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

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

| California                                                          | 94-2723335                                |
|---------------------------------------------------------------------|-------------------------------------------|
| (State      or Other Jurisdiction of Incorporation or Organization) | (I.R.S.      Employer Identification No.) |

| Large      accelerated filer Yes x | Accelerated      filer  | Non-accelerated      filer  | Smaller      reporting company  |
|-----------------------------------------|---------------------------------|-------------------------------------|-----------------------------------------|

----

|       |          |                                                                                                                    | Page      No. |
|------------|---------------|-------------------------------------------------------------------------------------------------------------------------|---------------|
| PART I     |          |
|       |          |                                                                                                                    |          |
|       | Item      1.  | BUSINESS                                                                                                                | 1             |
|       | Item      1A. | RISK    FACTORS                                                                                                         | 4             |
|       | Item      1B. | UNRESOLVED STAFF      COMMENTS                                                                                          | 8             |
|       | Item      2.  | PROPERTIES                                                                                                              | 8             |
|       | Item      3.  | LEGAL PROCEEDINGS                                                                                                       | 8             |
|       | Item      4.  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY      HOLDERS                                                                | 8             |
|       |          |                                                                                                                    |          |
| PART II    |          |
|       |          |                                                                                                                    |          |
|       | Item      5.  | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 9             |
|       | Item      6.  | SELECTED FINANCIAL DATA                                                                                                 | 10            |
|       | Item      7.  | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL      CONDITION AND RESULTS OF OPERATIONS                        | 11            |
|       |          |                                                                                                                    |          |
|       | Item      7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT      MARKET RISK                                                         | 32            |
|       | Item      8.  | FINANCIAL STATEMENTS AND SUPPLEMENTARY      DATA                                                                        | 32            |
|       | Item      9.  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON      ACCOUNTING AND FINANCIAL DISCLOSURE                               | 63            |
|       |          |                                                                                                                    |          |
|       | Item      9A. | CONTROLS AND PROCEDURES                                                                                                 | 63            |
|       | Item      9B. | OTHER INFORMATION                                                                                                       | 65            |
|       |          |                                                                                                                    |          |
| PART III   |          |
|       |          |                                                                                                                    |          |
|       | Item      10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE      GOVERNANCE                                                            | 65            |
|       | Item      11. | EXECUTIVE COMPENSATION                                                                                                  | 65            |
|       | Item      12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS      AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                     | 65            |
|       | Item      13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,      AND DIRECTOR INDEPENDENCE                                          | 65            |
|       | Item      14. | PRINCIPAL ACCOUNTING FEES AND      SERVICES                                                                             | 65            |
|       |          |                                                                                                                    |          |
| PART IV    |          |
|       |          |                                                                                                                    |          |
|       | Item      15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                              | 66       |
|       |          |                                                                                                                    |          |
| SIGNATURES | 67            |

----

. BUSINESS 

| · | Water Resource and Water Storage      Operations;                                       |
|--------|-----------------------------------------------------------------------------------------|
| · | Real Estate Operations;                                                                 |
| · | Insurance Operations in “Run Off”;      and                                 |
| · | Corporate (formerly known as “Business      Acquisitions & Financing”). |

|   | As      of December 31, 2008, our major consolidated subsidiaries    are:                                                                                                                                                                                                                                                               |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Vidler      Water Company, Inc. (“Vidler”), a business that we started more than 11      years ago, which acquires and develops water resources and water storage      operations in the southwestern United States, with assets in Nevada,      Arizona, Idaho, California and Colorado;                                   |
| · | Nevada      Land & Resource Company, LLC (“Nevada Land”), an operation that we      built since we acquired the company more than 11 years ago, which      currently owns approximately 440,000 acres of former railroad land in      Nevada, and certain mineral rights and water rights related to the      property; |
| · | UCP,      LLC (“UCP”), a business we started in 2008, which acquires and develops      partially-developed and finished residential housing lots in selected      markets in California;                                                                                                                                    |
| · | Physicians      Insurance Company of Ohio (“Physicians”), which is “running off” its      medical professional liability insurance loss reserves;  and                                                                                                                                                          |
| · | Citation      Insurance Company (“Citation”), which is "running off”      its property & casualty insurance and workers’ compensation loss      reserves.                                                                                                                                         |

| · | certain      areas of the Southwest experiencing growth have insufficient known      supplies of water to support future growth. Vidler identifies and develops      new water supplies for communities with limited economic water resources      to support future community growth. In certain cases, to supply water from      the water resources identified by Vidler, it may require regulatory      approval to import the water from its source to where the demand is, or      permitting of the infrastructure required to convey the water, or both;      and |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | infrastructure      to recharge water will be required to store supplies during times of      surplus to enable transfers from stored supplies in years where      augmentation of existing supplies is required (for example,  in      drought conditions).                                                                                                                                                                                                                                                                                                    |

| · | additional      water rights and related assets, predominantly in Nevada and Arizona, two      of the leading states in population growth and new home construction over      the past several years. A water right is the legal right to divert water      and put it to beneficial use. Water rights are assets which can be bought      and sold. The value of a water right depends on a number of factors, which      may include location, the seniority of the right, whether or not the right      is transferable, or if the water can be exported. We seek to acquire water      rights at prices consistent with their current use, which is typically      agricultural, with the expectation of an increase in value if the water      right can be converted through the development process to a higher use,      such as municipal and industrial use. Typically, our water resources are      the most competitive source of water (that is, the most economical source      of water supply) to support new growth in municipalities or new commercial      developments; and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a      water storage facility in Arizona. At December 31, 2008, Vidler had “net      recharge credits” of more than 173,000 acre-feet of water in storage for      its own account at the Vidler Arizona Recharge Facility. An acre-foot is a      unit commonly used to measure the volume of water, being the volume of      water required to cover an area of one acre to a depth of one foot, and is      equivalent to approximately 325,850 gallons. As a rule of thumb, one      acre-foot of water would sustain two families of four persons each for one      year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

|   | Vidler      generates revenues by: |
|--------|------------------------------------|

| · | selling      its developed water resources to real estate developers or industrial      users who must secure an assured supply of water in order to receive      permits for their projects; and                                                                                                                                                                                                 |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | storing      water at its water storage facility in Arizona from currently available      surplus supplies, and then selling the stored water in future years to      developers or municipalities that have either exhausted their existing      water supplies, or in instances where our water represents the most      economical source of water for their developments or      communities. |

"Item 7, Management's Discussionand Analysis of Financial Condition and Results of Operations"

| Name      of asset & approximate location                                                                                        | Brief      Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Present      commercial use                                                                                                                                                                                                                                                                                                                                    |
|--------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
| WATER      RESOURCES                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
| Arizona:                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
| Harquahala      Valley ground water basinLa      Paz County75      miles northwest of metropolitan Phoenix                           | 3,840      acre-feet of transferable groundwater 3,206      acres of real estate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Leased      to farmers.                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
| Nevada:                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
| Fish      Springs Ranch, LLC (51% interest)Washoe      County, 40 miles north of Reno                                                | 12,987      acre-feet of permitted water rights, 7,987 acre-feet of which are      designated as water credits and are available for sale and use in the      north valleys of Reno.8,600      acres of ranch land.                                                                                                                                                                                                                                                                                                                                                   | Vidler      has constructed a total of 35 miles of pipeline to deliver an initial      8,000 acre-feet of water annually from Fish Springs Ranch to the      north valleys of Reno, Nevada.                                                                                                                                                          |
| Lincoln      County water delivery teaming agreement                                                                                 | Applications*      for more than 100,000 acre-feet of water rights through an agreement with      Lincoln County. It is currently anticipated that up to 40,000      acre-feet of the applications will be permitted, and the water put to use      on projects approved in Lincoln County/northern Clark County,      Nevada.  *The numbers indicated for      water rights applications are the maximum amount which we have filed for.      In some cases, we anticipate that the actual permits received will be for      smaller  quantities | Agreement      to sell 7,240 acre-feet of water as, and when, supplies are permitted from      existing applications in Tule Desert Groundwater Basin, in Lincoln County,      Nevada. Agreement      to sell water to a developer as, and when, supplies are permitted from      applications in Kane Springs Basin in Lincoln County,      Nevada. |
| Sandy      ValleyNear      the Nevada/California state line near the Interstate 15      corridor                                     | Water      rights applications for 4,000 acre-feet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Agreement      to sell permitted water for proposed developments in Sandy      Valley.                                                                                                                                                                                                                                                                         |
|                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
| Muddy      River water rightsIn      the Moapa Valley, approximately 35 miles east of Las Vegas near the      Interstate 15 corridor | 267      acre-feet of water rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Currently      leased to Southern Nevada Water Authority and available for specific      development projects in the future.                                                                                                                                                                                                                              |
| Dry LakeLincoln      County, Nevada                                                                                             | Approximately      795 acres of real estate with stock water rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Development      of water resource for use in Dry Lake valley to be utilized from water      applications by Lincoln/Vidler.                                                                                                                                                                                                                              |
| Carson      RiverCarson      City, Lyon County and Douglas County, Nevada                                                            | Approximately      1,070 acre-feet of municipal use water rights and 3,500 acre-feet of      Carson River agricultural use water rights.Options      over 2,800 acre-feet of Carson River agricultural use water      rights.                                                                                                                                                                                                                                                                                                                                    | Development      and Improvement agreements with Carson City and Lyon County to      provide water resources for planned future growth in Lyon County and      to connect the water systems of both municipalities.                                                                                                                             |
|                                                                                                                                 | 43      acres of ranch land. 950      acres of developable real estate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Parceled      into 4 developable lots. Available      for development.                                                                                                                                                                                                                                                                                    |
| Other      states:                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
| Colorado      water rights                                                                                                           | 176      acre-feet of water rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 66      acre-feet leased.110      acre-feet are available for sale or lease.                                                                                                                                                                                                                                                                                   |
|                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
| IdahoNear      Boise, Idaho                                                                                                          | 7,044      acre-feet of water rights and 1,886 acres of farm land.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Vidler      is currently farming the properties.                                                                                                                                                                                                                                                                                                               |
| WATER      STORAGE                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                           |
| Vidler      Arizona Recharge FacilityHarquahala      Valley, Arizona                                                                 | An      underground water storage facility with permitted recharge capacity      exceeding 1 million acre-feet and annual recharge capability of at least      35,000 acre-feet.                                                                                                                                                                                                                                                                                                                                                                                      | Vidler      is currently buying water and storing it on its own account. At December      31, 2008, Vidler had net recharge credits of approximately 173,667      acre-feet of water in storage at the Arizona Recharge Facility. In      addition, Vidler has ordered approximately 48,700 acre-feet of water for      recharge in 2009.                      |

----

| · | the      sale of real estate and water rights. There is demand for real      estate and water for a variety of purposes including residential      development, farming, ranching, and from industrial  users;                                    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | the      development of water rights. Nevada Land has applied for additional      water rights and where water rights are permitted, we anticipate that the      value, productivity, and marketability of the related real estate will      increase; |
| · | the      development of real estate in and around growing municipalities;      and                                                                                                                                                                     |
| · | the      management of mineral rights.                                                                                                                                                                                                                      |

| · | we      retain management of the associated investment portfolios. Since the      claims reserves of the “run off” insurance companies effectively recognize      the cost of paying and handling claims in future years, the investment      return on the corresponding investment assets, less non-insurance      expenses, accrues to PICO. We aim to maximize this source of income;      and |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | to      participate in favorable development in our claims reserves if there is      any, although this entails the corresponding risk that we could be exposed      to unfavorable development.                                                                                                                                                                                                               |

See Item3. “LegalProceedings”
Note 2 of Notes to Consolidated Financial Statements,"Discontinued Operations”.

----

| Name                             | Age    | Position                                                                            |
|----------------------------------|--------|-------------------------------------------------------------------------------------|
|                             |   |                                                                                |
| John R. Hart           | 49     | President,      Chief Executive Officer and Director                                |
| Richard H.      Sharpe      | 53     | Executive      Vice President and Chief Operating Officer                           |
| Damian C.      Georgino     | 48     | Executive      Vice President of Corporate Development and Chief Legal      Officer |
| James        F. Mosier | 61     | General      Counsel and Secretary                                                  |
| Maxim        C. W. Webb     | 47     | Executive      Vice President and Chief Financial Officer andTreasurer              |
| W.      Raymond Webb        | 47     | Vice      President, Investments                                                    |
| John T. Perri          | 39     | Vice      President, Controller                                                     |

----

----

----

| ·   | the      length of time in reporting claims; |
|--------------------|----------------------------------------------|

| ·   | the      diversity of historical losses amongclaims; |
|--------------------|------------------------------------------------------|

| ·   | the      amount of historical information available during the estimation      process; |
|--------------------|-----------------------------------------------------------------------------------------|

| ·   | the      degree of impact that changing regulations and legal precedents may have      on open claims; and |
|--------------------|------------------------------------------------------------------------------------------------------------|

| ·   | the      consistency of reinsurance programs overtime. |
|--------------------|--------------------------------------------------------|

----

| ·   | quarterly      variations in financial performance and  condition; |
|--------------------|--------------------------------------------------------------------|

| ·   | shortfalls      in revenue or earnings from estimates forecast by securities analysts or      others; |
|--------------------|-------------------------------------------------------------------------------------------------------|

| ·   | changes      in estimates by such analysts; |
|--------------------|---------------------------------------------|

| ·   | product      introductions; |
|--------------------|-----------------------------|

| ·   | the      availability of economically viable acquisition or investment      opportunities, including water resources and real estate, which will      return an adequate economic return; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | our      competitors’ announcements of extraordinary events such as      acquisitions; |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | litigation;      and |
|--------------------|----------------------|

| ·   | general      economic conditions and other matters described  herein. |
|--------------------|-----------------------------------------------------------------------|

| ·   | exposure      to fluctuations in exchange rates; |
|--------------------|--------------------------------------------------|

| ·   | the      imposition of governmentalcontrols; |
|--------------------|----------------------------------------------|

| ·   | the      need to comply with a wide variety of non-U.S. and U.S. tax      laws; |
|--------------------|---------------------------------------------------------------------------------|

| ·   | political      and economic instability; |
|--------------------|------------------------------------------|

| ·   | volatile      interest rates; |
|--------------------|-------------------------------|

| ·   | exchange      controls which may limit our ability to withdraw money;  and |
|--------------------|----------------------------------------------------------------------------|

| ·   | general      economic conditions outside the UnitedStates. |
|--------------------|------------------------------------------------------------|

----

UNRESOLVED STAFF COMMENTS 

ITEM 3. LEGAL PROCEEDINGS 

| · | pay      $500,000 upon signing of agreement;                                                                                                                                                                                                                                              |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | transfer      6,214 acres of real estate that Fish Spring Ranch, LLC owns, with a fair      value of $500,000;                                                                                                                                                                            |
| · | pay      $3.1 million on January 8, 2008; and                                                                                                                                                                                                                                             |
| · | pay      $3.6 million on the later of January 8, 2009 or the date the United States      Congress ratifies the settlement agreement.  Interest accrues at      the London Inter-Bank Offered Rate, or LIBOR, from January 8, 2009, if the      payment is made after that date. |

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

----

|                                                    |   | 2008 |   |   | 2007   |   |
|---------------------------------------------------------|--------|------|--------|--------|--------|--------|
|                                                    |   | High |   |   | Low    |   |   | High |   |   | Low |   |
|      First      Quarter        |   | $    | 34.30  |   |   | $      | 29.47 |   |   | $ | 47.21 |   |   | $ | 34.10 |   |
|      Second       Quarter |   | $    | 44.45  |   |   | $      | 31.44 |   |   | $ | 48.29 |   |   | $ | 43.26 |   |
|      Third      Quarter        |   | $    | 48.22  |   |   | $      | 35.91 |   |   | $ | 47.22 |   |   | $ | 40.21 |   |
|      Fourth      Quarter       |   | $    | 35.52  |   |   | $      | 17.97 |   |   | $ | 43.44 |   |   | $ | 33.62 |   |

| Period                  |   | (a)      Total number of shares purchased |   | (b)      Average Price Paid per Share |   | (c)      Total Number of Shares (or Units) Purchased as Part of Publicly Announced      Plans or Programs (1) |   | (d)      Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May      Yet Be Purchased Under the Plans or Programs (1) |
|-------------------------|--------|-------------------------------------------|--------|---------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|
|                    |   |                                      |   |                                  |   |                                                                                                          |   |                                                                                                                                      |
| 10/1/08      - 10/31/08 |   | -                                         |   | -                                     |   |                                                                                                          |   |                                                                                                                                      |
| 11/1/08      - 11/30/08 |   | -                                         |   | -                                     |   |                                                                                                          |   |                                                                                                                                      |
| 12/1/08      - 12/31/08 |   | -                                         |   | -                                     |   |                                                                                                          |   |                                                                                                                                      |

----

|                                                                                                            |   | Year      Ended December 31,           |       |
|-----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|------------|
|                                                                                                            |   | 2008                                   |       |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
| OPERATING      RESULTS                                                                                          |   | (In      thousands, except share data) |       |
| Revenues:                                                                                                       |   |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      investment income                                                                                    |   | $                                      | 46,373     |   |   | $ | 19,788 |   |   | $ | 39,609 |   |   | $ | 15,917 |   |   | $ | 9,056 |   |
| Sale      of real estate and water assets (includes gain on sale of water storage of      $8.7 million in 2008) |   |                                   | 12,054     |   |   |   | 9,496 |   |   |   | 41,509 |   |   |   | 124,984 |   |   |   | 10,879 |   |
| Other      income                                                                                               |   |                                   | 1,925      |   |   |   | 4,645 |   |   |   | 1,605 |   |   |   | 1,210 |   |   |   | 2,188 |   |
| Total      revenues                                                                                             |   | $                                      | 60,352     |   |   | $ | 33,929 |   |   | $ | 82,723 |   |   | $ | 142,111 |   |   | $ | 22,123 |   |
|                                                                                                            |   |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) from continuing operations                                                                   |   | $                                      | 28,631     |   |   | $ | (1,270) |   |   | $ | 31,511 |   |   | $ | 22,267 |   |   | $ | (7,860) |   |
| Loss      from discontinued operations, net                                                                     |   |                                   |       |   |   |   |   |   |   |   | (2,268) |   |   |   | (6,065) |   |   |   | (2,698) |   |
| Net      income (loss)                                                                                          |   | $                                      | 28,631     |   |   | $ | (1,270) |   |   | $ | 29,243 |   |   | $ | 16,202 |   |   | $ | (10,558) |   |
| PER COMMON SHARE BASIC AND      DILUTED:                                                                        |   |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income (loss) from continuing operations                                                               |   | $                                      | 1.52       |   |   | $ | (0.07) |   |   | $ | 2.10 |   |   | $ | 1.72 |   |   | $ | (0.64) |   |
| Loss      from discontinued operations                                                                          |   |                                   |       |   |   |   |   |   |   |   | (0.15) |   |   |   | (0.47) |   |   |   | (0.21) |   |
| Net      income (loss)                                                                                          |   | $                                      | 1.52       |   |   | $ | (0.07) |   |   | $ | 1.95 |   |   | $ | 1.25 |   |   | $ | (0.85) |   |
| Weighted      Average Shares Outstanding – basic                                                          |   |                                   | 18,835,002 |   |   |   | 18,321,449 |   |   |   | 14,994,947 |   |   |   | 12,959,029 |   |   |   | 12,368,068 |   |
| Weighted      Average Shares Outstanding - diluted                                                              |   |                                   | 18,861,853 |   |   |   | 18,321,449 |   |   |   | 15,025,341 |   |   |   | 12,959,029 |   |   |   | 12,368,068 |   |

|                                            | As      of December 31,               |    |
|-------------------------------------------------|--------------------------------------------|---------|
|                                            | 2008                                       |    | 2007 |   | 2006 |   | 2005 |   | 2004 |   |
| FINANCIAL CONDITION                             | (In      thousands, except per share data) |    |
| Total      assets                               | $                                          | 592,634 |   | $ | 676,342 |   | $ | 549,043 |   | $ | 441,830 |   | $ | 354,658 |   |
| Total      asset of discontinued operations     |                                       |    |   |   |   |   |   |   |   | $ | 4,616 |   | $ | 3,974 |   |
| Unpaid      losses and loss adjustment expenses | $                                          | 27,773  |   | $ | 32,376 |   | $ | 41,083 |   | $ | 46,647 |   | $ | 55,944 |   |
| Borrowings                                      | $                                          | 42,382  |   | $ | 18,878 |   | $ | 12,721 |   | $ | 11,835 |   | $ | 17,556 |   |
| Liabilities      of discontinued operations     |                                       |    |   |   |   |   |   |   |   | $ | 4,282 |   | $ | 3,121 |   |
| Total      liabilities and minority interest    | $                                          | 114,888 |   | $ | 150,492 |   | $ | 143,816 |   | $ | 140,955 |   | $ | 114,729 |   |
| Shareholders'      equity                       | $                                          | 477,746 |   | $ | 525,851 |   | $ | 405,227 |   | $ | 300,875 |   | $ | 239,929 |   |
| Book      value per share (1)                   | $                                          | 25.36   |   | $ | 27.92 |   | $ | 25.52 |   | $ | 22.67 |   | $ | 19.40 |   |

----

 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS 

See Note2 of Notes to Consolidated Financial Statements, “DiscontinuedOperations”.

|   | • | Company      Summary, Recent Developments, and Future Outlook— a brief      description of our operations, the critical factors affecting them, and      their future prospects; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Critical      Accounting Policies — a discussion of accounting policies which      require critical judgments and estimates. Our significant accounting      policies, including the critical accounting policies discussed in this      section, are summarized in the notes to the consolidated financial      statements; |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Results of Operations — an analysis      of our consolidated results of operations for the past three years,      presented in our consolidated financial statements;  and |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Liquidity      and Capital Resources — an analysis of cash flows, sources and      uses of cash, contractual obligations and a discussion of factors      affecting our future cash flow. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

COMPANY SUMMARY

WaterStorage: Vidler Arizona Recharge Facility” 

----

|   | 1. | Lincoln County |
|--------|----|---------------------|

|   | 2. | Fish      Springs Ranch |
|--------|----|-------------------------|

----

|   | 3. | Carson      City and Lyon County,  WesternNevada |
|--------|----|------------------------------------------------------------|

|   | 4. | Sandy      Valley, Nevada |
|--------|----|---------------------------|

|   | 5. | Muddy River,      Nevada |
|--------|----|-------------------------------|

|   | in      2006, Vidler closed on the sale of various water rights and related assets      to the City of Golden, Colorado for $1.2 million; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|
|   | in      2007, Vidler closed on the sale of approximately 0.6 acre-feet of water      rights for $45,000; and                              |
|   | in      2008, Vidler closed on the sale of approximately 3.9 acre-feet of water      rights for $302,000.                                 |

WATER STORAGE

|   | 1. | Vidler      Arizona Recharge Facility |
|--------|----|---------------------------------------|

----

|   | 2. | Semitropic,      California |
|--------|----|-----------------------------|

| Issuer                                       |   | Fair      Value December 31, 2008 |       |   | Percentage      of Total Fair Value |   |
|----------------------------------------------|--------|-----------------------------------|------------|--------|-------------------------------------|--------|
|                                         |   |                              |       |   |                                |   |
| U.S.      Treasury                           |   | $                                 | 1,222,000  |   |                                |   | 9% |   |
| Government-sponsored      enterprises        |   |                              | 7,869,000  |   |                                |   | 56% |   |
| State      of California general obligations |   |                              | 2,128,000  |   |                                |   | 15% |   |
| Investment-grade      corporate bonds        |   |                              | 2,356,000  |   |                                |   | 17% |   |
| Non-investment-grade      corporate bond     |   |                              | 387,000    |   |                                |   | 3% |   |
|                                         |   | $                                 | 13,962,000 |   |                                |   | 100% |   |

----

----

|                                                                          | December      31, |      |
|-------------------------------------------------------------------------------|-------------------|-----------|
|                                                                          | 2008              |      | 2007 |   | 2006 |   |
|                                                                          |              |      |   |   |   |   |
|          Direct reserves                                       | $                 | 3,834,000 |   | $ | 6,603,000 |   | $ | 10,374,000 |   |
|          Ceded reserves                                        |              |      |   |   | (83,000 | ) |   | (989,000 | ) |
|          Net medical professional liability insurance reserves | $                 | 3,834,000 |   | $ | 6,520,000 |   | $ | 9,385,000 |   |

|                                                                                          |   | Year      Ended December 31, |    |
|-----------------------------------------------------------------------------------------------|--------|------------------------------|---------|
|                                                                                          |   | 2008                         |    |   | 2007 |   |   | 2006 |   |
|                                                                                          |   |                         |    |   |   |   |   |   |   |
|          Open claims at the start of the year                                  |   |                         | 12      |   |   |   | 18 |   |   |   | 28 |   |
|     New      claims reported during the year                              |   |                         | 4  |   |   |   |   |   |   |   | 2 |   |
|          Claims closed during the year                                         |   |                         | -6      |   |   |   | -      6 |   |   |   | -12 |   |
|          Open claims at the end of the year                                    |   |                         | 10      |   |   |   | 12 |   |   |   | 18 |   |
|                                                                                          |   |                         |    |   |   |   |   |   |   |   |   |   |
|          Total claims closed during the year                                   |   |                         | 6       |   |   |   | 6 |   |   |   | 12 |   |
|          Claims closed with no indemnity payment                               |   |                         | -6      |   |   |   | -4 |   |   |   | -11 |   |
|          Claims closed with an indemnity payment                               |   |                         | 0       |   |   |   | 2 |   |   |   | 1 |   |
|                                                                                          |   |                         |    |   |   |   |   |   |   |   |   |   |
|          Net indemnity payments                                                |   | $                            | 138,000 |   |   | $ | 310,000 |   |   | $ | 1,233,000 |   |
|          Net loss adjustment expense payments                                  |   |                         | 177,000 |   |   |   | 225,000 |   |   |   | 397,000 |   |
|          Total claims payments during the year                                 |   | $                            | 315,000 |   |   | $ | 535,000 |   |   | $ | 1,630,000 |   |
|                                                                                          |   |                         |    |   |   |   |   |   |   |   |   |   |
|          Average indemnity payment (Net indemnity payments/closed      claims) |   | $                            | -       |   |   | $ | 155,000 |   |   | $ | 1,233,000 |   |

|                                                                                          |   | Year      Ended December 31, |           |
|-----------------------------------------------------------------------------------------------|--------|------------------------------|----------------|
|                                                                                          |   | 2008                         |           |   | 2007 |   |   | 2006 |   |
|                                                                                          |   |                         |           |   |   |   |   |   |   |
|          Beginning reserves                                                    |   | $                            | 6,520,000      |   |   | $ | 9,385,000 |   |   | $ | 11,856,000 |   |
|          Loss and loss adjustment expense payments                        |   |                         | (      315,000 | ) |   |   | (      535,000 | ) |   |   | (      1,658,000 | ) |
|          Re-estimation of prior year loss reserves                             |   |                         | (2,371,000     | ) |   |   | (2,330,000 | ) |   |   | (      813,000 | ) |
| Net      medical professional liability insurance reserves                                    |   | $                            | 3,834,000      |   |   | $ | 6,520,000 |   |   | $ | 9,385,000 |   |
|                                                                                          |   |                         |           |   |   |   |   |   |   |   |   |   |
|          Re-estimation as a percentage of undiscounted beginning      reserves |   |                         | -      36.4%   |   |   |   | -      24.8% |   |   |   | -      6.9% |   |

----

|                                                                               |   | Year      Ended December 31, |   |
|------------------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                               |   | 2008                         |   |   | 2007 |   |   | 2006 |   |
|                                                                               |   |                         |   |   |   |   |   |   |   |
|          Open claims at the start of the year                       |   |                         | 39     |   |   |   | 78 |   |   |   | 149 |   |
|          New claims reported during the year                        |   |                         | 18     |   |   |   | 31 |   |   |   | 58 |   |
|          Claims closed during the year                              |   |                         | -46    |   |   |   | -70 |   |   |   | -129 |   |
|          Open claims at the end of the year                         |   |                         | 11     |   |   |   | 39 |   |   |   | 78 |   |
|                                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |
|          Total claims closed during the year                        |   |                         | 46     |   |   |   | 70 |   |   |   | 129 |   |
|          Claims closed with no payment                              |   |                         | -24    |   |   |   | -30 |   |   |   | -51 |   |
|          Claims closed with LAE payment only (no indemnity payment) |   |                         | -11    |   |   |   | -17 |   |   |   | -36 |   |
|          Claims closed with an indemnity payment                    |   |                         | 11     |   |   |   | 23 |   |   |   | 42 |   |

----

|                 |   | December      31, |    |
|----------------------|--------|-------------------|---------|
|                 |   | 2008              |    |   | 2007 |   |   | 2006 |   |
| Direct      reserves |   | $                 | 741,000 |   |   | $ | 3,587,000 |   |   | $ | 6,635,000 |   |
| Ceded      reserves  |   |              | (96,000 | )  |   |   | (438,000 | )  |   |   | (1,558,000 | )  |
| Net      reserves    |   | $                 | 645,000 |   |   | $ | 3,149,000 |   |   | $ | 5,077,000 |   |

|                                                                        |   | Year      Ended December 31, |         |
|-----------------------------------------------------------------------------|--------|------------------------------|--------------|
|                                                                        |   | 2008                         |         |   | 2007 |   |   | 2006 |   |
|                                                                        |   |                         |         |   |   |   |   |   |   |
|          Beginning reserves                                  |   | $                            | 3,149,000    |   |   | $ | 5,077,000 |   |   | $ | 6,463,000 |   |
|          Loss and loss adjustment expense payments      |   |                         | (163,000     | ) |   |   | (695,000 | ) |   |   | (748,000 | ) |
|          Re-estimation of prior year loss reserves           |   |                         | (2,341,000   | ) |   |   | (1,233,000 | ) |   |   | (638,000 | ) |
|          Net property and casualty insurance reserves   |   | $                            | 645,000      |   |   | $ | 3,149,000 |   |   | $ | 5,077,000 |   |
|                                                                        |   |                         |         |   |   |   |   |   |   |   |   |   |
|          Re-estimation as a percentage of beginning reserves |   |                         | -      74.3% |   |   |   | -      24.3% |   |   |   | -      9.9% |   |

|                                                             |   | Year      Ended December 31, |   |
|------------------------------------------------------------------|--------|------------------------------|--------|
|                                                             |   | 2008                         |   | 2007 |   |   | 2006 |   |
|                                                             |   |                         |   |   |   |   |   |   |
|          Open claims at the start of the year     |   |                         | 172    |   |   |   | 216 |   |   |   | 232 |   |
|     New      claims reported during the year |   |                         | 17     |   |   |   | 22 |   |   |   | 30 |   |
|          Claims reopened during the year          |   |                         | 0      |   |   |   | 10 |   |   |   | 37 |   |
|          Claims closed during the year            |   |                         | -47    |   |   |   | -76 |   |   |   | -83 |   |
|          Open claims at the end of the year       |   |                         | 142    |   |   |   | 172 |   |   |   | 216 |   |

|                 |   | December      31, |        |
|----------------------|--------|-------------------|-------------|
|                 |   | 2008              |        |   | 2007 |   |   | 2006 |   |
|                 |   |              |        |   |   |   |   |   |   |
| Direct      reserves |   | $                 | 23,198,000  |   |   | $ | 22,186,000 |   |   | $ | 24,074,000 |   |
| Ceded      reserves  |   |              | (15,781,000 | )  |   |   | (16,133,000 | )  |   |   | (14,425,000 | )  |
| Net      reserves    |   | $                 | 7,417,000   |   |   | $ | 6,053,000 |   |   | $ | 9,649,000 |   |

| · | the      long “tail” (that is, the period between the occurrence of the alleged      event giving rise to the claim and the claim being reported to us);      and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | the      extended period over which policy benefits are  paid.                                                                                                                |

Critical Accounting Policies
RiskFactors

| ·   | individual      actuarial review of every open case;and |
|--------------------|---------------------------------------------------------|

| ·   | the      creation of a new reserve of $500,000 for asbestos      claims.  Citation did not previously have a separate reserve for      asbestos claims, but an increasing number of asbestos claims have been      received in recent years.  Typically, the asbestos claims are      shared among a number of workers’ compensation carriers, and Citation’s      share of total settlements is less than 10%.  The reserve      reflects the actuary’s projection of an increased frequency of low      severity asbestos claims. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                    |   | Year      Ended December 31, |      |
|-----------------------------------------------------------------------------------------|--------|------------------------------|-----------|
|                                                                                    |   | 2008                         |      |   | 2007 |   |   | 2006 |   |
|                                                                                    |   |                         |      |   |   |   |   |   |   |
|          Beginning net reserves                                          |   | $                            | 6,053,000 |   |   | $ | 9,649,000 |   |   | $ | 12,470,000 |   |
|     Loss      and loss adjustment expense payments             |   |                         | (891,000  | ) |   |   | (3,557,000 | ) |   |   | (1,047,000 | ) |
|          Re-estimation of prior year loss reserves                       |   |                         | 2,255,000 |   |   |   | (39,000 | ) |   |   | (1,774,000 | )  |
|          Net workers’ compensation insurance reserves              |   | $                            | 7,417,000 |   |   | $ | 6,053,000 |   |   | $ | 9,649,000 |   |
|                                                                                    |   |                         |      |   |   |   |   |   |   |   |   |   |
|          Re-estimation as a percentage of adjusted beginning    reserves |   |                         | 37.3%     |   |   |   | 0.4% |   |   |   | -      14.2% |   |

----

CRITICAL ACCOUNTING POLICIES

| · |   | how      we determine the fair value and carrying value of our water assets, real      estate assets, and investments in equity and debt    securities;  |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| · |   | how      we estimate the claims reserves liabilities of our insurance companies;      and                                                                |
| · |   | how      we recognize revenue when we sell water assets and real estate assets, and      calculate investment income from equity and debt    securities. |

|   | 1. | Estimation      of reserves in our insurancecompanies |
|--------|----|-------------------------------------------------------|

| · | Our      medical professional liability reserves, net of reinsurance, were reduced      by $2.4 million in 2008, $2.3 million in 2007, and  $813,000 in      2006, after we concluded that Physicians’ claims reserves were greater      than projected claims payments; |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | net      of reinsurance, Citation’s property and casualty insurance loss reserves      were reduced by $2.3 million in 2008, $1.2 million in 2007, and $638,000      in 2006; and                                                                                                  |
| · | net      of reinsurance, Citation’s workers’ compensation loss reserves were      increased by $2.3 million, after having been reduced by $39,000 in 2007      and $1.8 million in 2006.                                                                                     |

|   | 2. | Carrying      value of long-lived assets |
|--------|----|------------------------------------------|

|   | 3. | Accounting      for investments and investments in unconsolidated    affiliates |
|--------|----|---------------------------------------------------------------------------------|

| ·   | dividends      received are recorded as income;and |
|--------------------|----------------------------------------------------|

| ·   | impairment      charges for any unrealized losses deemed to be other than      temporary. |
|--------------------|-------------------------------------------------------------------------------------------|

|   | 4. | Revenue      recognition |
|--------|----|--------------------------|

| (a) | there      is a legally binding sale contract;                                                                                                                                                                                      |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | the      profit is determinable (that is, the collectability of the sales price is      reasonably assured, or any amount that will not be collectable can be      estimated);                                                      |
| (c) | the      earnings process is virtually complete (that is, we are not obliged to      perform significant activities after the sale to earn the profit, meaning      we have transferred all risks and rewards to the buyer);    and |
| (d) | the      buyer’s initial and continuing investment are sufficient to demonstrate a      commitment to pay for the property.                                                                                                   |

----

RESULTS OF OPERATIONS 

| · | net      income of $28.6 million; which was more than offset by                                                                                                 |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a      $70.9 million decrease in net unrealized appreciation in      available-for-sale investments after-tax (see following paragraphs);      and              |
| · | a      $10 million decrease in foreign currency translation, as foreign      currencies where we hold investments depreciated relative to the U.S.      dollar. |

| · | a      $16.3 million increase in net unrealized appreciation in investments      after-tax, in particular Jungfraubahn and our other holdings in      Switzerland; and |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | the      issuance of 2.8 million new shares, at $37 per share, for net proceeds of      $100.1 million.                                                                |

| · | the      year’s $29.2 million in net income; and                                                 |
|--------|--------------------------------------------------------------------------------------------------------|
| · | the      issuance of 2.6 million new shares, at $30 per share, for net proceeds of      $73.9 million. |

| · | income      before taxes and minority interest of $56.4 million;and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a      $28.5 million provision for income taxes. The effective tax rate for 2008      is 51%, which is higher than the federal corporate income tax rate of 35%,      principally due to the recognition of $2.8 million of income taxes on      previously untaxed earnings and profits of the Company’s wholly-owned      subsidiary Global Equity AG, and state taxes of $2.8 million. Other items      reflected in the effective income tax rate include interest expense and      penalties on uncertain tax positions, and operating losses with no      associated tax benefit from subsidiaries that are excluded from the      consolidated federal income tax return and unable to use the losses on      their own separate tax return. |

| · | income      before taxes and minority interest of $2 million; and                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a      $3.5 million provision for income taxes. The effective tax rate for 2007      is 176%, which is higher than the federal corporate income tax rate of      35%, principally due to state tax charges, operating losses with no      associated tax benefit from subsidiaries that are excluded from the      consolidated federal income tax return and unable to use the losses on      their own separate tax return, and certain compensation expense which is      not tax-deductible. |

| · | income      before taxes and minority interest of $50.9 million from continuing      operations;                                                                                                                                                                       |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a      $19.4 million provision for income taxes. The effective tax rate for 2006      is 38%, which is higher than the federal corporate rate of 35%,      principally due to state tax charges and certain compensation expense      which is not tax-deductible; and |
| · | a      net loss from discontinued operations of $2.3  million.                                                                                                                                                                                                         |

| · | a      comprehensive loss of $52.3 million in 2008, primarily consisting of a      $70.9 million decrease in net unrealized appreciation in investments      (after-tax) and a $10 million net decrease in foreign currency      translation, which were partially offset by the year’s net income of $28.6      million; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | comprehensive      income of $17.2 million in 2007, primarily consisting of a $16.3 million      increase in net unrealized appreciation in investments (after-tax) and a      $2.3 million net increase in foreign currency translation;    and                                                                                |
| · | comprehensive      income of $30.1 million in 2006, which primarily consisted of the year’s      net income of $29.2 million. In addition, there was a $69,000 net increase      in net unrealized appreciation in investments (after-tax) and a $789,000      net increase in foreign currencytranslation.               |

----

|                                                                |   | Year      Ended December 31, |        |
|---------------------------------------------------------------------|--------|------------------------------|-------------|
|                                                                |   | 2008                         |        |   | 2007 |   |   | 2006 |   |
|                                                                |   |                         |        |   |   |   |   |   |   |
|          Water Resource and Water Storage Operations |   | $                            | 11,272,000  |   |   | $ | 7,938,000 |   |   | $ | 6,182,000 |   |
|          Real Estate Operations                      |   |                         | 5,470,000   |   |   |   | 13,479,000 |   |   |   | 41,406,000 |   |
|          Corporate                                   |   |                         | 45,766,000  |   |   |   | 4,903,000 |   |   |   | 21,858,000 |   |
|     Insurance      Operations in Run Off        |   |                         | (2,156,000) |   |   |   | 7,609,000 |   |   |   | 13,277,000 |   |
|                                                                |   |                         |        |   |   |   |   |   |   |   |   |   |
|          Total Revenues                              |   | $                            | 60,352,000  |   |   | $ | 33,929,000 |   |   | $ | 82,723,000 |   |

|                                                                |   | Year      Ended December 31, |       |
|---------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                |   | 2008                         |       |   | 2007 |   |   | 2006 |   |
|                                                                |   |                         |       |   |   |   |   |   |   |
|          Water Resource and Water Storage Operations |   | $                            | 4,185,000  |   |   | $ | (5,283,000 | )  |   | $ | (      2,451,000 | )  |
|          Real Estate Operations                      |   |                         | 366,000    |   |   |   | 8,109,000 |   |   |   | 30,499,000 |   |
|          Corporate                                   |   |                         | 53,324,000 |   |   |   | (10,591,000 | )  |   |   | 6,839,000 |   |
|     Insurance      Operations in Run Off        |   |                         | (1,486,000 | )  |   |   | 9,779,000 |   |   |   | 15,980,000 |   |
|          Income before taxes and minority interest   |   | $                            | 56,389,000 |   |   | $ | 2,014,000 |   |   | $ | 50,867,000 |   |

| · | a      $63.9 million higher contribution from the Corporate segment. This      principally resulted from a $43.1 million in realized gains, primarily      represented by the $46.1 million realized gain before taxes on the sale of      Jungfraubahn, and a $13 million year over year increase in foreign      exchange gains; and |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a      $9.5 million higher result from Water Resource and Water Storage      Operations, primarily resulting from the $8.7 million gain on the sale of      Semitropic; which were partially offset by                                                                                                                                 |
| · | an      $11.3 million lower contribution from Insurance Operations in Run Off,      primarily due to the $9.5 million year over year unfavorable change in      realized gains (losses); and                                                                                                                                           |
| · | $7.7      million lower income from Real Estate Operations, primarily due to a year      over year decrease of $5.2 million in gross margin on the sale of former      railroad land, and a $1.7 million increase in overhead, primarily      attributable to building the UPCbusiness.                                                |

| · | $22.4      million lower income from Real Estate Operations, primarily due to the      $18.8 million gross margin on the sale of Spring Valley Ranch which was      included in 2006 income;                                                                                                                                                                                                                                               |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a      $17.4 million lower contribution from the Corporate segment. This      principally resulted from a $17.4 million decrease in realized gains year      over year;                                                                                                                                                                                                                                                                    |
| · | $6.2      million lower income from Insurance Operations in Run Off, primarily due      to a $6.1 million year over year decrease in realized gains;      and                                                                                                                                                                                                                                                                              |
| · | a      $2.8 million lower result from Water Resource and Water Storage Operations      due to various factors.  The 2007 segment loss included a $3.5      million gain on the release of restrictions on real estate, which was more      than offset by a $7.3 million expense related to the Pyramid Lake Paiute      Tribe settlement.  See      "Item 3. Legal Proceedings - Fish Springs Ranch, LLC      Litigation". |

----

|                                                  |   | Year      Ended December 31, |        |
|-------------------------------------------------------|--------|------------------------------|-------------|
|                                                  |   | 2008                         |        |   | 2007 |   |   | 2006 |   |
| Revenues:                                             |   |                         |        |   |   |   |   |   |   |
| Sale      of real estate and water assets             |   | $                            | 9,757,000   |   |   |   | 41,000 |   |   | $ | 2,969,000 |   |
| Gain      on release of restrictions on real estate   |   |                         |        |   |   |   | 3,466,000 |   |   |   |   |   |
| Net      investment income                            |   |                         | 969,000     |   |   |   | 4,418,000 |   |   |   | 2,805,000 |   |
| Other                                                 |   |                         | 546,000     |   |   |   | 13,000 |   |   |   | 408,000 |   |
| Segment      total revenues                           |   |                         | 11,272,000  |   |   |   | 7,938,000 |   |   |   | 6,182,000 |   |
|                                                  |   |                         |        |   |   |   |   |   |   |   |   |   |
| Expenses:                                             |   |                         |        |   |   |   |   |   |   |   |   |   |
| Cost      of real estate and water assets             |   | $                       | (235,000)   |   |   | $  | (8,000) |   |   | $  | (1,614,000) |   |
| Depreciation and      amortization               |   |                         | (1,099,000) |   |   |   | (1,042,000) |   |   |   | (1,084,000) |   |
| Overhead                                              |   |                         | (3,041,000) |   |   |   | (1,839,000) |   |   |   | (3,068,000) |   |
| Project      expenses                                 |   |                         | (2,712,000) |   |   |   | (10,332,000) |   |   |   | (2,867,000) |   |
| Segment      total expenses                           |   |                         | (7,087,000) |   |   |   | (13,221,000) |   |   |   | (8,633,000) |   |
| Income      (loss) before taxes and minority interest |   | $                            | 4,185,000   |   |   | $ | (5,283,000) |   |   | $ | (2,451,000) |   |

| · | Lincoln/Vidler      sold approximately 570 acre-feet of water rights at Meadow Valley, Nevada      for $6,050 per acre-foot. Vidler’s 50% share of the sales price was $1.7      million; and |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Vidler      sold its water rights at Golden, Colorado for $1.2  million.                                                                                                                            |

| · | the      operation and maintenance of the Vidler Arizona Recharge      Facility;                                                                            |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | the      development of water rights in the Tule Desert groundwater basin      (part of the Lincoln County agreement);                            |
| · | the      utilization of water rights at Fish Springs Ranch as a future municipal      water supply for the north valleys of the Reno, Nevada area;      and |
| · | the      operation of our farm properties in Idaho and maintenance of the      associated water rights.                                                     |

See "Item 3.  Legal Proceedings - Fish Springs Ranch,LLC Litigation".

| · |   | a      cash payment of $500,000, which was made in the second quarter of      2007;                                                                                                                                                                                                                                                                                    |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · |   | the      transfer of approximately 6,214 acres of land, with a fair value of      $500,000 and a book value of $139,000, to the Tribe in the second quarter      of 2007;                                                                                                                                                                                              |
| · |   | a      payment of $3.1 million in January 2008; and                                                                                                                                                                                                                                                                                                                    |
| · |   | a      payment of $3.6 million due on the later of January 8, 2009 or the date      that an Act of Congress ratifies the settlement agreement.  If      the payment is made after January 8, 2009, interest will accrue at LIBOR      from January 8, 2009. To date, no payment has been made as Congress has      not yet ratified the settlementagreement. |

----

|                                                |   | Year      Ended December 31, |        |
|-----------------------------------------------------|--------|------------------------------|-------------|
|                                                |   | 2008                         |        |   | 2007 |   |   | 2006 |   |
| Revenues:                                           |   |                         |        |   |   |   |   |   |   |
| Sale of Real Estate and Water      Assets:          |   |                         |        |   |   |   |   |   |   |
| Sale      of former railroad land                   |   | $                            | 2,297,000   |   |   | $ | 9,455,000 |   |   | $ | 16,541,000 |   |
| Sale      of Spring Valley Ranch                    |   |                         |        |   |   |   |   |   |   |   | 22,000,000 |   |
| Net      investment income                          |   |                         | 2,203,000   |   |   |   | 3,140,000 |   |   |   | 2,003,000 |   |
| Other                                               |   |                         | 970,000     |   |   |   | 884,000 |   |   |   | 862,000 |   |
| Segment      total revenues                         |   |                         | 5,470,000   |   |   |   | 13,479,000 |   |   |   | 41,406,000 |   |
|                                                |   |                         |        |   |   |   |   |   |   |   |   |   |
| Expenses:                                           |   |                         |        |   |   |   |   |   |   |   |   |   |
| Cost      of former railroad land sold              |   | $                            | (673,000)   |   |   | $  | (2,676,000 | ) |   | $ | (5,489,000 | ) |
| Cost      of Spring Valley Ranch                    |   |                         |        |   |   |   |   |   |   |   | (3,174,000 | )  |
| Operating      expenses                             |   |                         | (4,431,000) |   |   |   | (2,694,000 | ) |   |   | (2,244,000 | ) |
| Segment      total expenses                         |   |                         | (5,104,000) |   |   |   | (5,370,000 | ) |   |   | (10,907,000 | ) |
| Income before      taxes and minority interest |   | $                            | 366,000     |   |   | $ | 8,109,000 |   |   | $ | 30,499,000 |   |

----

|                                                                     |   | Year      Ended December 31, |        |
|--------------------------------------------------------------------------|--------|------------------------------|-------------|
|                                                                     |   | 2008                         |        |   | 2007 |   |   | 2006 |   |
|          Revenues:                                        |   |                         |        |   |   |   |   |   |   |
| Realized      gain (loss) on sale or impairment of securities            |   | $                            | 41,717,000  |   |   | $ | (1,426,000) |   |   | $ | 15,943,000 |   |
|          Net investment income                            |   |                         | 3,760,000   |   |   |   | 6,025,000 |   |   |   | 5,611,000 |   |
|          Other                                            |   |                         | 289,000     |   |   |   | 304,000 |   |   |   | 304,000 |   |
|          Segment total revenues                           |   |                         | 45,766,000  |   |   |   | 4,903,000 |   |   |   | 21,858,000 |   |
|                                                                     |   |                         |        |   |   |   |   |   |   |   |   |   |
| Recoveries      (expenses):                                              |   |                         |        |   |   |   |   |   |   |   |   |   |
|          Stock appreciation rights expense                |   | $                            | (3,989,000) |   |   | $  | (4,468,000) |   |   |   |   |   |
| Foreign      exchange gain                                               |   |                         | 15,020,000  |   |   |   | 1,994,000 |   |   | $  | 2,631,000 |   |
|          Other                                       |   |                         | (3,473,000) |   |   |   | (13,020,000) |   |   |   | (17,650,000) |   |
|          Segment total recoveries (expenses)              |   |                         | 7,558,000   |   |   |   | (15,494,000) |   |   |   | (15,019,000) |   |
|          Income (loss) before taxes and minority interest |   | $                            | 53,324,000  |   |   | $ | (10,591,000) |   |   | $ | 6,839,000 |   |

| ·   | after      we converted the Jungfraubahn sale proceeds, the U.S. dollar appreciated      relative to the Swiss Franc.  Since Global Equity AG’s      functional currency for financial reporting is the Swiss Franc, the U.S.      dollars held increased in value when expressed in Swiss      Francs.  This resulted in an $11.8 million foreign exchange gain      in Global Equity AG’s statement of operations.  Global Equity AG      disbursed all of its U.S. dollars during 2008;  and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | at      the end of 2008, PICO Holdings had a receivable from the Swiss tax      authorities, denominated in Swiss Francs.  Since the date that      the Swiss Francs became receivable, the Swiss Franc has appreciated      relative to the U.S. dollar, increasing the receivable when expressed in      U.S. dollars, being PICO Holdings’ functional currency for financial      reporting.  This resulted in a $1.4 million foreign exchange      gain in PICO Holdings’ statement of      operations.     |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Inter-Company Loan

| ·   | the      stocks were in an unrealized loss position for most of 2008. Based on the      extent and the duration of the unrealized losses, we determined that the      declines in market value are other-than-temporary. Consequently, we      recorded a charge to reduce our basis in the stocks from original cost, or      previously written-down basis, to their market value at December 31, 2008;      and |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the      bond other-than-temporary impairment principally relates to a California      bank holding company, Downey Financial.  In November 2008, the      Federal Deposit Insurance Corporation seized Downey Savings, which was      Downey Financial’s principal asset, and Downey Financial filed for Chapter      7 liquidation in U.S. Bankruptcy Court. According to an official notice      dated November 26, 2008, there does not appear to be any property      available to pay creditors.  Consequently, we determined that      the investment is permanently impaired and recorded a provision to write      off the carrying value of the bond, which was its amortized cost of $1      million. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | foreign      currency gains of $15 million.  These consist of the $11.8      million gain on the conversion of Jungfraubahn sale proceeds into U.S.      dollars and the $1.4 million gain on the Swiss Franc tax receivable      discussed above, as well as a $1.8 million benefit from the effect of      appreciation in the Swiss Franc on the inter-company loan over 2008 (see      description of inter-company loan below).  These gains were      recorded as reductions in expenses; which more than  offset |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | SAR      expense of $4 million (see description of SAR expense    below);                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | HyperFeed      litigation expenses of $1.1 million; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| · | other      parent company net overhead of approximately $2.3 million. Other expenses      were reduced by a $10.2 million net decrease in deferred compensation      expense, which reflects a decrease in deferred compensation liabilities      resulting from a decrease in the value of deferred compensation      assets.                                                                                                                                                                                                              |

| · | SAR      expense of $ 4.5 million;                                                                                                                                                                                                                                                                             |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | HyperFeed      litigation expenses of $1.7 million;                                                                                                                                                                                                                                                            |
| · | the      accrual of $1.5 million in incentive compensation, being a discretionary      bonus awarded to our President and Chief Executive Officer;      and                                                                                                                                                    |
| · | other      parent company overhead of $7.8 million.  Other expenses were      reduced by a $548,000 net decrease in deferred compensation expense, which      reflects a decrease in deferred compensation liabilities resulting from a      decrease in the value of deferred compensation  assets. |

| · | the      accrual of $5.9 million in incentive compensation.  In 1996, six      of PICO’s officers participated in an incentive compensation program tied      to growth in our book value per share relative to a pre-determined      threshold; and                                                                                                                                                                                                                                      |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | other      parent company overhead of $11.7 million. This includes deferred      compensation expense of $3.6 million, which reflects an increase in      deferred compensation liabilities resulting from growth in the value of      invested assets corresponding to the deferred compensation liabilities. In      effect, this expense was offset by investment income and realized gains,      which are recorded as revenue in this segment, and by unrealized      appreciation in the investedassets. |

Inter-Company Loan

See Note 4 of Notes to Consolidated Financial Statements,“Borrowings

See Note 1 of Notes To Consolidated Financial Statements, "Natureof Operations and Significant Accounting Policies

----

|                                                                              |   | Year      Ended December 31, |        |
|-----------------------------------------------------------------------------------|--------|------------------------------|-------------|
|                                                                              |   | 2008                         |        |   | 2007 |   |   | 2006 |   |
|          Revenues:                                                 |   |                         |        |   |   |   |   |   |   |
|          Net investment income                                     |   | $                            | 3,214,000   |   |   | $ | 3,457,000 |   |   | $  | 3,159,000 |   |
|          Realized gain (loss) on sale or impairment of investments |   |                         | (5,480,000) |   |   |   | 3,965,000 |   |   |   | 10,110,000 |   |
|          Other                                                     |   |                         | 110,000     |   |   |   | 187,000 |   |   |   | 8,000 |   |
|          Segment total revenues (charges)                          |   |                         | (2,156,000) |   |   |   | 7,609,000 |   |   |   | 13,277,000 |   |
|                                                                              |   |                         |        |   |   |   |   |   |   |   |   |   |
|          Recoveries:                                               |   |                         |        |   |   |   |   |   |   |   |   |   |
|          Underwriting recoveries                              |   | $                       | 670,000     |   |   | $  | 2,170,000 |   |   | $  | 2,703,000 |   |
|                                                                              |   |                         |        |   |   |   |   |   |   |   |   |   |
|          Income (Loss) Before Taxes:                               |   |                         |        |   |   |   |   |   |   |   |   |   |
|          Physicians Insurance Company of Ohio                      |   | $                            | 2,291,000   |   |   | $ | 5,938,000 |   |   | $  | 10,914,000 |   |
|          Citation Insurance Company                                |   | $                       | (3,777,000) |   |   | $  | 3,841,000 |   |   | $  | 5,066,000 |   |
|          Income (loss) before taxes and minority interest     |   | $                            | (1,486,000) |   |   | $ | 9,779,000 |   |   | $ | 15,980,000 |   |

| ·   | the      stocks were in an unrealized loss position for most of 2008. Based on the      extent and the duration of the unrealized losses, we determined that the      declines in market value are other-than-temporary. Consequently, we      recorded a charge to reduce our basis in the stocks from original cost, or      previously written-down basis, to their market value at December 31,      2008.  This included a $3.4 million charge for      other-than-temporary impairment of our holding in an Ohio      bank.  The bank also has branches in Florida and Arizona, and is      one of the top 20 mortgage lenders in the country.  We believe      that the stock has declined due to concerns about the residential real      estate markets in Ohio and Florida.  The charge for      other-than-temporary impairment reduced the carrying value of our holding      in the bank from its cost to market value at December 31, 2008;      and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the      bond was issued by Downey Financial, a California bank holding      company.  In November 2008, the Federal Deposit Insurance      Corporation seized Downey Financial’s principal asset, and Downey      Financial filed for Chapter 7 liquidation in U.S. Bankruptcy Court.      According to an official notice dated November 26, 2008, there does not      appear to be any property available to pay      creditors.  Consequently, we determined that the investment is      permanently impaired and recorded a provision to write off the carrying      value of the bond, which was its amortized cost of $1    million. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Company Summary,Recent Developments, and Future Outlook” portion of Item7

|                                                                                              | Year      Ended December 31, 2006                                                                                                                                            |   |
|---------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                              |                                                                                                                                                                         |   |
|     Loss      before tax and minority interest                                | $                         (10,257,000)                                        |   |
|                                                                                              |                                                                                                                                                                         |   |
|          Gain on disposal, before tax                                              | (3,002,000)                                                                                                                                                                  |   |
|          Benefit for income taxes                                             | (4,657,000)                                                                                                                                                                  |   |
|          Gain on disposal, net                                                     | 7,659,000                                                                                                                                                                    |   |
|                                                                                              |                                                                                                                                                                         |   |
|          Gain on sale of HyperFeed's discontinued operations, net                  | 330,000                                                                                                                                                                      |   |
|     Gain      on sale of disposal and sale of discontinued operations,    net |        $                              7,989,000 |   |
| Loss      from discontinued operation$$                                                           | $                           (2,268,000)                             |   |

| · | the      $10.3 million net loss consisted of a $5.3 million loss, and a $4.9      million write-down in the third quarter of 2006 of HyperFeed’s assets to      estimated fair value of zero;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | during      the fourth quarter of 2006, HyperFeed filed for bankruptcy under Chapter 7      of the U.S. Bankruptcy Code. The $8 million gain on disposal and the sale      of discontinued operations was comprised of a $7.7 million after-tax gain      on disposal, and a $330,000 after-tax gain on the sale of discontinued      operations. The $7.7 million after-tax gain on disposal consisted of a $3      million gain on disposal before tax due to the removal of HyperFeed’s      liabilities from PICO’s financial statements after the bankruptcy filing,      and a $4.7 million income tax benefit.  See Notes 2 and 7 of Notes to      Consolidated Financial Statements, "Discontinued      Operations" and "Federal, Foreign and State Income      Tax". |

----

LIQUIDITY 

| · | the      Water Resource and Water Storage Operations segment contains cash of $17.1      million; |
|--------|---------------------------------------------------------------------------------------------------|
| · | the      Real Estate Operations segment holds cash of $22.3  million;                             |

| · | our      insurance companies have cash of $3.3 million, fixed-income securities      with a market value of $14 million, and equities with a market value of      $111.2 million; and                                                                                                                                                                                                                                                                                        |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | the      Corporate segment contains cash of $47.5 million and a fixed-income      security with a market value of $1.9 million.  In addition, cash      of $6.1 million, fixed-income securities with a market value of $13.2      million, and equity securities with a market value of $7.2 million are      held in deferred compensation Rabbi Trusts within the Corporate segment,      which will be used to pay the deferred compensation      liabilities. |

| · | As      Vidler’s water assets are monetized, Vidler should generate free cash flow      as receipts from the sale of real estate and water assets will have      overtaken maintenance capital expenditure, development costs, financing      costs, and operating expenses;                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Nevada Land      is actively selling real estate which has reached its highest and      best use. Nevada Land’s principal sources of cash flow are the      proceeds of cash real estate sales, and collections of principal and      interest on sales contracts where Nevada Land has provided vendor      financing. These receipts and other revenues exceed Nevada Land’s      operating and development costs, so Nevada Land is generating cash flow.  We are redeploying      part of the cash flow from Nevada Land to build the business of UCP, by      acquiring finished and partially-developed residential lots in selected      California markets; and |
| · | Investment      income more than covers the operating expenses of the “run off” insurance      companies, Physicians and Citation. The funds to pay claims come from the      maturity of fixed-income securities, the realization of fixed-income      investments and stocks held in their investment portfolios, and recoveries      from reinsurance companies.                                                                                                                                                                                                                                                                                                                                        |

| · | in      2008, cash land sales by Nevada Land and repayments on notes related      to previous land sales, as well as investment income from the Insurance      Operations in Run Off segment and from liquid funds held in the other      segments; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | in      2007, sale of real estate by Nevada Land; and                                                                                                                                                                                               |
| · | in      2006, the sale of Spring Valley Ranch for $22 million, and $11.1 million      from cash land sales by NevadaLand.                                                                                                                                |

| · | in      2008, the sale of equity securities provided net cash of $71.9 million,      principally due to the sale of Jungfraubahn for approximately $75.3      million.  Excluding Jungfraubahn, we bought $26.3 million of      equity securities, and sold $22.9 million, representing activity in our      insurance and deferred compensation portfolios.  Proceeds from      the maturity and call of bonds provided cash of $73.9 million, which      primarily represented the maturity of temporary investments made with a      portion of the proceeds of the February 2007 stock offering, and we      used $9.3 million to buy new bonds.   In addition, we      received cash proceeds of $11.7 million from the sale of      Semitropic; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | in      2007, a $46.6 million net increase in fixed-income securities, which      represents the temporary investment of a portion of the proceeds of the      February 2007 stock offering. The principal use of investing cash was      $48.1 million in outlays for property and equipment, primarily related to      the Fish Springs pipeline project. In addition, $16.2 million net was      invested in stocks, primarily in the insurance company portfolios;      and                                                                                                                                                                                                                                                                                                               |
| · | in      2006, the proceeds from the maturity or sale of fixed-income investments      exceeded new purchases, providing cash of $28.9 million, and proceeds from      the sale of stocks exceeded new purchases, providing $16.7 million in      cash. The principal use of investing cash was $27.2 million in outlays for      property and equipment, primarily related to the Fish Springs pipeline      project.                                                                                                                                                                                                                                                                                                                                                                         |

| · | in      2008, an $8.2 million increase in Swiss Franc (CHF) borrowings from our      bank in Switzerland. This represented borrowings of CHF 4.3 million ($4      million) on our current account facility, and the proceeds of an      additional fixed advance of CHF4.5 million ($4.2 million), which carries a      4.43% interest rate and is due for repayment in 2011; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | in      2007, the sale of 2.8 million newly-issued shares of PICO common stock at      $37 per share, for net cash proceeds of $100.1 million. In addition, there      was a $4.4 million tax benefit related to the exercise of SAR;      and                                                                                                                                |
| · | in      2006, the sale of 2.6 million newly-issued shares of PICO common stock at      $30 per share, for net cash proceeds of $73.9  million.                                                                                                                                                                                                                                |

----

| 1. | At      December 31, 2008: |
|----|----------------------------|

| · | We      had no “off balance sheet” financing  arrangements. |
|--------|-------------------------------------------------------------------------|

| · | We      have not provided any debtguarantees. |
|--------|-----------------------------------------------|

| · | We      have no commitments to provide additional collateral for financing      arrangements. Our subsidiary PICO European Holdings, LLC has Swiss Franc      borrowings which partially finance some of their investments in European      equities. The equities provide collateral for the      borrowings. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Aggregate Contractual      Obligations: |
|--------|-----------------------------------------|

| Contractual Obligations                                                                                                                                           |   | Payments      Due by Period |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|------------|
|                                                                                                                                                              |   | Less      than 1 year       |       |   | 1      -3 years |   |   | 3      -5 years |   |   | More      than 5 years |   |   | Total |   |
| Borrowings                                                                                                                                                        |   | $                           | 21,514,965 |   |   | $ | 19,973,492 |   |   | $     893,260 |   |   |   |   |   | $ | 42,381,718 |   |
| Interest      on borrowings (1)                                                                                                                                   |   |                        | 1,239,312  |   |   |   | 3,594,046 |   |   |   | 500,897 |   |   |   |   |   |   |   | 5,334,255 |   |
| Operating      leases                                                                                                                                             |   |                        | 644,312    |   |   |   | 568,936 |   |   |   | 10,722 |   |   |   |   |   |   |   | 1,223,970 |   |
| Expected      claim payouts                                                                                                                                       |   |                        | 4,558,534  |   |   |   | 10,240,811 |   |   |   | 5,069,485 |   |   |   | $7,904,490 |   |   |   | 27,773,320 |   |
| Other      borrowings/obligations (primarily commitments for water purchases for      the Recharge Site and the amounts due under the Tribe      settlement) |   |                        | 7,076,308  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 7,076,308 |   |
| Total                                                                                                                                                             |   | $                           | 35,033,432 |   |   | $ | 34,377,284 |   |   | $ | 6,474,365 |   |   | $ | 7,904,490 |   |   | $ | 83,789,571 |   |

| 2. | Recent      Accounting Pronouncements |
|----|---------------------------------------|

----

----

|                                          |   |   |    |   |   |                    |   |   |    |   |   |
|-----------------------------------------------|--------|--------|---------|--------|--------|-------------------------|--------|--------|---------|--------|--------|
|                                          |   | 1998   |    | 1999   |   | 2000                    |   | 2001   |    | 2002   |   |
|                                          |   |   |    |   |   |                    |   |   |    |   |   |
|                                          |   |   |    |   |   | In  Thousands |   |   |    |   |   |
| Net      liability as originally estimated:   |   | $      | 89,554  |   | $      | 88,112                  |   | $      | 74,896  |   | $      | 54,022 |   | $ | 44,905 |   |
| Discount                                      |   |   | 8,515   |   |   | 7,521                   |   |   |    |   |   |   |   |   |   |   |
| Gross      liability as originally estimated: |   |   | 98,069  |   |   | 95,633                  |   |   | 74,896  |   |   | 54,022 |   |   | 44,905 |   |
| Cumulative      payments as of:               |   |   |    |   |   |                    |   |   |    |   |   |   |   |   |   |   |
| One      year later                           |   |   | 23,696  |   |   | 22,636                  |   |   | 9,767   |   |   | 7,210 |   |   | 6,216 |   |
| Two      years later                          |   |   | 41,789  |   |   | 31,987                  |   |   | 16,946  |   |   | 13,426 |   |   | 12,729 |   |
| Three      years later                        |   |   | 50,968  |   |   | 39,150                  |   |   | 23,162  |   |   | 19,939 |   |   | 16,956 |   |
| Four      years later                         |   |   | 58,129  |   |   | 45,140                  |   |   | 29,675  |   |   | 24,166 |   |   | 20,381 |   |
| Five      Years later                         |   |   | 64,119  |   |   | 51,566                  |   |   | 33,902  |   |   | 27,591 |   |   | 23,128 |   |
| Six      years later                          |   |   | 70,545  |   |   | 55,793                  |   |   | 37,327  |   |   | 30,338 |   |   | 26,530 |   |
| Seven      years later                        |   |   | 74,772  |   |   | 59,218                  |   |   | 40,074  |   |   | 31,700 |   |   |   |   |
| Eight      years later                        |   |   | 78,198  |   |   | 61,965                  |   |   | 41,437  |   |   |   |   |   |   |   |
| Nine      years later                         |   |   | 76,395  |   |   | 63,328                  |   |   |    |   |   |   |   |   |   |   |
| Ten      years later                          |   |   | 77,757  |   |   |                    |   |   |    |   |   |   |   |   |   |   |
| Liability      re-estimated as of:            |   |   |    |   |   |                    |   |   |    |   |   |   |   |   |   |   |
| One      year later                           |   |   | 114,347 |   |   | 96,727                  |   |   | 63,672  |   |   | 52,115 |   |   | 49,573 |   |
| Two      years later                          |   |   | 115,539 |   |   | 85,786                  |   |   | 61,832  |   |   | 56,782 |   |   | 49,331 |   |
| Three      years later                        |   |   | 104,689 |   |   | 83,763                  |   |   | 66,494  |   |   | 56,540 |   |   | 45,574 |   |
| Four      years later                         |   |   | 102,704 |   |   | 88,460                  |   |   | 66,275  |   |   | 52,784 |   |   | 42,352 |   |
| Five      Years later                         |   |   | 107,409 |   |   | 88,167                  |   |   | 62,519  |   |   | 49,562 |   |   | 40,790 |   |
| Six      years later                          |   |   | 107,127 |   |   | 84,412                  |   |   | 59,298  |   |   | 47,999 |   |   | 38,344 |   |
| Seven      years later                        |   |   | 103,374 |   |   | 81,200                  |   |   | 57,736  |   |   | 45,544 |   |   |   |   |
| Eight      years later                        |   |   | 100,153 |   |   | 79,639                  |   |   | 55,280  |   |   |   |   |   |   |   |
| Nine      years later                         |   |   | 98,606  |   |   | 77,183                  |   |   |    |   |   |   |   |   |   |   |
| Ten      years later                          |   |   | 96,150  |   |   |                    |   |   |    |   |   |   |   |   |   |   |
|                                          |   |   |    |   |   |                    |   |   |    |   |   |   |   |   |   |   |
| Cumulative      Redundancy                    |   | $      | 1,919   |   |   | $18,450                 |   |   | $19,616 |   |   | $8,478 |   |   | $6,571 |   |

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

----

|                                                                                           |   | Year      Ended December 31, |   |   |    |              |   |    |   |
|-----------------------------------------------------------------------------------------------------|--------|------------------------------|--------|--------|---------|-------------------|--------|---------|--------|
|                                                                                                |   |  2003                   |   | 2004   |    | 2005              |   | 2006    |   | 2007 |   | 2008 |   |   |   |   |   |   |   |
|                                                                                                |   |                    |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                |   |                         |   |   |    | In      Thousands |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Gross      liability before discount as originally estimated:                                       |   |  $                      | 43,357 |   |  $ | 36,602            |   |  $ | 28,618 |   |  $ | 21,972 |   |  $ | 15,623 |   |  $ | 11.840 |   |   |   |   |   |   |   |
| Cumulative      payments as of:                                                                     |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One      year later                                                                                 |   |                         | 6,513  |   |    | 4,227             |   |    | 3,425  |   |   | 2,747 |   |   | 2,747 |   |   |   |   |   |   |   |   |   |   |
| Two      years later                                                                                |   |                         | 10,740 |   |    | 7,652             |   |    | 6,172  |   |   | 4,110 |   |   | 4,110 |   |   |   |   |   |   |   |   |   |   |
| Three      years later                                                                              |   |                         | 14,165 |   |    | 10,399            |   |    | 7,535  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Four      years later                                                                               |   |                         | 21,162 |   |    | 11,762            |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Five      Years later                                                                               |   |                         | 22.525 |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Six      years later                                                                                |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Seven      years later                                                                              |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Eight      years later                                                                              |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nine      years later                                                                               |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ten      years later                                                                                |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liability      re-estimated as of:                                                                  |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One      year later                                                                                 |   |                         | 43,115 |   |    | 32,845            |   |    | 25,397 |   |   | 18,370 |   |   | 18,370 |   |   |   |   |   |   |   |   |   |   |
| Two      years later                                                                                |   |                         | 39,358 |   |    | 29,623            |   |    | 23,834 |   |   | 15,914 |   |   | 13,167 |   |   |   |   |   |   |   |   |   |   |
| Three      years later                                                                              |   |                         | 36,135 |   |    | 28,061            |   |    | 21,378 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Four      years later                                                                               |   |                         | 34,574 |   |    | 25,605            |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Five      Years later                                                                               |   |                         | 32,117 |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Six      years later                                                                                |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Seven      years later                                                                              |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Eight      years later                                                                              |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nine      years later                                                                               |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ten      years later                                                                                |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative      Redundancy                                                                          |   | $                            | 11,240 |   |    | 10,997            |   |    | 7,240  |   |   | 6,057 |   |   | 2,456 |   |   |   |   |   |   |   |   |   |   |
|                                                                                                |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| RECONCILIATION      TO FINANCIAL STATEMENTS:                                                        |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Gross      liability - end of year                                                                  |   |                         |   |   |    |              |   |    |   |   | $ |  38,944 |   | $ | 32,276 |   | $ | 27,681 |   |   |   |   |   |   |   |
| Reinsurance      recoverable                                                                        |   |                         |   |   |    |              |   |    |   |   |   | (16,972 | ) |   | (16,653 | ) |   | (15,877 | ) |   |   |   |   |   |   |
| Net      liability - end of year                                                                    |   |                         |   |   |    |              |   |    |   |   |   | 21,972 |   |   | 15,623 |   |   | 11,804 |   |   |   |   |   |   |   |
| Reinsurance      recoverable                                                                        |   |                         |   |   |    |              |   |    |   |   |   | 16,972 |   |   | 16,653 |   |   | 15,877 |   |   |   |   |   |   |   |
|                                                                                                |   |                         |   |   |    |              |   |    |   |   |   | 38,944 |   |   | 32,276 |   |   | 27,681 |   |   |   |   |   |   |   |
| Discontinued      personal lines insurance                                                          |   |                         |   |   |    | 101               |   |    | 100    |   |   | 92 |   |   |   |   |   |   |   |
| Liability      to California Insurance Guarantee Association for Workers' Compensation      payouts |   | 2,038                        |   |   |    |              |   |    |   |   |   |   |   |   |   |
| Balance      sheet liability                                                                        |   |                         |   |   |    |              |   |    |   |   | $ | 41,083 |   | $ | 32,376 |   | $ | 27,773 |   |   |   |   |   |   |   |
|                                                                                                |   |                         |   |   |    |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      re-estimated liability - latest                                                          |   |                         |   |   |    |              |   |    |   |   | $ | 34,405 |   | $ | 30,061 |   |   |   |   |   |   |   |   |   |   |
| Re-estimated      recoverable - latest                                                              |   |                         |   |   |    |              |   |    |   |   |   | (18,490 | ) |   | (16,894 | ) |   |   |   |   |   |   |   |   |   |
| Net      re-estimated liability - latest                                                            |   |                         |   |   |    |              |   |    |   |   | $ | 15,915 |   | $ | 13,167 |   |   |   |   |   |   |   |   |   |   |
| Net      cumulative redundancy                                                                      |   |                         |   |   |    |              |   |    |   |   | $ | 6,057 |   | $ | 2,456 |   |   |   |   |   |   |   |   |   |   |

----

Note 11 ofNotes to Consolidated Financial Statements, “Reserves for Unpaid Loss andLoss Adjustment Expenses

----

See Note 10 ofNotes to Consolidated Financial Statements, “Reinsurance

----

|                                                    |   | Three      Months Ended |    |
|---------------------------------------------------------|--------|-------------------------|---------|
|                                                    |   | March      31,          |    |   | June      30, |   |   | September      30, |   |   | December      31, |   |
|                                                    |   | 2008                    |    |   | 2008 |   |   | 2008 |   |   | 2008 |   |
| Net      investment income and net realized gain (loss) |   | $                       | 3,499   |   |   | $ | 52,684 |   |   | $  |           286 |   |   | $ | (10,095) |   |
| Sale      of real estate and water assets               |   | $                       | 494     |   |   | $  | 811 |   |   | $  | 430 |   |   | $  | 1,602 |   |
| Total      revenues (charges)                           |   | $                  | 4,477   |   |   | $  | 53,923 |   |   | $  | 9,832 |   |   | $  | (7,881) |   |
| Gross      profit                                       |   | $                  | 345     |   |   | $  | 639 |   |   | $  | 285 |   |   | $  | 1,161 |   |
| Net      income (loss)                                  |   | $                  | (1,647) |   |   | $  | 28,243 |   |   | $  | 533 |   |   | $  | 1,502 |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income (loss) per common share:                |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                   |   | $                       | (0.09)  |   |   | $ | 1.50 |   |   | $ | 0.03 |   |   | $ | 0.      08 |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                 |   | $                       | (0.09)  |   |   | $ | 1.49 |   |   | $ | 0.03 |   |   | $ | 0.      08 |   |

|                                             |   | Three      Months Ended |   |
|--------------------------------------------------|--------|-------------------------|--------|
|                                             |   | March      31,          |   |   | June      30, |   |   | September30, |   |   | December      31, |   |
|                                             |   | 2007                    |   |   | 2007 |   |   | 2007 |   |   | 2007 |   |
| Net      investment income and net realized gain |   | $                       | 5,217  |   |   | $ | 5,940 |   |   | $  | 3,333 |   |   | $  | 5,295 |   |
| Sale      of real estate and water assets        |   | $                  | 2,309  |   |   | $  | 2,117 |   |   | $  | 1,477 |   |   | $  | 3,592 |   |
| Total      revenues                              |   | $                  | 7,815  |   |   | $  | 8,314 |   |   | $  | 8,415 |   |   | $  | 9,486 |   |
| Gross      profit                                |   | $                  | 1,514  |   |   | $  | 1,413 |   |   | $  | 1,051 |   |   | $  | 2,805 |   |
| Net      income (loss)                           |   | $                  | 521    |   |   | $  | (3,713 | ) |   | $  | 474 |   |   | $  | 1,449 |   |
|                                             |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income (loss) per common share:         |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                            |   | $                       | 0.03   |   |   | $ | (0.20 | ) |   | $ | 0.03 |   |   | $ | 0.      08 |   |
|                                             |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                          |   | $                       | 0.03   |   |   | $ | (0.20 | ) |   | $ | 0.02 |   |   | $ | 0.      08 |   |

----

| Report      of Independent Registered Public Accounting Firm                                                          | 35          |
|-----------------------------------------------------------------------------------------------------------------------|-------------|
| Consolidated      Balance Sheets as of December 31, 2008 and 2007                                                     | 36          |
| Consolidated      Statements of Operations for the Years Ended December 31, 2008, 2007 and      2006                  | 37     |
| Consolidated      Statements of Shareholders’ Equity for the Years Ended December 31, 2008,      2007, and 2006 | 38-40       |
| Consolidated      Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and      2006                  | 41     |
| Notes to Consolidated      Financial Statements                                                                       | 42- 62 |

----

----

| ASSETS                                                     |   | 2008   |        |   | 2007   |   |
|------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Available for Sale      Investments (Note      3)          |   |   |        |   |   |   |
| Fixed      maturities                                      |   | $      | 29,058,562  |   |   | $      | 105,780,499 |   |
| Equity      securities                                     |   |   | 120,358,461 |   |   |   | 259,743,145 |   |
| Total      investments                                     |   |   | 149,417,023 |   |   |   | 365,523,644 |   |
|                                                       |   |   |        |   |   |   |   |   |
| Cash      and cash equivalents                             |   |   | 96,316,018  |   |   |   | 70,791,025 |   |
| Notes and other      receivables, net (Note      6)        |   |   | 24,352,367  |   |   |   | 17,151,065 |   |
| Reinsurance      receivables (Note      10)                |   |   | 16,373,132  |   |   |   | 16,887,953 |   |
| Real estate and      water assets (Note      5)            |   |   | 271,714,300 |   |   |   | 200,605,792 |   |
| Property and      equipment, net (Note      8)             |   |   | 1,512,370   |   |   |   | 1,212,394 |   |
| Net deferred income      taxes (Note      7)               |   |   | 25,274,232  |   |   |   |   |   |
| Federal, foreign and      state income taxes (Note      7) |   |   | 4,519,920   |   |   |   |   |   |
| Other      assets                                          |   |   | 3,154,434   |   |   |   | 4,170,407 |   |
|                                                       |   |   |        |   |   |   |   |   |
| Total      assets                                          |   | $      | 592,633,796 |   |   | $      | 676,342,280 |   |

| LIABILITIES      AND SHAREHOLDERS' EQUITY                                                                                                                                                                    |   |   |         |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------|--------|--------|--------|
| Reserves for unpaid      losses and loss adjustment expenses (Note      11)                                                                                                                                       |   | $      | 27,773,320   |   |   | $      | 32,376,018 |   |
| Deferred      compensation (Note      1)                                                                                                                                                                          |   |   | 27,744,528   |   |   |   | 52,546,234 |   |
| Other      liabilities                                                                                                                                                                                            |   |   | 16,988,040   |   |   |   | 25,806,566 |   |
| Federal, foreign and      state income taxes (Note      7)                                                                                                                                                        |   |   |         |   |   |   | 3,209,651 |   |
| Borrowings      (Note      4)                                                                                                                                                                                     |   |   | 42,381,718   |   |   |   | 18,878,080 |   |
| Net deferred income      taxes (Note      7)                                                                                                                                                                      |   |   |         |   |   |   | 17,675,162 |   |
| Total      liabilities                                                                                                                                                                                            |   |   | 114,887,606  |   |   |   | 150,491,711 |   |
|                                                                                                                                                                                                              |   |   |         |   |   |   |   |   |
| Commitments and      Contingencies (Notes      10 - 15)                                                                                                                                                           |   |   |         |   |   |   |   |   |
|                                                                                                                                                                                                              |   |   |         |   |   |   |   |   |
| Shareholders'      Equity                                                                                                                                                                                         |   |   |         |   |   |   |   |   |
| Common      stock, $.001 par value; authorized 100,000,000; 23,265,187 issued and      18,840,392 outstanding at December 31, 2008and      23,259,367 issued and 18,833,733 outstanding at December 31,      2007 |   |   | 23,265       |   |   |   | 23,259 |   |
| Additional      paid-in capital                                                                                                                                                                                   |   |   | 439,381,715  |   |   |   | 435,235,358 |   |
| Accumulated other      comprehensive income (loss) (Note      1)                                                                                                                                                  |   |   | (1,423,863)  |   |   |   | 79,469,438 |   |
| Retained      earnings                                                                                                                                                                                            |   |   | 118,036,716  |   |   |   | 89,405,743 |   |
|                                                                                                                                                                                                              |   |   | 556,017,833  |   |   |   | 604,133,798 |   |
| Less      treasury stock, at cost (common shares: 4,424,795 in 2008 and 4,425,630 in      2007)                                                                                                                   |   |   | (78,271,643) |   |   |   | (78,283,229) |   |
| Total shareholders'      equity (Note      9)                                                                                                                                                                     |   |   | 477,746,190  |   |   |   | 525,850,569 |   |
| Total      liabilities and shareholders' equity                                                                                                                                                                   |   | $      | 592,633,796  |   |   | $      | 676,342,280 |   |

Theaccompanying notes are an integral part of the consolidated financialstatements. 

----

|                                                                     |   | 2008   |        |   | 2007   |   |        | 2006   |   |
|--------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|-------------|--------|--------|
| Revenues:                                                                |   |   |        |   |   |   |        |   |   |
| Sale      of real estate and water assets                                |   | $      | 3,337,460   |   |   | $      | 9,496,156   |   |   | $ | 41,509,116 |   |
| Net investment      income (Note      3)                                 |   |   | 10,145,430  |   |   |   | 17,039,800  |   |   |   | 13,556,192 |   |
| Net realized gain on      investments (Note      3)                      |   |   | 36,227,458  |   |   |   | 2,747,958   |   |   |   | 26,053,077 |   |
| Gain      on sale of water storage                                       |   |   | 8,716,082   |   |   |   |        |   |   |   |   |   |
| Other (Note      1)                                                      |   |   | 1,925,110   |   |   |   | 4,644,834   |   |   |   | 1,604,859 |   |
| Total      revenues                                                      |   |   | 60,351,540  |   |   |   | 33,928,748  |   |   |   | 82,723,244 |   |
| Costs      and expenses:                                                 |   |   |        |   |   |   |        |   |   |   |   |   |
| Operating      and other costs (Note 1)                                  |   |   | 4,250,234   |   |   |   | 31,725,964  |   |   |   | 23,581,759 |   |
| Cost      of real estate and water assets sold                           |   |   | 908,186     |   |   |   | 2,684,183   |   |   |   | 10,276,789 |   |
| Loss and loss      adjustment recovery (Note      11)                    |   |   | (2,456,386) |   |   |   | (3,601,091) |   |   |   | (3,224,401) |   |
| Depreciation      and amortization                                       |   |   | 1,260,471   |   |   |   | 1,106,027   |   |   |   | 1,222,351 |   |
| Total      costs and expenses                                            |   |   | 3,962,505   |   |   |   | 31,915,083  |   |   |   | 31,856,498 |   |
| Income      before income taxes and minority interest                    |   |   | 56,389,035  |   |   |   | 2,013,665   |   |   |   | 50,866,746 |   |
| Provision for      federal, foreign and state income taxes (Note      7) |   |   | 28,491,016  |   |   |   | 3,535,699   |   |   |   | 19,390,374 |   |
| Income      (loss) before minority interest                              |   |   | 27,898,019  |   |   |   | (1,522,034) |   |   |   | 31,476,372 |   |
| Minority      interest in loss of subsidiaries                           |   |   | 732,954     |   |   |   | 252,307     |   |   |   | 34,252 |   |
| Income      (loss) from continuing operations                            |   |   | 28,630,973  |   |   |   | (1,269,727) |   |   |   | 31,510,624 |   |
| Loss from      discontinued operations, net of tax (Note      2)         |   |   |        |   |   |   |        |   |   |   | (10,256,984) |   |
| Gain      on disposal of discontinued operations, net                    |   |   |        |   |   |   |        |   |   |   | 7,989,315 |   |
| Loss      from discontinued operations                                   |   |   |        |   |   |   |        |   |   |   | (2,267,669) |   |
| Net      income (loss)                                                   |   | $      | 28,630,973  |   |   | $      | (1,269,727) |   |   | $ | 29,242,955 |   |
|                                                                     |   |   |        |   |   |   |        |   |   |   |   |   |
| Net      income (loss) per common share – basic:                   |   |   |        |   |   |   |        |   |   |   |   |   |
| Income      (loss) from continuing operations                            |   | $      | 1.52        |   |   | $      | (0.07)      |   |   | $ | 2.10 |   |
| Loss      from discontinued operations                                   |   |   |        |   |   |   |        |   |   |   | (0.15) |   |
| Net      income (loss) per common share                                  |   | $      | 1.52        |   |   | $      | (0.07)      |   |   | $ | 1.95 |   |
| Weighted      average shares outstanding                                 |   |   | 18,835,002  |   |   |   | 18,321,449  |   |   |   | 14,994,947 |   |
| Net      income (loss) per common share – diluted:                 |   |   |        |   |   |   |        |   |   |   |   |   |
| Income      (loss) from continuing operations                            |   | $      | 1.52        |   |   | $      | (0.07)      |   |   | $ | 2.10 |   |
| Loss      from discontinued operations                                   |   |   |        |   |   |   |        |   |   |   | (0.15) |   |
| Net      income (loss) per common share                                  |   | $      | 1.52        |   |   | $      | (0.07)      |   |   | $ | 1.95 |   |
| Weighted      average shares outstanding                                 |   |   | 18,861,853  |   |   |   | 18,321,449  |   |   |   | 15,025,341 |   |

Theaccompanying notes are an integral part of the consolidated financialstatements. 

----

|                                                                                                                                      |   |   |   |   |       |   |        |     |   |   | Accumulated      Other    |   |   |        |       |   |     |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|------------|--------|-------------|----------|--------|--------|---------------------------|--------|--------|-------------|------------|--------|----------|--------|
|                                                                                                                                      |   |   |   |   |       |   |        |     |   |   | Comprehensive      Income |   |   |        |       |   |     |   |
|                                                                                                                                      |   |   |   |   | Additional |   |        |     |   |   | Net      Unrealized       |   |   | Foreign     |       |   |     |   |   |   |   |
|                                                                                                                                      |   |   |   |   |       |   |        |     |   |   | Appreciation              |   |   |        |       |   |     |   |   |   |   |
|                                                                                                                                      |   | Common |   |   | Paid-In    |   |        | Retained |   |   | on                        |   |   | Currency    |       |   | Treasury |   |   |   |   |
|                                                                                                                                      |   | Stock  |   |   | Capital    |   |        | Earnings |   |   | Investments               |   |   | Translation |       |   | Stock    |   |   | Total |   |
| Balance,      January 1, 2006                                                                                                        |   | $      | 17,707 |   |       | $      | 257,466,412 |     |   | $      | 61,725,860                |   |   | $           | 66,124,412 |   |     | $      | (6,031,950) |   |   | $ | (78,427,484) |   |   | $ | 300,874,957 |   |
|                                                                                                                                      |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      Income for 2006                                                                                                        |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                                                           |   |   |   |   |       |   |        |     |   |   | 29,242,955                |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Net      unrealized appreciation on investments net of deferred tax of $1.5 million      and reclassification adjustment of $10.7 million |   |   |   |   |       |   |        |     |   |   |                      |   |   |        | 69,016     |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Foreign      currency translation                                                                                                         |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   | 789,201 |   |   |   |   |   |   |   |   |   |
| Total      Comprehensive Income                                                                                                           |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   | 30,101,172 |   |
|                                                                                                                                      |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Acquisition      of treasury stock for deferred compensation plans                                                                        |   |   |   |   |       |   | 173,352     |     |   |   |                      |   |   |        |       |   |     |   |   |   |   |   | 132,674 |   |   |   | 306,026 |   |
|                                                                                                                                      |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Common      stock offering, net of expenses of $4.1 million                                                                               |   |   | 2,600  |   |       |   | 73,942,544  |     |   |   |                      |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   | 73,945,144 |   |
|                                                                                                                                      |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Balance,      December 31, 2006                                                                                                           |   | $      | 20,307 |   |       | $      | 331,582,308 |     |   | $      | 90,968,815                |   |   | $           | 66,193,428 |   |     | $      | (5,242,749) |   |   | $ | (78,294,810) |   |   | $ | 405,227,299 |   |

Theaccompanying notes are an integral part of the consolidated financialstatements. 

----

|                                                                                                                                     |   |   |   |   |       |   |        |     |   |   | Accumulated      Other    |   |   |        |       |   |     |   |        |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|------------|--------|-------------|----------|--------|--------|---------------------------|--------|--------|-------------|------------|--------|----------|--------|-------------|
|                                                                                                                                     |   |   |   |   |       |   |        |     |   |   | Comprehensive      Income |   |   |        |       |   |     |   |        |
|                                                                                                                                     |   |   |   |   | Additional |   |        |     |   |   | Net      Unrealized       |   |   | Foreign     |       |   |     |   |        |   |   |   |
|                                                                                                                                     |   | Common |   |   | Paid-In    |   |        | Retained |   |   | Appreciation              |   |   | Currency    |       |   | Treasury |   |        |   |   |   |
|                                                                                                                                     |   | Stock  |   |   | Capital    |   |        | Earnings |   |   | on      Investments       |   |   | Translation |       |   | Stock    |   |        | Total |
|                                                                                                                                     |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |        |   |   |   |
| Balance,      December 31, 2006                                                                                                          |   | $      | 20,307 |   |       | $      | 331,582,308 |     |   | $      | 90,968,815                |   |   | $           | 66,193,428 |   |     | $      | (5,242,749) |   |   | $ | (78,294,810) |   |   | $ | 405,227,299 |   |
| Impact      of adopting FASB Interpretation No. 48                                                                                  |   |   |   |   |       |   |        |     |   |   | (293,345)                 |   |   |        |       |   |     |   |        |   |   |   |   |   |   |   | (293,345) |   |
|                                                                                                                                     |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |        |   |   |   |   |   |   |   |   |   |
| Comprehensive      Income for 2007                                                                                                       |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |        |   |   |   |   |   |   |   |   |   |
| Net      loss                                                                                                                            |   |   |   |   |       |   |        |     |   |   | (1,269,727)               |   |   |        |       |   |     |   |        |   |   |   |   |   |   |   |   |   |
| Net      unrealized appreciation on investments net of deferred tax of $7.7 million      and reclassification adjustment of $2.5 million |   |   |   |   |       |   |        |     |   |   |                      |   |   |        | 16,263,071 |   |     |   |        |   |   |   |   |   |   |   |   |   |
| Foreign      currency translation                                                                                                        |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   | 2,255,688   |   |   |   |   |   |   |   |   |   |
| Total      Comprehensive Income                                                                                                          |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |        |   |   |   |   |   |   |   | 17,249,032 |   |
|                                                                                                                                     |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |        |   |   |   |   |   |   |   |   |   |
| Stock      based compensation expense                                                                                                    |   |   |   |   |       |   | 4,468,334   |     |   |   |                      |   |   |        |       |   |     |   |        |   |   |   |   |   |   |   | 4,468,334 |   |
|                                                                                                                                     |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |        |   |   |   |   |   |   |   |   |   |
| Disposition      of treasury stock from deferred compensation plans                                                                      |   |   |   |   |       |   | 17,811      |     |   |   |                      |   |   |        |       |   |     |   |        |   |   |   | 11,581 |   |   |   | 29,392 |   |
|                                                                                                                                     |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |        |   |   |   |   |   |   |   |   |   |
| Exercise      of stock-settled stock appreciation rights, net of excess tax benefits of      $4.4 million                                |   |   | 129    |   |       |   | (972,207)   |     |   |   |                      |   |   |        |       |   |     |   |        |   |   |   |   |   |   |   | (972,078) |   |
|                                                                                                                                     |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |        |   |   |   |   |   |   |   |   |   |
| Common      stock offering, net of expenses of $4.3 million                                                                              |   |   | 2,823  |   |       |   | 100,139,112 |     |   |   |                      |   |   |        |       |   |     |   |        |   |   |   |   |   |   |   | 100,141,935 |   |
|                                                                                                                                     |   |   |   |   |       |   |        |     |   |   |                      |   |   |        |       |   |     |   |        |   |   |   |   |   |   |   |   |   |
| Balance,      December 31, 2007                                                                                                          |   | $      | 23,259 |   |       | $      | 435,235,358 |     |   | $      | 89,405,743                |   |   | $           | 82,456,499 |   |     | $      | (2,987,061) |   |   | $ | (78,283,229) |   |   | $ | 525,850,569 |   |   |

Theaccompanying notes are an integral part of the consolidated financial statements

----

|                                                                                                                                      |   |   |   |   |       |   |                |     |   |    | Accumulated      Other  |   |   |        |               |   |     |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|------------|--------|---------------------|----------|--------|---------|-------------------------|--------|--------|-------------|--------------------|--------|----------|
|                                                                                                                                      |   |   |   |   |       |   |                |     |   |    | Comprehensive      Loss |   |   |        |               |   |     |
|                                                                                                                                      |   |   |   |   | Additional |   |                |     |   |    | Net      Unrealized     |   |   | Foreign     |               |   |     |   |   |   |
|                                                                                                                                      |   | Common |   |   | Paid-In    |   |                | Retained |   |    | Appreciation            |   |   | Currency    |               |   | Treasury |   |   |   |
|                                                                                                                                      |   | Stock  |   |   | Capital    |   |                | Earnings |   |    | on      Investments     |   |   | Translation |               |   | Stock    |   |   | Total |
|                                                                                                                                      |   |   |   |   |       |   |                |     |   |    |                    |   |   |        |               |   |     |   |   |   |
| Balance,      December 31, 2007                                                                                                           |   | $      | 23,259 |   |       | $      | 435,235,358         |     |   | $       | 89,405,743              |   |   | $           | 82,456,499         |   |     | $ | (2,987,061) |   |   | $ | (78,283,229) |   |   | $ | 525,850,569 |
| Comprehensive      loss for 2008                                                                                                          |   |   |   |   |       |   |                |     |   |    |                    |   |   |        |               |   |     |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                                                           |   |   |   |   |       |   |                |     |   |    | 28,630,973              |   |   |        |               |   |     |   |   |   |   |   |   |   |   |   |   |
| Net      unrealized depreciation on investments net of deferred tax of $42.5million      and reclassification adjustment of $54.2 million |   |   |   |   |       |   |                |     |   |    |                    |   |   |        |  (70,889,521) |   |     |   |   |   |   |   |   |   |   |   |   |
| Foreign      currency translation                                                                                                         |   |   |   |   |       |   |                |     |   |    |                    |   |   |        |               |   |     |   |   (10,003,778) |   |   |   |   |   |   |   |   |
| Total      Comprehensive Loss                                                                                                             |   |   |   |   |       |   |                |     |   |    |                    |   |   |        |               |   |     |   |   |   |   |   |   |   |   |   | (52,262,328) |
|                                                                                                                                      |   |   |   |   |       |   |                |     |   |    |                    |   |   |        |               |   |     |   |   |   |   |   |   |   |   |   |
| Stock      based compensation expense                                                                                                     |   |   |   |   |       |   | 3,988,596           |     |   |    |                    |   |   |        |               |   |     |   |   |   |   |   |   |   |   |   | 3,988,596 |
|                                                                                                                                      |   |   |   |   |       |   |                |     |   |    |                    |   |   |        |               |   |     |   |   |   |   |   |   |   |   |   |   |
| Disposition      of treasury stock from deferred compensation plans                                                                       |   |   |   |   |       |   | 16,788              |     |   |    |                    |   |   |        |               |   |     |   |   |   |   |   | 11,586 |   |   |   | 28,374 |
|                                                                                                                                      |   |   |   |   |       |   |                |     |   |    |                    |   |   |        |               |   |     |   |   |   |   |   |   |   |   |   |   |
| Exercise      of stock-settled stock appreciation rights, net of excess tax benefits of      $62,000                                      |   |   | 2      |   |       |   | (16,229)            |     |   |    |                    |   |   |        |               |   |     |   |   |   |   |   |   |   |   |   |            (16,227) |
|                                                                                                                                      |   |   |   |   |       |   |                |     |   |    |                    |   |   |        |               |   |     |   |   |   |   |   |   |   |   |   |   |
| Issuance      of restricted PICO stock                                                                                                    |   |   | 4      |   |       |   |   157,202 |     |   |    |                    |   |   |        |               |   |     |   |   |   |   |   |   |   |   |   | 157,206 |
|                                                                                                                                      |   |   |   |   |       |   |                |     |   |    |                    |   |   |        |               |   |     |   |   |   |   |   |   |   |   |   |   |
| Balance,      December 31, 2008                                                                                                           |   | $      | 23,265 |   |       | $      | $439,381,715        |     |   | $  | $118,036,716            |   |   | $      | $11,566,976        |   |     | $  | $(12,990,839) |   |   | $  | $(78,271,643) |   |   |   | $477,746,190  |

Theaccompanying notes are an integral part of the consolidated financial statements

----

|                                                                                                                              | 2008    |                  | 2007   |    | 2006                  |
|-----------------------------------------------------------------------------------------------------------------------------------|---------|-----------------------|--------|---------|-----------------------|
| CASH      FLOWS FROM OPERATING ACTIVITIES:                                                                                        |    |                  |   |    |                  |
| Net      income (loss)                                                                                                            | $       | 28,630,973            |   | $       | (1,269,727)           |   |        $ | 29,242,955 |
| Adjustments      to reconcile net income (loss) to net cash provided by (used in) operating      activities, net of acquisitions: |    |                  |   |    |                  |   |   |   |
| Provision      (benefit) for deferred taxes                                                                                       |    | 2,676,025             |   |    | (6,592,013)           |   |   | 4,286,402 |
| Depreciation      and amortization                                                                                                |    | 1,354,352             |   |    | 1,634,698             |   |   | 2,303,827 |
| Stock      based compensation expense and amortization of restricted stock      awards                                            |    | 4,156,960             |   |    | 4,468,334             |   |   |   |
| Gain      on sale of investments                                                                                                  |    | (36,227,458)          |   |    | (2,747,958)           |   |   | (26,053,077) |
| Gain      on sale of water storage                                                                                                |    | (8,716,082)           |   |    |                  |   |   |   |
| Gain      on non-monetary exchange                                                                                                |    |                  |   |    | (3,466,402)           |   |   |   |
| Loss      from discontinued operations, net                                                                                       |    |                  |   |    |                  |   |   | 2,267,669 |
| Changes      in assets and liabilities, net of effects of      acquisitions:                                                      |    |                  |   |    |                  |   |   |   |
| Notes      and other receivables                                                                                                  |    | (7,233,633)           |   |    | 25,633                |   |   | (3,045,752) |
| Other      liabilities                                                                                                            |    | (1,209,451)           |   |    | (10,881,075)          |   |   | 502,669 |
| Other      assets                                                                                                                 |    | 937,460               |   |    | (1,073,719)           |   |   | 816,221 |
| Real      estate and water assets                                                                                                 |    | (53,571,725)          |   |    | (30,596,350)          |   |   | 4,277,939 |
| Current      income tax liability                                                                                            |    | (7,667,886)           |   |    | 3,923,893             |   |   | 4,636,472 |
| Excess      tax benefits from stock based payment arrangements                                                                    |    | (62,153)              |   |    | (4,426,789)           |   |   |   |
| Reinsurance      receivable                                                                                                       |    | 514,821               |   |    | 402,086               |   |   | (1,103,934) |
| Reinsurance      payable                                                                                                          |    |                  |   |    | (317,431)             |   |   | (7,650) |
| SAR      payable and deferred compensation                                                                                        |    | (20,300,776)          |   |    | 2,770,191             |   |   | 7,344,777 |
| Unpaid      losses and loss adjustment expenses                                                                                   |    | (4,602,698)           |   |    | (8,707,283)           |   |   | (5,563,605) |
| All      other operating activities                                                                                               |    | 455,291               |   |    | 236,012               |   |   | (322,619) |
| Cash      provided by (used in) operating activities - continuing      operations                                                 |    | (100,865,980)         |   |    | (56,617,900)          |   |   | 19,582,294 |
| Cash      used by operating activities - discontinued    operations                                                               |    |                  |   |    |                  |   |   | (6,992,994) |
| Cash      provided by (used in) operating activities                                                                              |    | (100,865,980)         |   |    | (56,617,900)          |   |   | 12,589,300 |
|                                                                                                                              |    |                  |   |    |                  |   |   |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES:                                                                                        |    |                  |   |    |                  |   |   |   |
| Proceeds      from the sale of available for sale investments:                                                                    |    |                  |   |    |                  |   |   |   |
| Fixed      maturities                                                                                                             |    | 10,714,552            |   |    |                  |   |   | 2,703,700 |
| Equity      securities                                                                                                            |    | 98,190,571            |   |    | 10,410,021            |   |   | 47,339,058 |
| Proceeds      from maturity of available for sale investments                                                                     |    | 63,192,968            |   |    | 83,603,560            |   |   | 73,408,060 |
| Purchases      of available for sale investments:                                                                                 |    |                  |   |    |                  |   |   |   |
| Fixed      maturities                                                                                                             |    | (9,294,830)           |   |    | (130,220,057)         |   |   | (47,253,484) |
| Equity      securities                                                                                                            |    | (26,322,941)          |   |    | (26,628,779)          |   |   | (30,633,915) |
| Purchases      of minority interest in subsidiaries                                                                               |    |                  |   |    |                  |   |   | (700,000) |
| Real      estate and water asset capital expenditure                                                                              |    | (14,634,706)          |   |    | (48,141,339)          |   |   | (27,606,419) |
| Proceeds      on the sale of water storage                                                                                        |    | 11,749,900            |   |    |                  |   |   |   |
| All      other investing activities                                                                                               |    | (680,264)             |   |    | (959,092)             |   |   | (120,568) |
| Cash      provided by (used in) investing activities - continuing      operations                                                 |    | 132,915,250           |   |    | (111,935,686)         |   |   | 17,136,432 |
| Cash      used in investing activities - discontinued    operations                                                               |    |                  |   |    |                  |   |   | (1,936,237) |
| Cash      provided by (used in) investing activities                                                                              |    | 132,915,250           |   |    | (111,935,686)         |   |   | 15,200,195 |
|                                                                                                                              |    |                  |   |    |                  |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES:                                                                                        |    |                  |   |    |                  |   |   |   |
| Proceeds      from issuance of common stock, net of expenses                                                                      |    |                  |   |    | 100,141,935           |   |   | 73,945,144 |
| Proceeds      from bank and other borrowings                                                                                      |    | 8,240,668             |   |    |                  |   |   |   |
| Repayment      of bank and other borrowings                                                                                       |    |                  |   |    |                  |   |   | (37,930) |
| Excess      tax benefits from stock based payment arrangements                                                                    |    | 62,153                |   |    | 4,426,789             |   |   |   |
| Sale      of PICO stock (from deferred compensation plans)                                                                        |    | 28,374                |   |    | 29,392                |   |   |   |
| Cash      provided by financing activities - continuing    operations                                                             |    | 8,331,195             |   |    | 104,598,116           |   |   | 73,907,214 |
| Cash      provided by (used in) financing activities - discontinued      operations                                               |    |                  |   |    |                  |   |   | (498,272) |
| Cash      provided by financing activities                                                                                        |    | 8,331,195             |   |    | 104,598,116           |   |   | 73,408,942 |
| Effect      of exchange rate changes on cash                                                                                      |    | (14,855,472)          |   |    | (1,875,083)           |   |   | (2,371,275) |
| Net      increase (decrease) in cash and cash equivalents                                                                         |    | 25,524,993            |   |    | (65,830,553)          |   |   | 98,827,162 |
| Cash      and cash equivalents, beginning of year                                                                                 |    | 70,791,025            |   |    | 136,621,578           |   |   | 37,794,416 |
| Cash      and cash equivalents of continuing operations end of      year                                                          |    | 96,316,018            |   |    | 70,791,025            |   |   | 136,621,578 |
|                                                                                                                              |    |                  |   |    |                  |   |   |   |
| Supplemental      disclosure of cash flow information:                                                                            |    |                  |   |    |                  |   |   |   |
| Cash      paid during the year for:                                                                                               |    |                  |   |    |                  |   |   |   |
| Federal,      state and foreign income taxes, net of refunds                                                                      | $       | 43,585,667            |   | $       | 6,229,674             |   | $ | 10,515,540 |
| Non-cash      investing and financing activities:                                                                                 |    |                  |   |    |                  |   |   |   |
| Distribution      of equity and debt securities in 2008 and treasury stock in 2006 to settle      deferred compensation liability | $  |        4,500,930 |   |    |                  |   | $  | 306,027 |
| Construction      in progress costs incurred but not paid                                                                         | $       | 457,372               |   | $  |  7,905,643       |   | $ | 2,944,637 |
| Mortgage      incurred to purchase real estate                                                                                    | $       | 14,398,255            |   | $  |   5,180,000 |   |   |   |
| Accrued      withholding taxes recorded on additional paid in capital related to stock      appreciation rights exercised         | $       | 78,380                |   | $  |   5,398,767 |   |   |   |

Theaccompanying notes are an integral part of the consolidated financial statements

----

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| 1. | NATURE      OF OPERATIONS AND SIGNIFICANT ACCOUNTING  POLICIES: |
|----|-----------------------------------------------------------------|

|   | · | Owning      and developing water resources and water storage operations in the      southwestern United States. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | · | Owning      and developing real estate and the related mineral rights and water rights      primarily in Nevada and California. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | · | Acquiring      and financing businesses and, |
|--------|--------|----------------------------------------------|

|   | · | “Running      off” insurance loss reserves. |
|--------|--------|---------------------------------------------------------|

----

----

----

|                                               | December      31, |   |
|----------------------------------------------------|-------------------|--------|
|                                               | 2008              |   | 2007 |   |
|                                               |              |   |   |   |
| Net      unrealized gain on securities             |              | $      | 11,566,976 |   |   | $ | 82,456,499 |   |
| Foreign      currency translation                  |              |   | (12,990,839) |   |   |   | (2,987,061) |   |
| Accumulated      other comprehensive income (loss) |              | $      | (1,423,863) |   |   | $ | 79,469,438 |   |

|   | Translation of Foreign      Currency: |
|--------|---------------------------------------|

----

----

| 2. | DISCONTINUEDOPERATIONS: |
|----|-------------------------|

|                                                                           | 2006                                                                                                                                                                                                                                           |   |
|--------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Revenues:                                                                      |                                                                                                                                                                                                                                           |   |
| Service      revenue                                                           | $                                           2,907,268 |   |
| Investment      income                                                         | 3,892                                                                                                                                                                                                                                          |   |
| Total      revenues                                                            | 2,911,160                                                                                                                                                                                                                                      |   |
| Expenses:                                                                      |                                                                                                                                                                                                                                           |   |
| Cost      of service revenue                                                   | 1,326,162                                                                                                                                                                                                                                      |   |
| Depreciation      and amortization                                             | 446,922                                                                                                                                                                                                                                        |   |
| Other      costs and expenses                                                  | 9,243,085                                                                                                                                                                                                                                      |   |
| Total      expenses                                                            | 11,016,169                                                                                                                                                                                                                                     |   |
| Loss      before income taxes                                                  | (8,105,009                                                                                                                                                                                                                                     | )      |
| Benefit      for income taxes                                                  | 2,771,672                                                                                                                                                                                                                                      |   |
| Loss      from continuing operations                                           | (5,333,337                                                                                                                                                                                                                                     | )      |
| Loss      on write down of assets to fair value                                | (4,923,647                                                                                                                                                                                                                                     | )      |
|                                                                           | (10,256,984                                                                                                                                                                                                                                    | )      |
| Gain      on disposal before tax                                               | 3,002,003                                                                                                                                                                                                                                      |   |
| Income      tax benefit                                                        | 4,657,283                                                                                                                                                                                                                                      |   |
| Total      gain on disposal, net of tax                                        | 7,659,286                                                                                                                                                                                                                                      |   |
| Previously      reported gain on discontinued operations within      HyperFeed | 330,029                                                                                                                                                                                                                                        |   |
| Reported      gain on disposal of discontinued operations                      | 7,989,315                                                                                                                                                                                                                                      |   |
| Loss      from discontinued operations                                         | $                                         (2,267,669            | )      |

----

| 3. | INVESTMENTS: |
|----|--------------|

|                                  |   |   | Gross           |   | Gross      |   |          |   |
|---------------------------------------|--------|--------|-----------------|--------|------------|--------|---------------|--------|
|                                  |   |   | Unrealized      |   | Unrealized |   | Carrying      |   |
| 2008:                                 | Cost   |   | Gains           |   | Losses     |   | Value         |   |
| Fixed      maturities:                |   |   |            |   |       |   |          |   |
| U.S.      Treasury securities         |   | $      | 1,110,327       |   |       | $      | 111,407       |   |   |   |   |   | $ | 1,221,734 |   |
| Municipal      bonds                  |   |   | 2,137,003       |   |       |   |          |   |   | $ | (8,523) |   |   |   | 2,128,480 |   |
| Corporate      bonds                  |   |   | 25,627,851      |   |       |   | 34,460        |   |   |   | (7,822,451) |   |   |   | 17,839,860 |   |
| Government      sponsored enterprises |   |   | 7,442,611  |   |       |   | 425,877  |   |   |   |   |   |   |   | 7,868,488 |   |
|                                  |   |   | 36,317,792      |   |       |   | 571,744       |   |   |   | (7,830,974) |   |   |   | 29,058,562 |   |
| Marketable      equity securities     |   |   | 102,322,281     |   |       |   | 27,348,470    |   |   |   | (9,312,290) |   |   |   | 120,358,461 |   |
| Total                                 |   | $      | 138,640,073     |   |       | $      | 27,920,214    |   |   | $ | (17,143,264) |   |   | $ | 149,417,023 |   |

|                                  |   |   | Gross           |   | Gross      |                                                                                                                                                                                                                                                                                                    |          |
|---------------------------------------|--------|--------|-----------------|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|
|                                  |   |   | Unrealized      |   | Unrealized |                                                                                                                                                                                                                                                                                                    | Carrying      |
| 2007:                                 | Cost   |   | Gains           |   | Losses     |                                                                                                                                                                                                                                                                                                    | Value         |
| Fixed      maturities:                |   |   |            |   |       |                                                                                                                                                                                                                                                                                                    |          |
| U.S.      Treasury securities         |   | $      | 1,114,725       |   |       | $                                                     54,047 |          |   |   |   |   | $                                                1,168,772 |
| Corporate      bonds                  |   |   | 96,869,497      |   |       |                                                                                                                                                                                                                                                                                                    | 194,358       |   |   | $  | (2,567,062) |   | 94,496,793 |
| Government      sponsored enterprises |   |   | 9,929,011  |   |       |                                                                                                                                                                                                                                                                                                    | 189,514  |   |   |   | (3,590) |   | 10,114,934  |
|                                  |   |   | 107,913,233     |   |       |                                                                                                                                                                                                                                                                                                    | 437,919       |   |   |   | (2,570,652) |   | 105,780,499 |
| Marketable      equity securities     |   |   | 134,224,760     |   |       |                                                                                                                                                                                                                                                                                                    | 128,072,028   |   |   |   | (2,553,643) |   | 259,743,145 |
| Total                                 |   | $      | 242,137,993     |   |       | $                                                                                                                                                                                                                                                                                                       | 128,509,947   |   |   | $ | (5,124,295) |   | $                                            365,523,644 |

|                                  |  2008      |    | 2007             |   |
|---------------------------------------|-----------------|---------|------------------|--------|
|                                  |            |    | Gross            |   |   |   |  Gross |   |
|                                  |            |    | Unrealized       |   |   |   | Unrealized |   |
| Less      than 12 months              | Fair      Value |    | Loss             |   | Fair      Value |   | Loss |   |
| Fixed      maturities:                |            |    |             |   |   |   |   |   |
| Municipal      bonds                  |            | $  | 2,128,480        |   |   | $  |        8,523 |   |   |   |   |   |   |   |   |   |
| Corporate      bonds                  |            |    | 5,290,363        |   |   |   | 1,586,298 |   |   | $  | 69,629,022 |   |   | $  | 1,918,168 |   |
| Government      sponsored enterprises |            |    |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                  |            |    | 7,418,843        |   |   |   | 1,594,821 |   |   |   | 69,629,022 |   |   |   | 1,918,168 |   |
| Marketable      equity securities     |            |    | 40,880,566       |   |   |   | 9,290,041 |   |   |   | 11,899,183 |   |   |   | 1,495,276 |   |
| Total                                 |            | $       |  48,299,409 |   |   | $ | 10,884,862 |   |   | $ | 81,528,205 |   |   | $ | 3,413,444 |   |

|                                       |  2008      |    | 2007       |   |
|---------------------------------------|-----------------|---------|------------|--------|
|                                  |            |    | Gross      |   |   |   |  Gross |   |
|                                  |            |    | Unrealized |   |   |   | Unrealized |   |
| Greater      than 12 months      | Fair      Value |    | Loss       |   | Fair      Value |   | Loss |   |
| Fixed      maturities:                |            |    |       |   |   |   |   |   |
| Municipal      bonds                  |            |    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Corporate      bonds                  |            | $  | 10,044,022 |   |   | $  | 6,236,152 |   |   | $  | 8,193,476 |   |   | $  | 648,894 |   |
| Government      sponsored enterprises |            |    |       |   |   |   |   |   |   |   | 996,853 |   |   |   | 3,590 |   |
|                                  |            |    | 10,044,022 |   |   |   | 6,236,152 |   |   |   | 9,190,329 |   |   |   | 652,484 |   |
| Marketable      equity securities     |            |    | 160,430    |   |   |   | 22,250 |   |   |   | 8,038,856 |   |   |   | 1,058,367 |   |
| Total                                 |            | $       | 10,204,452 |   |   | $ | 6,258,402 |   |   | $ | 19,085,745 |   |   | $ | 1,710,851 |   |

|                                   |   | Quoted      Prices In Active      |        |   | Significant      Other |   |    | Significant              |   |   |                              |   |
|----------------------------------------|--------|-----------------------------------|-------------|--------|------------------------|--------|---------|--------------------------|--------|--------|-----------------------------------|--------|
|                                   |   | Markets      for Identical Assets |        |   | Observable      Inputs |   |    | Unobservable      Inputs |   |   |                              |   |
|  Assets                           |   | (Level      1)                    |        |   | (Level      2)         |   |    | (Level      3)           |   |   | Balance      at December 31, 2008 |   |
| Available      for sale securities (A) |   | $                                 | 144,469,682 |   |                   | $      | 535,895 |                     |   | $      | 2,998,055                         |   |   | $ | 148,003,632 |   |
| Liabilities                            |   |                              |        |   |                   |   |    |                     |   |   |                              |   |   |   |   |   |
| Deferred      compensation (B)         |   | $                                 | 27,744,528  |   |                   |   |    |                     |   |   |                              |   |   | $ | 27,744,528 |   |

| (A) | Where      there are quoted market prices that are readily available in an active      market, securities are classified as Level 1 of the valuation      hierarchy.  Level 1 marketable equity securities are valued      using quoted market prices multiplied by the number of shares owned and      debt securities are valued using a market quote in an active      market.  Level 2 available for sale securities include      securities where the markets are not active, that is where there are few      transactions, or the prices are not current or the prices vary      considerably over time. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (B) | Deferred      compensation plans are compensation plans directed by the Company and      structured as a rabbi trust for certain executives and non-employee      directors.  The investment assets of the rabbi trust are valued      using quoted market prices multiplied by the number of shares held in each      trust account including the shares of PICO Holdings common stock held in      the trusts. The related deferred compensation liability represents the      fair value of the investmentassets. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Assets                             | Fair      Value Beginningof      Year | Unrealized      Gains      Included inIncome | Accumulated      Other      ComprehensiveIncome                                                                                              | Purchases,      Sales,      andIssuances | Transfers      In                                                                                                                                                                                    | Fair Value      at      End ofYear                                                                                                                    |
|------------------------------------|---------------------------------------|---------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Available      for sale securities |                                  |                                              | $                           318,510 |                                     | $                                    2,679,545 | $                                  2,998,055 |
|                               |                                  |                                              |                                                                                                                                         |                                     |                                                                                                                                                                                                 |                                                                                                                                                       |
|                               |                                  |                                              |                                                                                                                                         |                                     |                                                                                                                                                                                                 |                                                                                                                                                       |
|                               |

----

|                                       | Amortized |   | Carrying   |   |
|--------------------------------------------|-----------|--------|------------|--------|
|                                       | Cost      |   | Value      |   |
|                                       |      |   |       |   |
| Due      in one year or less               |      | $      | 3,039,511  |   |   | $ | 2,951,900 |   |
| Due      after one year through five years |      |   | 21,288,075 |   |   |   | 18,004,919 |   |
| Due      after five years                  |      |   | 11,990,206 |   |   |   | 8,101,743 |   |
|                                       |      | $      | 36,317,792 |   |   | $ | 29,058,562 |   |

|                                |   | 2008   |       |   | 2007   |   |       | 2006   |   |
|-------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
| Investment      income:             |   |   |       |   |   |   |       |   |   |
| Fixed      maturities               |   | $      | 2,618,183  |   |   | $      | 3,952,102  |   |   | $ | 2,084,072 |   |
| Equity      securities              |   |   | 2,965,296  |   |   |   | 4,202,648  |   |   |   | 3,333,526 |   |
| Other,      primarily cash balances |   |   | 4,823,212  |   |   |   | 9,034,590  |   |   |   | 8,171,777 |   |
| Total      investment income        |   |   | 10,406,691 |   |   |   | 17,189,340 |   |   |   | 13,589,375 |   |
| Investment      expenses:           |   |   | (261,261   | )      |   |   | (149,540   | )      |   |   | (33,183 | ) |
| Net      investment income          |   | $      | 10,145,430 |   |   | $      | 17,039,800 |   |   | $ | 13,556,192 |   |

|                                         |   | 2008   |        |   | 2007   |   |       | 2006   |   |
|----------------------------------------------|--------|--------|-------------|--------|--------|--------|------------|--------|--------|
| Gross      realized gains:                   |   |   |        |   |   |   |       |   |   |
| Fixed      maturities                        |   | $      | 52,280      |   |   | $      | 561        |   |   | $ | 138,624 |   |
| Equity      securities and other investments |   |   | 58,246,969  |   |   |   | 4,726,158  |   |   |   | 26,391,570 |   |
| Total      gain                              |   |   | 58,299,249  |   |   |   | 4,726,719  |   |   |   | 26,530,194 |   |
| Gross      realized losses:                  |   |   |        |   |   |   |       |   |   |   |   |   |
| Fixed      maturities                        |   |   | (3,119,497  | )      |   |   | (1,603,852 | )      |   |   | (14,324 | )  |
| Equity      securities and other investments |   |   | (18,952,294 | )      |   |   | (374,909   | )      |   |   | (462,793 | )  |
| Total      loss                              |   |   | (22,071,791 | )      |   |   | (1,978,761 | )      |   |   | (477,117 | )  |
| Net      realized gain                       |   | $      | 36,227,458  |   |   | $      | 2,747,958  |   |   | $ | 26,053,077 |   |

----

| 4. | BORROWINGS: |
|----|-------------|

|                                                                | 2008   |       |   | 2007   |   |
|---------------------------------------------------------------------|--------|------------|--------|--------|--------|
| Swiss      Borrowings:                                              |   |       |   |   |   |   |   |
| 4.19%      fixed due in 2009                                        | $      | 2,812,940  |   |   | $      | 2,647,371 |   |
| 3.98%      fixed due in 2009                                        |   | 11,720,581 |   |   |   | 11,030,709 |   |
| 4.87%      floating due on demand                                   |   | 4,030,532  |   |   |   |   |   |
| 4.43%      fixed due in 2011                                        |   | 4,219,409  |   |   |   |   |   |
| Mortgage Borrowings:                                                |   |       |   |   |   |   |   |
| 6.5%      fixed payment due in 2009 and 2010                        |   | 5,180,000  |   |   |   | 5,180,000 |   |
| 8%      fixed due in equal annual installments from 2009 to    2013 |   | 2,000,000  |   |   |   |   |   |
| 5.16%      fixed due in 2011                                        |   | 7,079,070  |   |   |   |   |   |
| 12%      fixed due in 2011                                          |   | 1,604,186  |   |   |   |   |   |
| 6.25%      fixed due in 2011                                        |   | 3,715,000  |   |   |   |   |   |
| Other Borrowings:                                                   |   |       |   |   |   |   |   |
| 6%      fixed due on demand                                         |   | 20,000     |   |   |   | 20,000 |   |
|                                                                | $      | 42,381,718 |   |   | $      | 18,878,080 |   |

| Year  |   |
|-------|--------|
| 2009  | $      | 21,514,966 |
| 2010  |   | 2,958,186 |
| 2011  |   | 17,015,306 |
| 2012  |   | 429,452 |
| 2013  |   | 463,808 |
| Total | $      | 42,381,718 |

----

| 5. | REAL ESTATE AND WATERASSETS: |
|----|------------------------------|

|                                                                                                                       | 2008   |             |   | 2007   |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|--------|--------|
|                                                                                                                       |   |             |   |   |   |
| Real      estate                                                                                                           | $      | 93,999,364       |   |   | $      | 53,869,524 |   |
| Real      estate improvements, net of accumulated amortization of $5.6 million in      2008 and $4.8 million in 2007  |   |  11,029,152 |   |   |   |  10,434,867 |   |
| Water      and water rights (net of accumulated amortization of zero in 2008 and      $931,000 in 2007)                    |   | 65,813,882       |   |   |   | 42,116,330 |   |
| Pipeline      rights and water credits at Fish Springs                                                                     |   | 100,871,902      |   |   |   | 94,185,071 |   |
|                                                                                                                       | $      | 271,714,300      |   |   | $      | 200,605,792 |   |

| · | pay      $500,000 upon signing of agreement; |
|--------|----------------------------------------------|

| · | transfer      6,214 acres of real estate Fish Springs owns (fair value of $500,000 and a      book value of $139,000); |
|--------|------------------------------------------------------------------------------------------------------------------------|

| · | pay      $3.1 million on January 8, 2008;and |
|--------|----------------------------------------------|

| · | pay      $3.6 million on the later of January 8, 2009 or the date the United States      Congress ratifies the settlement agreement (Interest accrues at the London      Inter-Bank Rate ("LIBOR") from January 8, 2009, if the payment is made      after that date). |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6. | NOTES AND OTHERRECEIVABLES: |
|----|-----------------------------|

|                     | 2008   |       |   | 2007   |   |
|--------------------------|--------|------------|--------|--------|--------|
| Notes      receivable    | $      | 11,121,764 |   |   | $      | 15,356,897 |   |
| Interest      receivable |   | 984,619    |   |   |   | 1,530,993 |   |
| Other      receivables   |   | 12,245,984 |   |   |   | 263,175 |   |
|                     | $      | 24,352,367 |   |   | $      | 17,151,065 |   |

See Note 7,Federal, Foreign and State Income Tax

----

| 7. | FEDERAL, FOREIGN AND STATE INCOME  TAX: |
|----|-----------------------------------------|

|                                                             | 2008   |            |   | 2007   |   |
|------------------------------------------------------------------|--------|-----------------|--------|--------|--------|
| Deferred      tax assets:                                        |   |            |   |   |   |
| Deferred      compensation                                       | $      | 6,968,887       |   |   | $      | 16,163,570 |   |
| Basis      difference on securities                              |   | 1,816,373       |   |   |   | 758,372 |   |
| Impairment      charges on securities                            |   | 9,608,437       |   |   |   | 5,342,519 |   |
| Net      operating losses                                        |   | 1,325,112       |   |   |   | 491,596 |   |
| Legal      settlement expense                                    |   | 1,260,000       |   |   |   | 2,505,795 |   |
| Excess      tax basis in subsidiary                              |   | 4,219,575       |   |   |   | 4,219,575 |   |
| Accumulated      foreign currency translation adjustments        |   | 3,308,326       |   |   |   | 639,387 |   |
| Unearned      revenue                                            |   | 1,995,976       |   |   |   | 1,815,134 |   |
| Employee      benefits, including stock-based compensation  |   | 4,115,964       |   |   |   | 2,619,085 |   |
| Other                                                            |   |  6,530,633 |   |   |   |  6,172,836 |   |
| Total      deferred tax assets                                   |   | 41,149,283      |   |   |   | 40,727,869 |   |
| Deferred      tax liabilities:                                   |   |            |   |   |   |   |   |
| Unrealized      appreciation on securities                       |   | 1,622,410       |   |   |   | 43,960,820 |   |
| Revaluation      of real estate and water assets                 |   | 4,761,461       |   |   |   | 4,872,032 |   |
| Foreign      receivables                                         |   | 3,364,641       |   |   |   | 2,392,991 |   |
| Real      estate installment sales                               |   | 3,469,044       |   |   |   | 4,415,828 |   |
| Other                                                            |   | 1,332,383       |   |   |   | 2,269,764 |   |
| Total      deferred tax liabilities                    |   | 14,549,939      |   |   |   | 57,911,435 |   |
| Valuation      allowance                                         |   | (1,325,112)     |   |   |   | (491,596) |   |
| Net      deferred income tax asset (liability)                   | $      | 25,274,232      |   |   | $      | (17,675,162 | )  |

|               | 2008   |        |   | 2007   |   |      | 2006   |   |
|--------------------|--------|-------------|--------|--------|--------|-----------|--------|--------|
| United      States | $      | (7,352,018) |   |   | $      | 2,110,723 |   |   | $ | 40,711,997 |   |
| Foreign            |   | 63,741,053  |   |   |   | (97,058)  |   |   |   | 10,154,749 |   |
| Total              | $      | 56,389,035  |   |   | $      | 2,013,665 |   |   | $ | 50,866,746 |   |

----

|                                 | 2008   |       |   | 2007   |   |       | 2006   |   |
|--------------------------------------|--------|------------|--------|--------|--------|------------|--------|--------|
| Current      tax expense (benefit):  |   |       |   |   |   |       |   |   |
| United      States Federal and state | $      | 13,754,797 |   |   | $      | 10,407,829 |   |   | $ | 14,397,082 |   |
| Foreign                              |   | 12,060,194 |   |   |   | (280,117   | )      |   |   | 706,890 |   |
|                                 |   | 25,814,991 |   |   |   | 10,127,712 |   |   |   | 15,103,972 |   |
| Deferred      tax expense (benefit): |   |       |   |   |   |       |   |   |   |   |   |
| United      States Federal and state |   | 2,679,940  |   |   |   | (6,591,909 | )      |   |   | 4,168,822 |   |
| Foreign                              |   | (3,915     | )      |   |   | (104       | )      |   |   | 117,580 |   |
|                                 |   | 2,676,025  |   |   |   | (6,592,013 | )      |   |   | 4,286,402 |   |
| Total      income tax provision      | $      | 28,491,016 |   |   | $      | 3,535,699  |   |   | $ | 19,390,374 |   |

|                                                                      | 2008   |       |   | 2007   |   |      | 2006   |   |
|---------------------------------------------------------------------------|--------|------------|--------|--------|--------|-----------|--------|--------|
| Federal      income tax provision at statutory rate                       | $      | 19,736,162 |   |   | $      | 704,783   |   |   | $ | 17,803,361 |   |
| Change      in valuation allowance                                        |   | 833,516    |   |   |   | 455,426   |   |   |   | (1,281,273) |   |
| State      taxes, net of federal benefit                                  |   | 2,774,181  |   |   |   | 383,379   |   |   |   | (23,658) |   |
| Management      compensation                                              |   | 273,000    |   |   |   | 790,125   |   |   |   | 1,533,445 |   |
| Interest      and penalties                                               |   | 1,720,329  |   |   |   | 350,526   |   |   |   | (157,660) |   |
| Foreign      rate differences                                             |   | 638,691    |   |   |   | 314,299   |   |   |   |   |   |
| Previously      untaxed earnings and profits from foreign    subsidiaries |   | 2,773,286  |   |   |   |      |   |   |   |   |   |
| Rate      changes                                                         |   |       |   |   |   |      |   |   |   | (212,935 | ) |
| Write      off of deferred tax assets                                     |   |       |   |   |   | 616,224   |   |   |   | 504,389 |   |
| Permanent      differences                                                |   | (258,149   | )      |   |   | (79,063   | )      |   |   | 1,224,705 |   |
|                                                                      |   |       |   |   |   |      |   |   |   |   |   |
| Total      income tax provision                                           | $      | 28,491,016 |   |   | $      | 3,535,699 |   |   | $ | 19,390,374 |   |

| Balance      at January 1, 2008                                                                       | $                                                                                                3,277,654  |
|-------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Additions      for tax positions related to the current year (no reductions in the      current year) | 9,330,822                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Balance      at December 31, 2008                                                                     |        $                                                                                    12,608,476 |

----

| 8. | PROPERTY ANDEQUIPMENT: |
|----|------------------------|

|                                          | 2008   |       |   | 2007   |   |
|-----------------------------------------------|--------|------------|--------|--------|--------|
| Office      furniture, fixtures and equipment | $      | 3,921,822  |   |   | $      | 3,748,193 |   |
| Building      and leasehold improvements      |   | 668,834    |   |   |   | 254,131 |   |
|                                          |   | 4,590,656  |   |   |   | 4,002,324 |   |
| Accumulated      depreciation                 |   | (3,078,286 | )      |   |   | (2,789,930 | ) |
| Property      and equipment, net              | $      | 1,512,370  |   |   | $      | 1,212,394 |   |

| 9. | SHAREHOLDERS’EQUITY: |
|----|----------------------------|

----

| Expected      volatility      | 29%      — 31%   |
|-------------------------------|------------------------|
| Expected      term            | 7      years           |
| Risk-free      rate           | 4.3%      — 4.7% |
| Expected      dividend yield  | 0%                     |
| Expected      forfeiture rate | 0%                     |

|                                             | SAR       |   | Weighted      AverageExercise      Price |              | Weighted      AverageContractual      Term Remaining |
|--------------------------------------------------|-----------|--------|------------------------------------------|-------------------|------------------------------------------------------|
| Outstanding      at January 1, 2008              | 2,007,018 |   |  $                                  | 36.87             |                                                 |   |
| Granted                                          |      |   |                                     |              |                                                 |   |
| Exercised                                        | (12,000)  |   |  $                                  |        33.67 |                                                 |   |
| Outstanding      at December 31, 2008            | 1,995,018 |   |  $                                  | 36.89             |                                                 | 7.5      years |
| Vested      and exercisable at December 31, 2008 | 1,719,190 |   |  $                                  | 35.83             |                                                 | 7.3      years |

|                                                                               | SAR    |    |   | Weighted      Average GrantDate      Fair Value |   |
|------------------------------------------------------------------------------------|--------|---------|--------|-------------------------------------------------|--------|
| Unvested      at January 1, 2008                                                   |   | 497,252 |   |                                            | $      | 18.24 |   |
| Granted                                                                            |   |    |   |                                            |   |   |   |
| Vested                                                                             |   | 221,424 |   |                                            |   | 18.15 |   |
| Unvested      at December 31, 2008 (expected to vest over the next two      years) |   | 275,828 |   |                                            | $      | 18.31 |   |

----

| 10. | REINSURANCE: |
|-----|--------------|

|                                                          | 2008   |   | 2007       |   |
|---------------------------------------------------------------|--------|--------|------------|--------|
| Estimated      reinsurance recoverable on:                    |   |   |       |   |
| Unpaid      losses and loss adjustment expense                |   | $      | 15,877,372 |   |   | $ | 16,653,254 |   |
| Reinsurance      recoverable on paid losses and loss expenses |   |   | 495,760    |   |   |   | 234,699 |   |
| Reinsurance      receivables                                  |   | $      | 16,373,132 |   |   | $ | 16,887,953 |   |

|                                     | Reported |      |   | Unreported |   |       | Reinsurer |   |
|------------------------------------------|----------|-----------|--------|------------|--------|------------|-----------|--------|
|                                     | Claims   |      |   | Claims     |   |       | Balances  |   |
| General      Reinsurance (A++)           | $        | 5,694,187 |   |       | $      | 10,035,302 |      |   | $ | 15,729,489 |   |
| Swiss      Reinsurance America Corp (A+) |     | 44,964    |   |       |   | 233,507    |      |   |   | 278,471 |   |
| All      others                          |     | 111,312   |   |       |   | 253,860    |      |   |   | 365,172 |   |
|                                     | $        | 5,850,463 |   |       | $      | 10,522,669 |      |   | $ | 16,373,132 |   |

|    | 2008   |           |   | 2007   |   |       | 2006   |   |
|---------|--------|----------------|--------|--------|--------|------------|--------|--------|
| Direct  | $      | (2,069,991     | )      |   | $      | (2,323,098 | )      |   | $ | (700,818 | ) |
| Assumed |   |  (145,487 | )      |   |   |       |   |   |   | (2,927 | )  |
| Ceded   |   | (240,908       | )      |   |   | (1,277,993 | )      |   |   | (2,520,656 | ) |
|    | $      | (2,456,386     | )      |   | $      | (3,601,091 | )      |   | $ | (3,224,401 | ) |

----

| 11. | RESERVES FOR UNPAID LOSS AND LOSS ADJUSTMENT      EXPENSES: |
|-----|-------------------------------------------------------------|

|                                                                                | 2008   |        |   | 2007   |   |        | 2006   |   |
|-------------------------------------------------------------------------------------|--------|-------------|--------|--------|--------|-------------|--------|--------|
| Balance      at January 1                                                           | $      | 32,376,018  |   |   | $      | 41,083,301  |   |   | $ | 46,646,906 |   |
| Less      reinsurance recoverable                                                   |   | (16,653,254 | )      |   |   | (16,972,280 | )      |   |   | (15,858,000 | ) |
| Net      balance at January 1                                                       |   | 15,722,764  |   |   |   | 24,111,021  |   |   |   | 30,788,906 |   |
| Incurred      loss and loss adjustment recovery for prior accident year      claims |   | (2,456,386  | )      |   |   | (3,601,091  | )      |   |   | (3,224,401 | ) |
| Payments      for claims occurring during                                           |   |        |   |   |   |        |   |   |   |   |   |
| prior      accident years                                                           |   | (1,370,430  | )      |   |   | (4,787,166  | )      |   |   | (3,453,484 | ) |
| Net      change for the year                                                        |   | (3,826,816  | )      |   |   | (8,388,257  | )      |   |   | (6,677,885 | ) |
| Net      balance at December 31                                                     |   | 11,895,948  |   |   |   | 15,722,764  |   |   |   | 24,111,021 |   |
| Plus      reinsurance recoverable                                                   |   | 15,877,372  |   |   |   | 16,653,254  |   |   |   | 16,972,280 |   |
| Balance      at December 31                                                         | $      | 27,773,320  |   |   | $      | 32,376,018  |   |   | $ | 41,083,301 |   |

| 12. | EMPLOYEE      BENEFITS, COMPENSATION AND INCENTIVEPLAN: |
|-----|---------------------------------------------------------|

----

| 13. | REGULATORY      MATTERS: |
|-----|--------------------------|

| 14. | COMMITMENTS ANDCONTINGENCIES: |
|-----|-------------------------------|

| Year  |   |                |
|-------|--------|---------------------|
| 2009  | $      |        644,312 |   |
| 2010  |   | 534,882             |   |
| 2011  |   | 34,054              |   |
| 2012  |   | 7,148               |   |
| 2013  |   | 3,574               |   |
| Total | $      | 1,223,970           |   |

----

| 15. | RELATED-PARTY      TRANSACTIONS: |
|-----|----------------------------------|

| 16. | STATUTORY      INFORMATION: |
|-----|-----------------------------|

| (1) | Certain      assets are designated as “non-admitted assets” and charged to      policyholders’ surplus for statutory accounting purposes (principally      certain agents’ balances and office furniture and    equipment). |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Equity      in net income of subsidiaries and affiliates is credited directly to      shareholders’ equity for statutory accounting  purposes. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Fixed      maturity securities are carried at amortized  cost. |
|-----|----------------------------------------------------------------|

| (4) | Loss      and loss adjustment expense reserves and unearned premiums are reported      net of the impact of reinsurance for statutory accounting      purposes. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                        | 2008        |        |   | 2007   |   |       | 2006   |   |
|---------------------------------------------|-------------|-------------|--------|--------|--------|------------|--------|--------|
| Physicians      Insurance Company of Ohio : | (Unaudited) |        |   |   |   |       |   |   |
| Policyholders'      surplus                 | $           | 43,749,365  |   |   | $      | 80,257,090 |   |   | $ | 68,929,902 |   |
| Statutory      net income (loss)            | $           | (6,303,194) |   |   | $      | 3,795,340  |   |   | $ | 7,173,897 |   |
| Citation      Insurance Company:            |        |        |   |   |   |       |   |   |   |   |   |
| Policyholders'      surplus                 | $           | 15,242,226  |   |   | $      | 25,143,218 |   |   | $ | 26,383,195 |   |
| Statutory      net income (loss)            | $           | (3,787,721) |   |   | $      | 2,858,624  |   |   | $ | 3,502,998 |   |

----

| 17. | SEGMENT      REPORTING: |
|-----|-------------------------|

| · | development      of water for end-users in the southwestern United States, namely water      utilities, municipalities, developers, or industrial users. Typically, the      source of water is from identifying and developing a new water supply, or      a change in the use of an existing water supply from agricultural to      municipal and industrial; and |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | construction      and development of water storage facilities for the purchase and recharge      of water for resale in future periods, and distribution infrastructure to      more efficiently use existing and new supplies of  water. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                         |             | Water      Resources          |   | Insurance          |   |      |        |         |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------------------------------------------------------------|------------------|-------------------------------|--------|--------------------|--------|-----------|-------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                         | Real      Estate | and      Water                |   | Operations      in |   |      |        |         |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                         | Operations       | Storage      Operations  |   | Run      Off       |   | Corporate |        | Consolidated |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 2008                                                         |             |                          |   |               |   |      |        |         |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Total      revenues (charges)                                | $                | 5,470,434                     | $      | 11,271,926         |   | $         | (2,156,834  | )       | $                                                                        45,766,014            |   | $ | 60,351,540 |   |
| Net      investment income                                   |             | 2,203,265                     |   | 968,680            |   |      | 3,213,661   |         | 3,759,824                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 10,145,430 |   |
| Depreciation      and amortization                           |             | 20,211                        |   | 1,098,538          |   |      | 1,029       |         | 140,693                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 1,260,471 |   |
| Income      (loss) before income taxes and minority interest |             | 365,758                       |   | 4,184,616          |   |      | (1,485,856  | )       | 53,324,517                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 56,389,035 |   |
| Total      assets                                            |             | 97,592,062                    |   | 225,870,410        |   |      | 157,186,357 |         | 111,984,967                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 592,633,796 |   |
| Capital      expenditure                                     |             | 81,680                        |   | 15,039,386         |   |      |        |         | 228,904                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 15,349,970 |   |
|                                                         |             |                          |   |               |   |      |        |         |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |
| 2007                                                         |             |                          |   |               |   |      |        |         |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |
| Total      revenues                                          | $                | 13,479,254                    | $      | 7,937,461          |   | $         | 7,609,014   |         | $                                                                          4,903,019 |   | $ | 33,928,748 |   |
| Net      investment income                                   |             | 3,139,791                     |   | 4,417,871          |   |      | 3,457,187   |         | 6,024,951                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 17,039,800 |   |
| Depreciation      and amortization                           |             | 18,364                        |   | 1,042,388          |   |      | 1,598       |         | 43,677                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | 1,106,027 |   |
| Income      (loss) before income taxes and minority interest |             | 8,108,724                     |   | (5,283,264         | )      |      | 9,779,300   |         | (10,591,095)                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   | 2,013,665 |   |
| Total      assets                                            |             | 83,750,531                    |   | 231,863,512        |   |      | 221,348,861 |         | 139,379,376                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 676,342,280 |   |
| Capital      expenditure                                     |             | 10,370                        |   | 48,670,231         |   |      |        |         | 301,481                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 48,982,082 |   |
|                                                         |             |                          |   |               |   |      |        |         |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |
| 2006                                                         |             |                          |   |               |   |      |        |         |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |
| Total      revenues                                          | $                | 41,405,577                    | $      | 6,181,616          |   | $         | 13,277,532  |         | $                                                                   21,858,519            |   | $ | 82,723,244 |   |
| Net      investment income                                   |             | 1,981,172                     |   | 2,805,107          |   |      | 3,158,955   |         | 5,610,958                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 13,556,192 |   |
| Depreciation      and amortization                           |             | 54,223                        |   | 1,084,404          |   |      | 7,467       |         | 76,257                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | 1,222,351 |   |
| Income      (loss) before income taxes and minority interest |             | 30,499,188                    |   | (2,451,422)        |   |      | 15,980,096  |         | 6,838,884                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 50,866,746 |   |
| Total      assets                                            |             | 73,266,068                    |   | 146,115,727        |   |      | 202,356,668 |         | 127,304,476                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 549,042,939 |   |
| Capital      expenditure                                     |             | 79,938                        |   | 33,512,587         |   |      |        |         | 27,337                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | 33,619,862 |   |

----

|                                                         |   | United |                               |   |   |         |   |
|--------------------------------------------------------------|--------|--------|------------------------------------|--------|--------|--------------|--------|
|                                                         |   | States |                               | Europe |   | Consolidated |   |
| 2008                                                         |   |   |                               |   |   |         |   |
| Total      revenues                                          |   | $      |     11,222,981 |   | $      | 49,128,559   |   | $ | 60,351,540 |   |
| Net      investment income                                   |   |   | 9,045,735                          |   |   | 1,099,695    |   |   | 10,145,430 |   |
| Depreciation      and amortization                           |   |   | 1,260,471                          |   |   |         |   |   | 1,260,471 |   |
| Income      (loss) before income taxes and minority interest |   |   | (3,645,458)                        |   |   | 60,034,493   |   |   | 56,389,035 |   |
| Total      assets                                            |   |   | 586,241,646                        |   |   | 6,392,150    |   |   | 592,633,796 |   |
| Capital      expenditure                                     |   |   | 15,349,970                         |   |   |         |   |   | 15,349,970 |   |
|                                                         |   |   |                               |   |   |         |   |   |   |   |
| 2007                                                         |   |   |                               |   |   |         |   |   |   |   |
| Total      revenues                                          |   | $      | 32,341,826                         |   | $      | 1,586,922    |   | $ | 33,928,748 |   |
| Net      investment income                                   |   |   | 15,493,618                         |   |   | 1,546,182    |   |   | 17,039,800 |   |
| Depreciation      and amortization                           |   |   | 1,106,027                          |   |   |         |   |   | 1,106,027 |   |
| Income      before income taxes and minority interest        |   |   | 1,876,937                          |   |   | 136,728      |   |   | 2,013,665 |   |
| Total      assets                                            |   |   | 602,778,894                        |   |   | 73,563,386   |   |   | 676,342,280 |   |
| Capital      expenditure                                     |   |   | 48,982,082                         |   |   |         |   |   | 48,982,082 |   |
|                                                         |   |   |                               |   |   |         |   |   |   |   |
| 2006                                                         |   |   |                               |   |   |         |   |   |   |   |
| Total      revenues                                          |   | $      | 69,553,292                         |   | $      | 13,169,952   |   | $ | 82,723,244 |   |
| Net      investment income                                   |   |   | 11,858,886                         |   |   | 1,697,306    |   |   | 13,556,192 |   |
| Depreciation      and amortization                           |   |   | 1,222,351                          |   |   |         |   |   | 1,222,351 |   |
| Income      before income taxes and minority interest        |   |   | 40,573,284                         |   |   | 10,293,462   |   |   | 50,866,746 |   |
| Total      assets                                            |   |   | 442,694,654                        |   |   | 106,348,285  |   |   | 549,042,939 |   |
| Capital      expenditure                                     |   |   | 33,619,862                         |   |   |         |   |   | 33,619,862 |   |

| 18. | DISCLOSURES      ABOUT FAIR VALUE OF FINANCIALINSTRUMENTS: |
|-----|------------------------------------------------------------|

|   | - | CASH AND CASH      EQUIVALENTS, RECEIVABLES, PAYABLES AND ACCRUED LIABILITIES: Carrying      amounts for these items approximate fair value because of the short      maturity of these instruments. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | INVESTMENTS:      Fair values are estimated based on quoted market prices, or dealer quotes      for the actual or comparable securities. Fair value for equity securities      that do not have a readily determinable fair value is estimated based on      the value of the underlying common stock. The Company regularly evaluates      the carrying value of securities to determine whether there has been any      diminution in value that is other-than-temporary and adjusts the value      accordingly. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | BORROWINGS:      Carrying amounts for these items approximates fair value because current      interest rates and, therefore, discounted future cash flows for the terms      and amounts of loans disclosed in Note 4, are not significantly different      from the original terms. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                           | December      31, 2008 |    | December      31, 2007 |   |
|--------------------------------|------------------------|---------|------------------------|--------|
|                           | Carrying               |    | Estimated              |   | Carrying |   | Estimated |   |
|                           | Amount                 |    | Fair      Value        |   | Amount |   | Fair      Value |   |
| Financial      assets:         |                   |    |                   |   |   |   |   |   |
| Fixed      maturities          |                   | $       | 29,058,562             |   |   | $ | 29,058,562 |   |   | $ | 105,780,499 |   |   | $ | 105,780,499 |   |
| Equity      securities         |                   | $  | 120,358,461            |   |   | $  | 120,358,461 |   |   | $  | 259,743,145 |   |   | $  | 259,743,145 |   |
| Cash      and cash equivalents |                   | $  | 96,316,018             |   |   | $  | 96,316,018 |   |   | $  | 70,791,025 |   |   | $  | 70,791,025 |   |
| Financial      liabilities:    |                   |    |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowings                     |                   | $       | 42,381,718             |   |   | $  | 42,381,718 |   |   | $  | 18,878,080 |   |   | $  | 18,878,080 |   |

----

| ITEM      9. | CHANGE      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL      DISCLOSURE |
|--------------|-----------------------------------------------------------------------------------------------|

| ITEM      9A. | CONTROLS      AND PROCEDURES |
|---------------|------------------------------|

----

----

| ITEM      9B. | OTHER      INFORMATION |
|---------------|------------------------|

| ITEM      10. | DIRECTORS,      EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE |
|---------------|------------------------------------------------------------|

| ITEM      11. | EXECUTIVE      COMPENSATION |
|---------------|-----------------------------|

| ITEM      12.  | SECURITY      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED      STOCKHOLDER MATTERS |
|---------------------|-----------------------------------------------------------------------------------------------------------|

| ITEM      13. | CERTAIN      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR      INDEPENDENCE |
|---------------|-------------------------------------------------------------------------------------|

| ITEM      14. | PRINCIPAL      ACCOUNTING FEES AND SERVICES |
|---------------|---------------------------------------------|

----

| ITEM      15. | EXHIBITS AND FINANCIAL STATEMENT    SCHEDULES |
|---------------|-----------------------------------------------|

|   | (a) | FINANCIAL      SCHEDULES AND EXHIBITS. |
|--------|-----|----------------------------------------|

|   | 1. | Financial      Statement Schedules. |
|--------|----|-------------------------------------|

|   | 2. | Exhibits |
|--------|----|----------|

| ExhibitNumber |   | Description                                    |
|---------------|--------|------------------------------------------------|
|          | 3(i)   |                                           | Amended      and Restated Articles of Incorporation of PICO.(1) |
| 3(ii)         |   | Amended      and Restated By-laws of PICO. (2) |
|          | 4.1    |                                           | Form      of Securities Purchase Agreement between PICO Holdings, Inc. and the      Purchasers. (3) |
|          | 4.3    |                                           | Form      of Indenture relating to Debt Securities. (4) |
|          | 10.1   |                                           | PICO      Holdings, Inc. Long-Term Incentive Plan. (5) |
|          | 10.4   |                                           | Bonus      Plan of Dorothy A. Timian-Palmer. (6) (11) |
|          | 10.5   |                                           | Bonus      Plan of Stephen D. Hartman. (6) (11) |
|          | 10.7   |                                           | Employment      Agreement of Ronald Langley. (7) (11) |
|          | 10.15  |                                           | Employment      Agreement of John R. Hart. (8) (11) |
|          | 10.17  |                                           | Pyramid      Lake Paiute Tribe Settlement Agreement with Fish Springs Ranch, LLC.      (9) |
|          | 10.18  |                                           | Infrastructure      Dedication Agreement between Fish Springs Ranch, LLC. and Washoe County,      Nevada.      (10) |
|          | 10.19  |                                           | Amendment      to Employment Agreement of John R. Hart. |
|          | 21.1   |                                           | Subsidiaries      of PICO. |
|          | 23.1   |                                           | Consent      of Independent Registered Public Accounting Firm - Deloitte & Touche      LLP. |
|          | 31.1   |                                           | Certification      of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted      pursuant to Section 302 of the Sarbanes-Oxley Act of  2002. |
|          | 31.2   |                                           | Certification      of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted      pursuant to Section 302 of the Sarbanes-Oxley Act of  2002. |
|          | 32.1   |                                           | Certification      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906      of the Sarbanes-Oxley Act of 2002). |
|          | 32.2   |                                           | Certification      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906      of the Sarbanes-Oxley Act of 2002). |

|   | (1  | ) | Incorporated      by reference to exhibit of same number filed with Form 10-Q dated November      7, 2007.                                                                              |
|--------|-----|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (2  | ) | Incorporated      by reference to Form 8-K filed with the SEC on November 5,      2007.                                                                                                 |
|   | (3  | ) | Incorporated      by reference to Form 8-K filed with the SEC on March 2,    2007.                                                                                                      |
|   | (4  | ) | Incorporated      by reference to Form S-3 filed with SEC on November 20,    2007.                                                                                                      |
|   | (5  | ) | Incorporated      by reference to Proxy Statement for Special Meeting of Shareholders on      December 8, 2005, dated November 8, 2005 and filed with the SEC on      November 8, 2005. |
|   | (6  | ) | Incorporated      by reference to Form 8-K filed with the SEC on February 25,      2005.                                                                                                |
|   | (7  | ) | Incorporated      by reference to exhibit of same number filed with Form 10-Q for the      quarterly period ended September 30, 2005.                                                   |
|   | (8  | ) | Incorporated      by reference to Form 8-K filed with the SEC on May 9,  2007.                                                                                                          |
|   | (9  | ) | Incorporated      by reference to Form 8-K filed with the SEC on June 5,    2007.                                                                                                       |
|   | (10 | ) | Incorporated      by reference to exhibit of same number filed with Form 10-Q for the      quarterly period ended September 30, 2007.                                                   |
|   | (11 | ) | Indicates      arrangement or compensatory plan or arrangement required to be identified      pursuant to Item 15(a).                                                              |

----

| PICO      Holdings, Inc. |
|--------------------------|
|                     |   |
|                     |   |
| By:                      | /s/John      R. Hart |
|                     | John      R. Hart |
|                     | Chief      Executive Officer |
|                     | President      and Director |

| /s/      John D. Weil                  | Chairman      of the Board                           |
|----------------------------------------|------------------------------------------------------|
| John      D. Weil                      |                                                 |
|                                   |                                                 |
| /s/      John R. Hart                  | Chief      Executive Officer, President and Director |
| John      R. Hart                      | (Principal      Executive Officer)                   |
|                                   |                                                 |
| /s/      Maxim C. W. Webb              | Chief      Financial Officer and Treasurer           |
| Maxim      C. W. Webb                  | (Chief      Accounting Officer)                      |
|                                   |                                                 |
| /s/      Ronald Langley                | Director                                             |
| Ronald      Langley                    |                                                 |
|                                   |                                                 |
| /s/      Richard D. Ruppert, MD        | Director                                             |
| Richard      D. Ruppert, MD            |                                                 |
|                                   |                                                 |
| /s/      S. Walter Foulkrod, III, Esq. | Director                                             |
| S.      Walter Foulkrod, III, Esq.     |                                                 |
|                                   |                                                 |
|  /s/      Carlos C. Campbell      | Director                                             |
| Carlos      C. Campbell                |                                                 |
|                                   |                                                 |
| /s/      Kenneth J. Slepicka           | Director                                             |
| Kenneth      J. Slepicka               |                                                 |