Industry Loss Warrants (“ILW”). The ILW policies provided for
      payments to Federated National based solely on industry wide losses to private
      and commercial property only in the State of Florida. A payment to Federated
      National would only have been considered under the terms of these contracts,
      if
      insured wind damages incurred in the State of Florida had exceeded amounts
      varying between $20 billion and $25 billion excluding public property and
      certain other named exclusions.





The
      Company would have been responsible for single catastrophic events, with
      incurred losses in excess of approximately $305 million subject to the terms
      of
      the ILW’s above.





The
      estimated cost to the Company in connection with this reinsurance structure
      was
      approximately $73.0 million, which for the most part was payable in quarterly
      installments that began July 1, 2006 and were amortized through earned premium
      in accordance with the provisions and terms contained in the respective
      treaties.





As
      a
      result of the losses and LAE incurred in connection with the hurricane activity
      that occurred in 2004 and 2005, the Company has reflected in its operations
      the
      effects of each storm as follows:




-
          16
          -


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


Claim
            
            Gross
            
            Reinsurance
            
            Net2004 Hurricanes
            
            Count
            
            Losses
            
            Recoveries
            
            Losses(Dollars in millions)Charley
                (August 13)
            
            
            2,573
            
            $
            64.6
            
            $
            54.6
            
            $
            10.0Frances
                (September 3)
            
            
            3,809
            
            
            54.2
            
            
            44.1
            
            
            10.1Ivan
                (September 14)
            
            
            1,062
            
            
            26.4
            
            
            -
            
            
            26.4Jeanne
                (September 25)
            
            
            1,565
            
            
            14.0
            
            
            -
            
            
            14.0Total
                Loss Estimate
            
            
            9,009
            
            $
            159.2
            
            $
            98.7
            
            $
            60.5





Claim
            
            Gross
            
            Reinsurance
            
            Net2005 Hurricanes
            
            Count
            
            Losses
            
            Recoveries
            
            Losses(Dollars
                in millions)Dennis
                (July 10)
            
            
            322
            
            $
            2.8
            
            $
            -
            
            $
            2.8Katrina
                (August 25)
            
            
            2,121
            
            
            14.7
            
            
            11.7
            
            
            3.0Rita
                (September 20)
            
            
            19
            
            
            0.1
            
            
            -
            
            
            0.1Wilma
                (October 24)
            
            
            11,801
            
            
            184.5
            
            
            181.5
            
            
            3.0Total
                Loss Estimate
            
            
            14,263
            
            $
            202.1
            
            $
            193.2
            
            $
            8.9





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 March
      31, 2008 are estimated to be 67.7% and 79.6% for Federated National and American
      Vehicle, respectively.





Effective
      March 28, 2006, American Vehicle entered into a 100% quota-share reinsurance
      treaty with Republic Underwriters Insurance Company (“Republic”). Republic is
      domiciled in the state of Texas and licensed both directly and on a surplus
      lines basis in approximately 32 states. This agreement was in place for
      approximately one year until March 31, 2007, when it was cancelled at the
      request of Republic. 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 remit
      a 1% commission to the intermediary broker on the same net written premium.
      Under this agreement, the Company assumed approximately $348,000 in premiums
      in
      connection with its operations in the State of Texas. 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.





**(6)
      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 includes 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
      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 March 31, 2008 and December 31, 2007, we had outstanding exercisable options
      to purchase 129,099 and 152,599 shares, respectively.





-
          17
          -





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


**Notes
      to Consolidated Financial Statements**




In
      2001,
      we implemented a franchisee stock option plan that provides for the granting
      of
      stock options to individuals purchasing Company owned agencies that are then
      converted to franchised agencies. The purpose of the plan is 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 are above the
      market value of the stock on the date of grant, vest over a ten-year period,
      and
      expire 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 March 31,
      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, upon
      whose efforts and judgment our success is largely dependent, by authorizing
      the
      grant of options to purchase Common Stock to persons who are eligible to
      participate hereunder, thereby encouraging stock ownership by such persons,
      all
      upon and subject to the terms and conditions of the Plan. Options outstanding
      under the plan have been 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 March 31, 2008 and
      December 31, 2007, we had outstanding exercisable options to purchase 641,534
      and 660,309 shares, respectively.





Activity
      in the Company’s stock option plans for the period from January 1, 2006 to March
      31, 2008, is summarized below:





**1998 Plan**
            
            **2001 Franchisee Plan**
            
            **2002 Plan**Number of Shares
            
            Weighted
              Average
              Option
              ExercisePrice
            
            Number of
              Shares
            
            Weighted
              Average
              Option
              ExercisePrice
            
            Numberof
              Shares
            
            Weighted
              Average
              Option
              ExercisePriceOutstanding
                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
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            46,000
            
            $
            12.78Exercised
            
            
            (13,500
            )
            $
            6.67
            
            
            -
            
            $
            -
            
            
            (53,775
            )
            $
            8.61Cancelled
            
            
            (10,000
            )
            $
            11.11
            
            
            -
            
            $
            -
            
            
            (11,000
            )
            $
            14.67Outstanding
                at March 31, 2008
            
            
            129,099
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            641,534
            
            $
            14.13




Options
      outstanding as of March 31, 2008 are exercisable as follows :




-
          18
          -


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




**1998 Plan**
            
            **2001 Franchisee Plan**
            
            **2002 Plan**Number of
              Shares
            
            Weighted
              Average
              Option
              Exercise Price
            
            Number of
              Shares
            
            Weighted
              Average
              Option
              ExercisePrice
            
            Number of
              Shares
            
            Weighted
              Average
              Option
              ExercisePriceOptions
                Exercisable at:March
                31, 2007
            
            
            30,250
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            308,231
            
            $
            14.13December
                31, 2008
            
            
            18,969
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            96,981
            
            $
            14.13December
                31, 2009
            
            
            19,970
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            99,354
            
            $
            14.13December
                31, 2010
            
            
            19,970
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            77,056
            
            $
            14.13December
                31, 2011
            
            
            19,970
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            32,856
            
            $
            14.13December
                31, 2012
            
            
            19,970
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            19,656
            
            $
            14.13Thereafter
            
            
            -
            
            $
            16.08
            
            
            -
            
            $
            -
            
            
            7,400
            
            $
            14.13Total
                options exercisible
            
            
            129,099
            
            
            
            
            
            -
            
            
            
            
            
            641,534





At
      March
      31, 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 three months ended
      March 31, 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
      three months ended March 31, 2008 and 2007, are lower by approximately $138,000
      and $118,000, and $800 and $500, 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 three months ended March 31, 2008 and 2007
      would have been $0.56 and 0.56, and $0.11 and $0.10, respectively, if the
      Company had not adopted SFAS No. 123R, compared to reported basic and diluted
      earnings per share of $0.54 and $0.54, and $0.11 and $0.10, 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.





The
      weighted average fair value for the 46,000 new options granted during the three
      months ended March 31, 2008, estimated on the dates of grant using the
      Black-Scholes option-pricing model was $3.45 per option. The weighted average
      fair value for the 5,000 new options granted during the three months ended
      March
      31, 2007, estimated on the dates of grant using the Black-Scholes option-pricing
      model was $5.36 per option.




-
          19
          -


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




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





March 31, 2008
            
            March 31, 2007Dividend
                yield
            
            
            5.50%
            
            
            3.20%Expected
                volatility
            
            
            54.83%
            
            
            42.87%Risk-free
                interest rate
            
            
            1.60% to 2.24%
            
            
            4.85% to 4.86%Expected life
                (in years)
            
            
            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 March 31,
      2008:





Weighted Average
            
            WeightedRange of
            
            Outstanding at
            
            Contractual
            
            Average
            
            Exercisable atExercise Price
            
            March 31, 2008
            
            Periods in Years
            
            Exercise Price
            
            March 31, 20081998
                Plan
            
            
            $6.67 - $27.79
            
            
            129,099
            
            
            4.97
            
            $
            16.08
            
            
            129,0992001
                Franchise Plan
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -2002
                Plan
            
            
            $8.33 - $18.21
            
            
            641,534
            
            
            3.07
            
            $
            14.13
            
            
            641,534





**(7)
      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”), the terms
      of which are similar to our July 2003 Notes and 2003 Warrants, except as
      described below .
      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, 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.





**(8)
      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 March 31, 2008, there were no preferred shares issued
      or
      outstanding and there were 7,926,211 shares of common stock outstanding, net
      of
      12,308 shares pending cancellation in connection with the Company’s 2007 common
      stock buy-back program. We do not reserve for common stock shares in connection
      with the exercise of issued and unissued common stock options.





-
          20
          -


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




**(9)
      Subsequent Event**





None


-
          21
          -


**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 three months ended March 31,
      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
      process. 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
      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. 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.




-
          22
          -


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




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 surplus lines 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 insurers 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 automobile insurance in Florida as an admitted carrier.





During
      the three months ended March 31, 2008, 72.4%, 26.6% and 1.0% of the premiums
      we
      underwrote were for homeowners’ property and casualty insurance, commercial
      general liability insurance and personal automobile insurance, respectively.
      During the three months ended March 31, 2007, 81.0%, 16.6% and 2.4% 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.




-
          23
          -


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




Finally,
      during 2007 and early 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.





States
            
            Admitted
              carrier
            
            Surplus
              lines carrier
            
            Ongoing
              operations
            
            Operations
              expected to
              commence this
              year
            
            Application
              pendingAlabama
            
            
            ü
            
            
            
            
            
            üArkansas
            
            
            
            
            
            ü
            
            
            üCalifornia
            
            
            
            
            
            ü
            
            
            üFlorida
            
            
            ü
            
            
            
            
            
            üGeorgia
            
            
            
            
            
            ü
            
            
            üKentucky
            
            
            
            
            
            ü
            
            
            üLouisiana
            
            
            ü
            
            
            
            
            
            üMaryland
            
            
            
            
            
            ü
            
            
            
            
            
            üMissouri
            
            
            
            
            
            ü
            
            
            
            
            
            üNevada
            
            
            
            
            
            ü
            
            
            
            
            
            üOhio
            
            
            
            
            
            ü
            
            
            
            
            
            
            
            
            üOklahoma
            
            
            
            
            
            ü
            
            
            
            
            
            
            
            
            üSouth
                Carolina
            
            
            
            
            
            ü
            
            
            üTennessee
            
            
            
            
            
            ü
            
            
            
            
            
            
            
            
            üTexas
            
            
            ü
            
            
            
            
            
            üVirginia
            
            
            
            
            
            ü
            
            
            ü





During
      2007, American Vehicle applied for and was granted, by the State of Florida
      in
      January 2008, licenses to underwrite commercial multiple peril, inland marine
      and surety lines of business as an admitted carrier. Operations under American
      Vehicle’s newly granted line of authority are expected to begin during
      2008.




-
          24
          -





**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. Assurance
      MGA is not licensed to do business elsewhere. As American Vehicle continues
      its
      expansion into other states, we intend on retaining other general agents to
      market our commercial general liability insurance product beyond the state
      of
      Florida. 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. 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 from the marketing of company products through the Company’s
      distribution network. 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 policy 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 for the fiscal year ended December
      31, 2007 filed with the SEC on March 17, 2008.





Except
      as
      described below, we believe that during the first three 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
      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.





-
          25
          -





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


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




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 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.





**Analysis
      of Financial Condition**


**As
      of March 31, 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.





-
          26
          -


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




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 $15.7 million,
      or 11.6%, to $120.5 million as of March 31, 2008, compared to $136.2 million
      as
      of December 31, 2007. Our fixed income portfolio contained callable features
      exercised during the three months ended March 31, 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 86% of total investments as of March 31, 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 March 31, 2008 and December
      31, 2007 by category.





Unrealized Gains and (Losses)March 31, 2008
            
            December 31, 2007Fixed
                maturities:U.S.
                government obligations
            
            $
            196,794
            
            $
            (68,975
            )Obligations
                of states and political subdivisions
            
            
            101,132
            
            
            (1,706
            )297,926
            
            
            (70,681
            )Corporate
                securities:Communications
            
            
            (100,932
            )
            
            (3,481
            )Financial
            
            
            (23,683
            )
            
            (16,984
            )Other
            
            
            118,503
            
            
            (25,852
            )(6,112
            )
            
            (46,317
            )Equity
                securities:Common
                stocks
            
            
            (4,325,099
            )
            
            (3,989,319
            )Total
                fixed, corporate and equity securities
            
            $
            (4,033,285
            )
            $
            (4,106,317
            )





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 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 three months ended March
      31,
      2008 ,
      in
      connection with this process, we have charged to operations a net realized
      investment loss totaling approximately $1.2 million net of an estimated
      provisional tax effect of approximately $0.7 million. The charge relates to
      short-term investments in connection with the banking and pharmaceutical
      industries.





-
          27
          -


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




The
      investments held at March 31, 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 March 31, 2008, approximately 40% of the equity holdings are in mutual funds
      and 60% 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.





**Cash
      and Short Term Investments**





Cash
      and
      short-term investments, which include cash, certificates of deposits, and money
      market accounts, increased $25.3 million, or 112.5%, to $47.9 million as of
      March 31, 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 three months
      ended March 31, 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 March 31, 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 49.6%, to $0.2 million as of March 31, 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 $3.0 million, or 34.9%, to $5.5 million as of
      March 31, 2008, compared to $8.5 million as of December 31, 2007. The decrease
      is primarily due to the decreased cost of property reinsurance for the 2007
      -
      2008 hurricane season compared to the 2006 - 2007 hurricane season.





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





Premiums
      receivable, net of allowance for credit losses, increased $1.2 million, or
      32.8%, to $5.0 million as of March 31, 2008, compared to $3.8 million as of
      December 31, 2007. Our homeowners’ insurance premiums receivable increased $0.6
      million, or 52.6%, to $1.8 million as of March 31, 2008, compared to $1.2
      million as of December 31, 2007. Our commercial general liability insurance
      premiums receivable increased $0.6 million, or 22.5%, to $3.1 million as of
      March 31, 2008, compared to $2.6 million as of December 31, 2007. Premiums
      receivable in connection with our automobile line of business decreased less
      than $0.1 million, or 7.4%, to $0.3 million as of March 31, 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.




-
          28
          -


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




**Reinsurance
      Recoverable, net**





Reinsurance
      Recoverable, net, decreased $3.3 million, or 14.4%, to $19.6 million as of
      March
      31, 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 2.3%, to $8.8 million as
      of
      March 31, 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 $1.6 million, or 27.6%, to $7.2 million as of
      March
      31, 2008, compared to $5.6 million as of December 31, 2007. Deferred income
      taxes, net is comprised of approximately $10.4 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 March 31, 2008 and December 31, 2007 ,
      respectively.





**Property,
      Plant and Equipment, net**





Property,
      plant and equipment, net, decreased $0.1 million, or 7.6%, to less than $1.0
      million as of March 31, 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 decreased $0.9 million, or 30.9%, to $2.0 million as of March 31, 2008,
      compared to $2.9 million as of December 31, 2007. Major components of other
      assets are as follows:





March 31, 2008
            
            December 31, 2007Accrued
                interest income receivable
            
            $
            722,932
            
            $
            1,429,844Notes
                receivable
            
            
            677,796
            
            
            807,275Prepaid
                expenses
            
            
            470,094
            
            
            547,542Other
            
            
            144,818
            
            
            133,639Total
            
            $
            2,015,640
            
            $
            2,918,300




**Unpaid
      Losses and LAE**





Unpaid
      losses and LAE decreased $2.0 million, or 3.3%, to $57.7 million as of March
      31,
      2008, compared to $59.7 million as of December 31, 2007. The composition of
      unpaid losses and LAE by product line is as follows:





March 31, 2008
            
            December 31, 2007Case
            
            Bulk
            
            Total
            
            Case
            
            Bulk
            
            TotalHomeowners'
            
            $
            7,292,483
            
            $
            22,047,338
            
            $
            29,339,821
            
            $
            7,775,769
            
            $
            24,599,142
            
            $
            32,374,911Commercial
                General Liability
            
            
            5,141,893
            
            
            19,786,526
            
            
            24,928,419
            
            
            5,414,633
            
            
            17,870,404
            
            
            23,285,037Automobile
            
            
            360,098
            
            
            3,069,413
            
            
            3,429,511
            
            
            530,308
            
            
            3,494,534
            
            
            4,024,842$
            12,794,476
            
            $
            44,903,277
            
            $
            57,697,751
            
            $
            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.





-
          29
          -


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




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 $2.0 million during the
      quarter ended March 31, 2008.





**Unearned
      Premium**





Unearned
      premiums decreased $2.2 million, or 3.8%, to $54.2 million as of March 31,
      2008,
      compared to $56.4 million as of December 31, 2007. The decrease was due to
      a
      $2.1 million decrease in unearned homeowners’ insurance premiums, a $0.1 million
      increase in unearned commercial general liability premiums, and a $0.1 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 increased $0.2 million, or 8.0%, to $3.0
      million as of March 31, 2008, compared to $2.8 million as of December 31, 2007.
      Premium deposits are monies received on policies not yet in force as of March
      31, 2008.





**Bank
      Overdraft**





Bank
      overdraft increased $0.3 million, or 3.7%, to $9.0 million as of March 31,
      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 decreased $1.0 million, or 24.8%, to $3.2 million as of March
      31,
      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.





**Deferred
      Gain from Sale of Property**





Deferred
      gain from sale of property decreased $0.1 million, or 7.1%, to $1.9 million
      as
      of March 31, 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 $0.5 million, or 11.7%, to $3.8 million
      as of March 31, 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 March 31, 2008 Compared to Three Months Ended March 31,
      2007**





**Gross
      Premiums Written**





Gross
      premiums written decreased $21.6 million, or 43.9%, to $27.6 million for the
      three months ended March 31, 2008, compared to $49.2 million for the three
      months ended March 31, 2007. The following table denotes gross premiums written
      by major product line:





-
          30
          -





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


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





Three months ended March 31,2008
            
            2007Amount
            
            Percentage
            
            Amount
            
            PercentageHomeowners'
            
            $
            19,989,736
            
            
            72.42
            %
            $
            39,863,621
            
            
            81.04
            %Commercial
                liability
            
            
            7,354,855
            
            
            26.64
            %
            
            8,150,098
            
            
            16.57
            %Automobile
            
            
            258,805
            
            
            0.94
            %
            
            1,177,010
            
            
            2.39
            %Gross
                written premiums
            
            $
            27,603,396
            
            
            100.00
            %
            $
            49,190,729
            
            
            100.00
            %




The
      Company’s sale of homeowners’ policies decreased $19.9 million, or 49.9% to
      $20.0 million for the three months ended March 31, 2008, compared to $39.9
      million for the three months ended March 31, 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 general liability policies decreased by $0.8 million to $7.4
      million for the three months ended March 31, 2008 compared to $8.2 million
      for
      the three months ended March 31, 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:





Three Months Ended March 31,2008
            
            2007Amount
            
            Percentage
            
            Amount
            
            Percentage(Dollars in Thousands)StateAlabama
            
            $
            44
            
            
            0.59
            %
            $
            -
            
            
            -Arkansas
            
            
            8
            
            
            0.11
            %
            
            -
            
            
            -California
            
            
            95
            
            
            1.30
            %
            
            -
            
            
            -Florida
            
            
            4,883
            
            
            66.40
            %
            
            5,624
            
            
            69.02
            %Georgia
            
            
            187
            
            
            2.55
            %
            
            297
            
            
            3.64
            %Kentucky
            
            
            -
            
            
            -
            
            
            1
            
            
            0.01
            %Lousiania
            
            
            1,184
            
            
            16.09
            %
            
            1,202
            
            
            14.74
            %South
                Carolina
            
            
            32
            
            
            0.43
            %
            
            44
            
            
            0.54
            %Texas
            
            
            910
            
            
            12.37
            %
            
            967
            
            
            11.86
            %Virginia
            
            
            12
            
            
            0.16
            %
            
            15
            
            
            0.19
            %Total
            
            $
            7,355
            
            
            100.0
            %
            $
            8,150
            
            
            100.0
            %





The
      Company’s sale of auto insurance policies decreased by $0.9 million, or 78.0%,
      to $0.3 million for the three months ended March 31, 2008, compared to $1.2
      million for the three months ended March 31, 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.


-
          31
          -


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


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





**Gross
      Premiums Ceded**





Gross
      premiums ceded remained unchanged at nearly nothing for the three months ended
      March 31, 2008, compared to nearly nothing for the three months ended March
      31,
      2007.


**(Decrease)
      in Prepaid Reinsurance Premiums**





The
      (decrease) in prepaid reinsurance premiums was ($11.2) million for the three
      months ended March 31, 2008, compared to ($17.0) million for the three months
      ended March 31, 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.





**Decrease
      (Increase) in Unearned Premiums**





The
      decrease (increase) in unearned premiums was $2.2 million for the three months
      ended March 31, 2008, compared to ($9.8) million for the three months ended
      March 31, 2007. The change was due to a ($2.1) million decrease in unearned
      homeowners’ insurance premiums, a $0.1 million increase in unearned commercial
      general liability premiums and a ($0.1) 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 $3.8 million, or 16.8%, to $18.6 million for the
      three
      months ended March 31, 2008, compared to $22.4 million for the three months
      ended March 31, 2007. The following table denotes net premiums earned by product
      line:





Three Months Ended March 31,2008
            
            2007Amount
            
            Percentage
            
            Amount
            
            PercentageHomeowners'
            
            $
            10,971,140
            
            
            58.97
            %
            $
            12,810,858
            
            
            57.26
            %Commercial
                General Liability
            
            
            7,351,661
            
            
            39.51
            %
            
            8,356,980
            
            
            37.35
            %Automobile
            
            
            283,040
            
            
            1.52
            %
            
            1,205,190
            
            
            5.39
            %Net
                premiums earned
            
            $
            18,605,841
            
            
            100.00
            %
            $
            22,373,028
            
            
            100.00
            %





**Commission
      Income**





Commission
      income decreased $0.4 million, or 87.6%, to $0.1 million for the three months
      ended March 31, 2008, compared to $0.5 million for the three months ended March
      31, 2007. The commission income is in connection with our reinsurance
      treaties.





**Finance
      Revenue**





Finance
      revenue decreased $0.1 million, or 54.1%, to $0.1 million for the three months
      ended March 31, 2008, compared to $0.2 million for the three months ended March
      31, 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 $0.1 million, or 19.3% to $0.5 million for the
      three months ended March 31, 2008, compared to $0.6 million for the three months
      ended March 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 account.





**Net
      Investment Income**





Net
      investment income increased $0.3 million, or 19.6%, to $1.9 million for the
      three months ended March 31, 2008, compared to $1.6 million for the three months
      ended March 31, 2007.


-
          32
          -





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


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





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 March 31, 2008, compared to less than $0.1 million for the
      three months ended March 31, 2007. Net investment income on U.S. government
      bonds decreased $0.5 million, to $0.5 million for the three months ended March
      31, 2008, compared to $1.0 million for the three months ended March 31, 2007.





Affecting
      our net investment income was an increase in the overall yield to 4.59 % for
      the
      three months ended March 31, 2008 compared to a yield of 4.33% for the three
      months ended March 31, 2007.





**Net
      Realized Investment (Losses)**





Net
      realized investment (losses) increased ($1.5) million to ($1.6) million for
      the
      three months ended March 31, 2008, compared to ($0.1) million for the three
      months ended March 31, 2007. The table below depicts the net realized investment
      gains (losses) by investment category for the three months ended March 31,
      2008
      as compared to the same period during 2007. During the quarter ended March
      31,
      2008, we marked two equity investments to market value pursuant to guidelines
      prescribed in SFAS no. 115. The pretax charge to operations was approximately
      $1.9 million in connection with our estimates of the net realizable value of
      these investments.





Net Realized Gains (Losses)Three Months Ended March 31,2008
            
            2007Fixed
                maturities:U.S.
                government obligations and agencies
            
            $
            16,277
            
            $
            (63
            )Obligations
                of states and political subdivisions
            
            
            (3,574
            )
            
            -Equity
                securities:Common
                stocks
            
            
            (1,662,080
            )
            
            (128,069
            )Total
                net realized (losses) gains
            
            $
            (1,649,377
            )
            $
            (128,132
            )




**Other
      Income**





Other
      income increased $0.1 million, or 21.5%, to $0.6 million for the three months
      ended March 31, 2008, compared to $0.5 million for the three months ended March
      31, 2007.





Major
      components of other income for the three months ended March 31, 2008 included
      approximately $0.3 million in connection with FIGA recoupment, $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 decreased by $6.2 million, or 44.2%, to $7.9 million for the three
      months ended March 31, 2008, compared to $14.1 million for the three months
      ended March 31, 2007. The overall change includes a $4.7 million decrease in
      our
      homeowners’ program, a $1.0 million increase in our commercial general liability
      program and a $2.5 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.


-
          33
          -





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


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





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 $2.0 million during the
      quarter ended March 31, 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 March 31, 2008 was
      42.32% compared with 63.05% for the same period in 2007. The table below
      reflects the loss ratios by product line.




Three Months Ended March 31,2008
            
            2007Homeowners'
            
            
            38.58
            %
            
            70.12
            %Commercial
                General Liability
            
            
            49.93
            %
            
            32.13
            %Automobile
            
            
            2.25
            %
            
            190.40
            %All
                lines
            
            
            42.32
            %
            
            63.05
            %





**Operating
      and Underwriting Expenses**





Operating
      and underwriting expenses decreased $2.4 million, or 60.8%, to $1.6 million
      for
      the three months ended March 31, 2008, compared to $4.0 million for the three
      months ended March 31, 2007. The decrease is primarily due to a charge to
      operations during the three months ended March 31, 2007 of $1.0 million in
      connection with the negotiated settlement of an expired agreement to service
      insureds for a third-party insurance company. The terms of this agreement call
      for our company to adjust claims associated with policies of the third-party
      insurance company written between January 1, 2000 and December 31, 2001. In
      addition, contributing to the change is a $1.1 million decrease in premium
      tax
      expense and a $0.6 million decrease in bad debts expense.





**Salaries
      and Wages**





Salaries
      and wages increased $0.2 million, or 13.0%, to $1.8 million for the three months
      ended March 31, 2008, compared to $1.6 million for the three months ended March
      31, 2007. The most significant component of the change is an increased charge
      to
      operations, in accordance with the provisions of SFAS No. 123R, of approximately
      $137,000 during the three months ended March 31, 2008 compared to less than
      $1,000 for the three months ended March 31, 2007.




**Interest
      Expense**





Interest
      expense decreased to nothing for the three months ended March 31, 2008, compared
      to $0.1 million for the three months ended March 31, 2007. The decrease is
      in
      correlation to our subordinated debt that was satisfied during
      2007.





**Policy
      Acquisition Costs, Net of Amortization**





Policy
      acquisition costs, net of amortization, decreased $0.8 million, or 16.8%, to
      $3.8 million for the three months ended March 31, 2008, compared to $4.6 million
      for the three months ended March 31, 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 Expense**





The
      provision for income tax expense increased $0.3 million, or 67.0%, to $0.7
      million for the three months ended March 31, 2008, compared to $0.4 million
      for
      the three months ended March 31, 2007. The effective rate for income tax expense
      was 14.1% for the three months ended March 31, 2008, compared to 33.5% for
      the
      same three-month period in 2007. The provision for the three months ended March
      31, 2008 includes a one-time $0.6 million benefit in connection with the
      estimation of the previous years’ income taxes.


-
          34
          -


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


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




**Net
      Income**





As
      a
      result of the foregoing, the Company’s net income for the three months ended
      March 31, 2008, was $4.3 million compared to net income of $0.8 million for
      the three months ended March 31, 2007.





**Liquidity
      and Capital Resources**





For
      the
      three months ended March 31, 2008, our primary sources of capital were revenues
      generated from operations, including decreased reinsurance recoverable, net,
      decreased prepaid reinsurance premiums, decreased other assets, increased bank
      overdraft, increased premium deposits and customer credit balances, decreased
      finance contracts receivable and decreased policy acquisition costs, net of
      amortization. Also contributing to our liquidity were non-cash compensation,
      an
      increase in the provision for uncollectible premiums receivable, depreciation
      and amortization, an increase in the provision for credit losses, net, proceeds
      from the sale of investment securities, exercised employee stock options and
      a
      tax benefit related to non-cash compensation. Because we are a holding company,
      we are largely dependent upon fees and commissions from our subsidiaries for
      cash flow.





For
      the
      three months ended March 31, 2008, operations provided net operating cash flow
      of $2.3 million, compared to $4.5 million for the three months ended March
      31,
      2007.





For
      the
      three months ended March 31, 2008, operations generated $12.6 million of gross
      cash flow due to a $3.3 million decrease in reinsurance recoverable, net, a
      $3.0
      million decrease in prepaid reinsurance premiums, a $0.8 million decrease in
      other assets, a $0.3 million increase in bank overdraft, a $0.2 million increase
      in premium deposits and customer credit balances, a $0.2 million decrease in
      finance contracts receivable and a $0.2 million decrease in policy acquisition
      costs, net of amortization. To a much less significant extent, operations
      generated additional sources of cash via $0.1 million in non-cash compensation,
      a $0.1 million increase in the provision for uncollectible premiums receivable
      and $0.1 million in depreciation and amortization, all in conjunction with
      net
      income of $4.3 million.





For
      the
      three months ended March 31, 2008, operations used $10.3 million of gross cash
      flow primarily due to a $2.2 million decrease in unearned premiums, a $2.0
      million decrease in unpaid losses and LAE, $1.6 million in net realized
      investment losses, a $1.6 million increase in deferred income tax expense,
      a
      $1.3 million increase in premiums receivable, a $1.0 million decrease in income
      taxes payable, a $0.5 million decrease in accounts payable and accrued expenses
      and $0.1 million in amortization of investment discount, 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
      three months ended March 31, 2008, net investing activities provided $24.0
      million, compared to having used $17.0 million for the three months ended March
      31, 2007. Our available for sale investment portfolio is highly liquid as it
      consists entirely of readily marketable securities.





For
      the
      three months ended March 31, 2008, investing activities generated $67.6 million
      and used $43.6 million from the maturity several times over of our very short
      municipal portfolio. Our fixed income portfolio contained callable features
      exercised during the three months ended March 31, 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
      three months ended March 31, 2008, net financing activities used $0.9 million,
      compared to $1.3 million for the three months ended March 31, 2007. For the
      three months ended March 31, 2008, the sources of cash in connection with
      financing activities included $0.6 million from the exercise of stock options
      and $0.1 million from the tax benefit related to non-cash compensation. The
      uses
      of cash in connection with financing activities included $1.4 million in
      dividends paid and $0.1 million for the purchase of treasury stock.


-
          35
          -




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


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





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 our 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
      March 31, 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.


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21stCentury
      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 March 31, 2008 follows:





Book
                Value
            
            Fair
                / Amortized Value
            
            Unrealized
                Gain (Loss)Fixed
                maturities:U.S.
                government obligations and agencies available for sale
            
            $
            6,851,708
            
            
            5.50
            %
            $
            7,048,502
            
            
            5.85
            %
            $
            196,794U.S.
                government obligations and agencies held to maturity
            
            
            7,607,087
            
            
            6.11
            %
            
            7,607,087
            
            
            6.31
            %
            
            -Obligations
                of states and political subdivisions available for sale
            
            
            15,864,276
            
            
            12.74
            %
            
            15,965,408
            
            
            13.25
            %
            
            101,132Obligations
                of states and political subdivisions held to maturity
            
            
            501,162
            
            
            0.40
            %
            
            501,162
            
            
            0.42
            %
            
            -30,824,233
            
            
            24.75
            %
            
            31,122,159
            
            
            25.83
            %
            
            297,926Corporate
                securities:Communications
                available for sale
            
            
            741,961
            
            
            0.60
            %
            
            641,030
            
            
            0.53
            %
            
            (100,931
            )Financial
                available for sale
            
            
            4,126,737
            
            
            3.31
            %
            
            4,103,056
            
            
            3.41
            %
            
            (23,681
            )Other
                available for sale
            
            
            61,008,991
            
            
            49.00
            %
            
            61,085,650
            
            
            50.70
            %
            
            76,659Other
                held to maturity
            
            
            9,152,769
            
            
            7.35
            %
            
            9,194,609
            
            
            7.63
            %
            
            41,84075,030,458
            
            
            60.26
            %
            
            75,024,345
            
            
            62.27
            %
            
            (6,113
            )Equity
                securities:Common
                stocks available for sale
            
            
            18,664,364
            
            
            14.99
            %
            
            14,339,266
            
            
            11.90
            %
            
            (4,325,098
            )Total
                fixed, corporate and equity securities
            
            $
            124,519,055
            
            
            100.00
            %
            $
            120,485,770
            
            
            100.00
            %
            $
            (4,033,285
            )





For
      our
      held to maturity portfolio as of March 31, 2008, the unrealized loss totaled
      approximately $122,000 and was almost entirely in connection with our U.S.
      government obligations and agencies.





As
      of
      March 31, 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.


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          -


**21stCentury
      Holding Company**




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 March 31, 2008.  Based upon their evaluation, the Chief
      Executive Officer and Chief Financial Officer concluded that the Company’s
      disclosure controls and procedures, as of March 31, 2008, were 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.


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          38
          -




**21stCentury
      Holding Company**




**Part
      II: OTHER INFORMATION**





**Item
      1**





**Legal
      Proceedings**





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 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.





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.





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.





**Item
      1A**





**Risk
      Factors**




Except
      as
      disclosed below, there have been no material changes from the risk factors
      discussed 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 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.


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          39
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**21stCentury
      Holding Company**




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.





**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
      January and March 2008, we have issued an aggregate of 46,000 options to
      officers and directors of the Company under our 2002 stock option plan. The
      options have an exercise price between $12.58 and $13.56 per share, vest over
      five years at 20% per year and expire six years from the grant date. We
      issued
      these options to our officers and directors in reliance upon Section 4(2) of
      the
      Securities Act, of 1933, as amended, because our officers and directors are
      knowledgeable, sophisticated and have access to comprehensive information about
      us. The option agreements that were granted to our officers and directors
      contain a restrictive legend indicating that the option grants were not
      registered under the Securities Act, as amended.





**(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, pursuant to Section 12 of
      the Securities Exchange Act, the repurchase of up to $5.0 million of its common
      stock. Acting upon the Board’s authorization, the Company repurchased, for
      approximately $0.1 million, 12,308 shares for an average price of $11.65 on
      February 13, 2008. The table below provides, in tabular format, information
      about our purchase of equity securities that are registered by the
      Company.





Period
            
            Total
              Number of
              Shares
              Purchased
            
            Average
              Price Paid
              per Share
            
            Total Number of Shares
              Purchased as Part of
              Publicly AnnouncedPlans
              or Programs
            
            Approximate Dollar
              Value of Shares that May
              Yet Be PurchasedUnder
              the PlanJanuary-08
            
            
            None
            
            
            None
            
            
            None
            
            $
            1.2
                millionFebruary-08
            
            
            12,308
            
            $
            11.65
            
            
            12,308
            
            $
            1.1
                millionMarch-08
            
            
            None
            
            
            None
            
            
            None
            
            $
            1.1
                million


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          40
          -




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




**Item
      3**





**Defaults
      upon Senior Securities**





None





**Item
      4**




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





None




**Item
      5**





**Other
      Information**





None





**Item
      6**





**Exhibits**





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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          41
          -




21stCentury
      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/
                Edward J. Lawson*Edward
                J. Lawson, Chief Executive Officer and Chairman of the
                Board*/s/
                Peter J. Prygelski, III*Peter
                J. Prygelski, III, Chief Financial
                Officer





Date:
      May
      12, 2008




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          42
          -




21stCentury
        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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          -