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| x | 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 ¨ |
|------------------------------------|--------------------------|------------------------------|----------------------------------|

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|       |      |                                                                                                               | Page No. |
|------------|-----------|--------------------------------------------------------------------------------------------------------------------|----------|
| PART I     | 1         |
|       |      |                                                                                                               |     |
|       | Item 1.   | BUSINESS                                                                                                           | 1        |
|       | Item 1A.  | RISK FACTORS                                                                                                       | 8        |
|       | Item 1B.  | UNRESOLVED STAFF COMMENTS                                                                                          | 14       |
|       | Item 2.   | PROPERTIES                                                                                                         | 14       |
|       | Item 3.   | LEGAL PROCEEDINGS                                                                                                  | 15       |
|       | Item 4.   | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                | 16       |
|       |      |                                                                                                               |     |
| PART II    |   16 |
|       |      |                                                                                                               |     |
|       | Item 5.   | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 16       |
|       | Item 6.   | SELECTED FINANCIAL DATA                                                                                            | 18       |
|       | Item 7.   | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        | 18       |
|       | Item 7A.  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         | 54       |
|       | Item 8.   | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                        | 55       |
|       | Item 9.   | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               | 86       |
|       | Item 9A.  | CONTROLS AND PROCEDURES                                                                                            | 86       |
|       | Item 9B.  | OTHER INFORMATION                                                                                                  | 88       |
|       |      |                                                                                                               |     |
| PART III   |   88 |
|       |      |                                                                                                               |     |
|       | Item 10.  | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE                                                            | 88       |
|       | Item 11.  | EXECUTIVE COMPENSATION                                                                                             | 88       |
|       | Item 12.  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                     | 88       |
|       | Item 13.  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                          | 88       |
|       | Item 14.  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                             | 88       |
|       |      |                                                                                                               |     |
| PART IV    |   88 |
|       |      |                                                                                                               |     |
|       | Item 15.  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                         | 88       |
|       |      |                                                                                                               |     |
| SIGNATURES | 100       |

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PART I

. BUSINESS 

| · | Water Resource and Water Storage Operations;       |
|--------|----------------------------------------------------|
| · | Real Estate Operations;                            |
| · | Insurance Operations in “Run Off”; and |
| · | Corporate.                                         |

| · | Vidler Water Company, Inc. (“Vidler”), a business that we started more than 14 years ago, which acquires and develops water resources and water storage operations in the southwestern United States, with assets and operations in Nevada, Arizona, Idaho, Colorado and New Mexico;                                                                 |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | UCP, LLC (“UCP”), a business that we started in 2008, which acquires and develops partially-developed and finished residential housing lots in selected markets in California;                                                                                                                                                                       |
| · | Nevada Land and Resource Company, LLC (“Nevada Land”), a business that we started when we acquired the company more than 12 years ago, which sells property in northern Nevada and also sells or leases certain sub – surface rights (such as mineral rights, water rights and geothermal rights) associated with Nevada Land’sproperty; |
| · | 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 and casualty insurance and workers’ compensation loss reserves.                                                                                                                                                                                       |

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Operating Segments and Major Subsidiary Companies

| · | 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 identifiedby Vidler, it may require regulatory approval to import the water from its source to where the demand is, or the 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.  Thevalue 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 resourcesare the most competitive source of water (the most economical source of water supply) to support new growth in municipalities or new commercial developments; and |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a water storage facility in Arizona.  Vidler stores water for its own account at the Vidler Arizona Recharge Facility located approximately 70 miles west of Phoenix.  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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

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| · | 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 commercial 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 commercial 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 commercialprojects or communities. |

| Name of asset and 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.  Lincoln/Vidler were awarded 396 acre – feet of permitted water rights in the Tule Desert Groundwater Basin in Lincoln County and own 1,000 acre – feet of permitted water rights in the Kane Springs Valley Basin in Lincoln County.      In addition, Lincoln/Vidler also own 1,009 acre–feet of permitted agricultural - use water rights.   |        Lincoln/Vidler is appealing the ruling in 2009 that awarded only 396 acre – feet of permitted water rights in the Tule Desert Groundwater Basin.  Lincoln/Vidler had applied for 7,240 acre – feet of water rights. Lincoln/Vidler has closed a sale agreement of 1,000 acre – feet of permitted water rights in Kane Springs Valley Basin in Lincoln County with a developer. Vidler’s portion of the water rights is approximately 747 acre – feet.  Vidler has agreed to finance the sale of its portion of the water rights over theperiod ending April 2012 at 10% per annum. Lincoln/Vidler is putting the agricultural use water rights to beneficial use on property owned by Vidler in Dry Lake Valley in Lincoln County. |

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| Sandy ValleyNear the Nevada/California state line near theInterstate 15 corridor                                            | Water rights applications for 2,000 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 Lake ValleyLincoln County, Nevada                                                                                  | Approximately 795 acres of real estate and 1,009 acre–feet of permitted irrigation water rights.                                                                                                                                                                                  | The property is being used by Lincoln / Vidler to put 1,009 acre – feet of agricultural use water rights to beneficial use.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Carson River GroundwaterCarson City, Lyon County and Douglas County, Nevada                                                 | Approximately 1,200 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. 43 acres of ranch land. 950 acres of developable real estate. | Development and Improvement agreements with Carson City and Lyon County to provide water resources for planned future growth in Lyon County with a connection between the water systems of both municipalities. Parceled into 4 developable lots. Available for development.                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                        |                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Other states:                                                                                                               |                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                        |                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Colorado water rights                                                                                                       | 173 acre-feet of water rights.                                                                                                                                                                                                                                                          | 67 acre-feet leased.  106 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.                                                                                                                                                                                                                           | The properties are leased and currently being farmed.  Vidler has also entered into a geothermal lease agreement with a geothermal energy provider.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                        |                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 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, 2009, Vidler had net recharge credits of approximately 217,000 acre-feet of water in storage: approximately 212,000 acre – feet in the Arizona Recharge Facility and approximately 5,000 acre – feet in an Arizona state owned storage sitewithin the Phoenix Active Management Area.  In addition, Vidler has ordered approximately 47,000 acre-feet of water for recharge in 2010 (approximately 41,500 acre – feet at the Arizona Recharge Facility and 5,500 acre – feet in the Phoenix Active Management Area). |

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| · | 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;                                                                                                                                                                          |
| · | the management of mineral rights; and                                                                                                                                                                                                         |
| · | the development of geothermal rights.                                                                                                                                                                                                         |

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| · | 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.  Weaim 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.                                                                                                                                                                                                                     |

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| Name                    | Age    | Position                                                                  |
|-------------------------|--------|---------------------------------------------------------------------------|
|                    |   |                                                                      |
| John R. Hart            | 50     | President, Chief Executive Officer and Director                           |
| Richard H. Sharpe       | 54     | Executive Vice President and Chief Operating Officer                      |
| Damian C. Georgino      | 49     | Executive Vice President of Corporate Development and Chief Legal Officer |
| James F. Mosier    | 62     | General Counsel and Secretary                                             |
| Maxim C. W. Webb        | 48     | Executive Vice President and Chief Financial Officer and Treasurer        |
| W. Raymond Webb    | 48     | Vice President, Investments                                               |
| John T. Perri | 40     | Vice President, Controller                                                |

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ITEM 1A.  RISK FACTORS

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----

----

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| · | the length of time in reporting claims;                                                          |
|--------|--------------------------------------------------------------------------------------------------|
| · | the range of historical losses among claims;                                                     |
| · | 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 over time.                                               |

----

| · | 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 governmental controls;                              |
| · | 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 United States.                |

UNRESOLVED STAFF COMMENTS 

ITEM 2.  PROPERTIES

Item 1-Operating Segments and Major Subsidiary Companies

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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.  The United States Congress has not yet acted upon the settlement. |

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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

|           |   | 2009 |   |   | 2008   |   |
|----------------|--------|------|--------|--------|--------|--------|
|           |   | High |   | Low    |   |   | High |   | Low |   |
| First Quarter  |   | $    | 31.40  |   | $      | 19.75  |   |   | $ | 34.30 |   | $ | 29.47 |   |
| Second Quarter |   | $    | 31.15  |   | $      | 27.01  |   |   | $ | 44.45 |   | $ | 31.44 |   |
| Third Quarter  |   | $    | 33.77  |   | $      | 25.78  |   |   | $ | 48.22 |   | $ | 35.91 |   |
| Fourth Quarter |   | $    | 35.34  |   | $      | 29.93  |   |   | $ | 35.52 |   | $ | 17.97 |   |

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

----

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

----

ITEM 6.  SELECTED FINANCIAL DATA

Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in Item 7

|                                                                                                 |   | Year Ended December 31,           |       |
|------------------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                                                 |   | 2009                              |       |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| OPERATING RESULTS                                                                                    |   | (In thousands, except share data) |       |
| Revenues:                                                                                            |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total investment income                                                                              |   | $                                 | (817       | ) |   | $ | 46,373 |   |   | $ | 19,788 |   |   | $ | 39,609 |   |   | $ | 15,917 |   |
| Sale of real estate and water assets (includes gain on sale of waterstorage of $8.7 million in 2008) |   |                              | 12,936     |   |   |   | 12,054 |   |   |   | 9,496 |   |   |   | 41,509 |   |   |   | 124,984 |   |
| Other income                                                                                         |   |                              | 3,913      |   |   |   | 1,925 |   |   |   | 4,645 |   |   |   | 1,605 |   |   |   | 1,210 |   |
| Total revenues                                                                                       |   | $                                 | 16,032     |   |   | $ | 60,352 |   |   | $ | 33,929 |   |   | $ | 82,723 |   |   | $ | 142,111 |   |
|                                                                                                 |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) from continuing operations*                                                        |   | $                                 | (21,759    | ) |   | $ | 27,898 |   |   | $ | (1,522 | )  |   | $ | 31,477 |   |   | $ | 21,731 |   |
| Loss from discontinued operations, net                                                               |   |                              |       |   |   |   |   |   |   |   |   |   |   |   | (2,268 | ) |   |   | (6,065 | ) |
| Net income (loss)                                                                                    |   |                              | (21,759    | )  |   |   | 27,898 |   |   |   | (1,522 | )  |   |   | 29,209 |   |   |   | 15,666 |   |
| Net loss attributable to noncontrolling interest                                                     |   |                              | (3,724     | )  |   |   | (733 | ) |   |   | (252 | )  |   |   | (34 | )  |   |   | (536 | )  |
| Net income (loss), attributable to PICO Holdings, Inc.                                               |   | $                                 | (18,035    | )  |   | $ | 28,631 |   |   | $ | (1,270 | )  |   | $ | 29,243 |   |   | $ | 16,202 |   |
| PER COMMON SHARE BASIC AND DILUTED:                                                                  |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) from continuing operations                                                         |   | $                                 | (0.86      | )  |   | $ | 1.52 |   |   | $ | (0.07 | )  |   | $ | 2.10 |   |   | $ | 1.72 |   |
| Loss from discontinued operations, net                                                               |   |                              |       |   |   |   |   |   |   |   |   |   |   |   | (0.15 | )  |   |   | (0.47 | )  |
| Net income (loss)                                                                                    |   | $                                 | (0.86      | )  |   | $ | 1.52 |   |   | $ | (0.07 | )  |   | $ | 1.95 |   |   | $ | 1.25 |   |
| Weighted Average Shares Outstanding – basic                                                    |   |                              | 20,926,769 |   |   |   | 18,835,002 |   |   |   | 18,321,449 |   |   |   | 14,994,947 |   |   |   | 12,959,029 |   |
| Weighted Average Shares Outstanding - diluted                                                        |   |                              | 20,926,769 |   |   |   | 18,861,853 |   |   |   | 18,321,449 |   |   |   | 15,025,341 |   |   |   | 12,959,029 |   |

|                                          |   | As of December 31,               |    |
|-----------------------------------------------|--------|---------------------------------------|---------|
|                                          |   | 2009                                  |    |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| FINANCIAL CONDITION                           |   | (In thousands, except per share data) |    |
| Total assets                                  |   | $                                     | 687,617 |   |   | $ | 592,634 |   |   | $ | 676,342 |   |   | $ | 549,043 |   |   | $ | 441,830 |   |
| Total asset of discontinued operations        |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 4,616 |   |
| Unpaid losses and loss adjustment expenses    |   | $                                     | 24,175  |   |   | $ | 27,773 |   |   | $ | 32,376 |   |   | $ | 41,083 |   |   | $ | 46,647 |   |
| Borrowings                                    |   | $                                     | 41,221  |   |   | $ | 42,382 |   |   | $ | 18,878 |   |   | $ | 12,721 |   |   | $ | 11,835 |   |
| Liabilities of discontinued operations        |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 4,282 |   |
| Total liabilities                             |   | $                                     | 107,921 |   |   | $ | 114,888 |   |   | $ | 150,492 |   |   | $ | 143,816 |   |   | $ | 139,856 |   |
| Total PICO Holdings, Inc shareholders' equity |   | $                                     | 582,643 |   |   | $ | 477,746 |   |   | $ | 525,851 |   |   | $ | 405,227 |   |   | $ | 300,875 |   |
| Book value per share (1)                      |   | $                                     | 25.79   |   |   | $ | 25.36 |   |   | $ | 27.92 |   |   | $ | 25.52 |   |   | $ | 22.67 |   |

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

| · | 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 consolidatedfinancial 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, RECENT DEVELOPMENTS AND FUTURE OUTLOOK 

----

Water Storage: Vidler Arizona Recharge Facility

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

----

----

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

----

| 3. | Carson City and Lyon County, Western Nevada |
|----|--------------------------------------------------|

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

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

| · | in 2007, Vidler closed on the sale of approximately 0.6 acre-feet of water rights for $45,000;        |
|--------|-------------------------------------------------------------------------------------------------------|
| · | in 2008, Vidler closed on the sale of approximately 3.9 acre-feet of water rights for $302,000; and   |
| · | in 2009, Vidler closed on the sale of approximately 1.6 acre–feet of water rights for $127,000. |

----

WATER STORAGE 

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

----

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

----

----

| Issuer                                    |   | Fair Value December 31, 2009 |       | Percentage of Total Fair Value |
|-------------------------------------------|--------|------------------------------|------------|--------------------------------|
| U.S. Treasury                             |   | $                            | 1,186,000  |                           | 7.8% |
| Government-sponsored enterprises          |   |                         | 6,707,000  |                           | 44.0% |
| State of California general obligations   |   |                         | 3,239,000  |                           | 21.2% |
| Domestic investment-grade corporate bonds |   |                         | 3,339,000  |                           | 21.9% |
| Foreign corporate bond (no credit rating) |   |                         | 780,000    |                           | 5.1% |
|                                      |   | $                            | 15,251,000 |                           | 100.0% |

----

|                                                  | December 31, |      |
|-------------------------------------------------------|--------------|-----------|
|                                                  | 2009         |      | 2008 |   | 2007 |   |
|                                                  |         |      |   |   |   |   |
| Direct reserves                                       | $            | 2,338,000 |   | $ | 3,834,000 |   | $ | 6,603,000 |   |
| Ceded reserves                                        |         |      |   |   |   |   |   | (83,000 | ) |
| Net medical professional liability insurance reserves | $            | 2,338,000 |   | $ | 3,834,000 |   | $ | 6,520,000 |   |

----

|                                    |   | Year Ended December 31, |    |
|-----------------------------------------|--------|-------------------------|---------|
|                                    |   | 2009                    |    |   | 2008 |   |   | 2007 |   |
|                                    |   |                    |    |   |   |   |   |   |   |
| Open claims at the start of the year    |   |                    | 10      |   |   |   | 12 |   |   |   | 18 |   |
| New claims reported during the year     |   |                    | 4       |   |   |   | 4 |   |   |   |   |   |
| Claims closed during the year           |   |                    | - 8     |   |   |   | - 6 |   |   |   | - 6 |   |
| Open claims at the end of the year      |   |                    | 6       |   |   |   | 10 |   |   |   | 12 |   |
|                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Total claims closed during the year     |   |                    | 8       |   |   |   | 6 |   |   |   | 6 |   |
| Claims closed with no indemnity payment |   |                    | - 8     |   |   |   | - 6 |   |   |   | - 4 |   |
| Claims closed with an indemnity payment |   |                    | 0       |   |   |   | 0 |   |   |   | 2 |   |
|                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Total claims payments during the year   |   | $                       | 190,000 |   |   | $ | 315,000 |   |   | $ | 535,000 |   |

|                                                  |   | Year Ended December 31, |       |
|-------------------------------------------------------|--------|-------------------------|------------|
|                                                  |   | 2009                    |       |   | 2008 |   |   | 2007 |   |
|                                                  |   |                    |       |   |   |   |   |   |   |
| Beginning reserves                                    |   | $                       | 3,834,000  |   |   | $ | 6,520,000 |   |   | $ | 9,385,000 |   |
| Loss and loss adjustment expense payments             |   |                    | (190,000   | ) |   |   | (315,000 | ) |   |   | (535,000 | ) |
| Re-estimation of prior year loss reserves             |   |                    | (1,306,000 | ) |   |   | (2,371,000 | ) |   |   | (2,330,000 | ) |
| Net medical professional liability insurance reserves |   | $                       | 2,338,000  |   |   | $ | 3,834,000 |   |   | $ | 6,520,000 |   |
|                                                  |   |                    |       |   |   |   |   |   |   |   |   |   |
| Re-estimation as a percentage of beginning reserves   |   |                    | - 34.1     | %  |   |   | - 36.4 | %  |   |   | - 24.8 | %  |

Critical Accounting Policies
Risk Factors

----

|                                                       |   | Year Ended December 31, |   |
|------------------------------------------------------------|--------|-------------------------|--------|
|                                                       |   | 2009                    |   |   | 2008 |   |   | 2007 |   |
|                                                       |   |                    |   |   |   |   |   |   |   |
| Open claims at the start of the year                       |   |                    | 11     |   |   |   | 39 |   |   |   | 78 |   |
| New claims reported or claims re-opened during the year    |   |                    | 7      |   |   |   | 18 |   |   |   | 31 |   |
| Claims closed during the year                              |   |                    | - 13   |   |   |   | - 46 |   |   |   | - 70 |   |
| Open claims at the end of the year                         |   |                    | 5      |   |   |   | 11 |   |   |   | 39 |   |
|                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |
| Total claims closed during the year                        |   |                    | 13     |   |   |   | 46 |   |   |   | 70 |   |
| Claims closed with no payment                              |   |                    | - 10   |   |   |   | - 24 |   |   |   | - 30 |   |
| Claims closed with LAE payment only (no indemnity payment) |   |                    | - 1    |   |   |   | - 11 |   |   |   | - 17 |   |
| Claims closed with an indemnity payment                    |   |                    | 2      |   |   |   | 11 |   |   |   | 23 |   |

Critical Accounting Policies
Risk Factors

----

|            |   | December 31, |    |
|-----------------|--------|--------------|---------|
|            |   | 2009         |    |   | 2008 |   |   | 2007 |   |
| Direct reserves |   | $            | 624,000 |   |   | $ | 741,000 |   |   | $ | 3,587,000 |   |
| Ceded reserves  |   |         | (81,000 | )  |   |   | (96,000 | )  |   |   | (438,000 | )  |
| Net reserves    |   | $            | 543,000 |   |   | $ | 645,000 |   |   | $ | 3,149,000 |   |

|                                                |   | Year Ended December 31, |     |
|-----------------------------------------------------|--------|-------------------------|----------|
|                                                |   | 2009                    |     |   | 2008 |   |   | 2007 |   |
|                                                |   |                    |     |   |   |   |   |   |   |
| Beginning reserves                                  |   | $                       | 645,000  |   |   | $ | 3,149,000 |   |   | $ | 5,077,000 |   |
| Loss and loss adjustment expense payments           |   |                    | (157,000 | ) |   |   | (163,000 | ) |   |   | (695,000 | ) |
| Re-estimation of prior year loss reserves           |   |                    | 55,000   |   |   |   | (2,341,000 | ) |   |   | (1,233,000 | ) |
| Net property and casualty insurance reserves        |   | $                       | 543,000  |   |   | $ | 645,000 |   |   | $ | 3,149,000 |   |
|                                                |   |                    |     |   |   |   |   |   |   |   |   |   |
| Re-estimation as a percentage of beginning reserves |   |                    | + 8.5%   |   |   |   | - 74.3% |   |   |   | - 24.3% |   |

|                                 |   | Year Ended December 31, |   |
|--------------------------------------|--------|-------------------------|--------|
|                                 |   | 2009                    |   |   | 2008 |   |   | 2007 |   |
|                                 |   |                    |   |   |   |   |   |   |   |
| Open claims at the start of the year |   |                    | 142    |   |   |   | 172 |   |   |   | 216 |   |
| New claims reported during the year  |   |                    | 5      |   |   |   | 17 |   |   |   | 22 |   |
| Claims reopened during the year      |   |                    | 21     |   |   |   | 0 |   |   |   | 10 |   |
| Claims closed during the year        |   |                    | - 48   |   |   |   | - 47 |   |   |   | - 76 |   |
| Open claims at the end of the year   |   |                    | 120    |   |   |   | 142 |   |   |   | 172 |   |

----

|            |   | December 31, |        |
|-----------------|--------|--------------|-------------|
|            |   | 2009         |        |   | 2008 |   |   | 2007 |   |
|            |   |         |        |   |   |   |   |   |   |
| Direct reserves |   | $            | 21,213,000  |   |   | $ | 23,198,000 |   |   | $ | 22,186,000 |   |
| Ceded reserves  |   |         | (14,446,000 | )  |   |   | (15,781,000 | )  |   |   | (16,133,000 | )  |
| Net reserves    |   | $            | 6,767,000   |   |   | $ | 7,417,000 |   |   | $ | 6,053,000 |   |

| · | the long “tail” (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.                                                                                              |

CriticalAccounting Policies

Risk Factors

| · | 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 had been received in 2008 and recently preceding years.  Typically, the asbestos claims are shared among numerous insurance carriers, and Citation’sshare 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, |      |
|--------------------------------------------------------------|--------|-------------------------|-----------|
|                                                         |   | 2009                    |      |   | 2008 |   |   | 2007 |   |
|                                                         |   |                    |      |   |   |   |   |   |   |
| Beginning net reserves                                       |   | $                       | 7,417,000 |   |   | $ | 6,053,000 |   |   | $ | 9,649,000 |   |
| Loss and loss adjustment expense payments                    |   |                    | (556,000  | ) |   |   | (891,000 | ) |   |   | (3,557,000 | ) |
| Re-estimation of prior year loss reserves                    |   |                    | (94,000   | ) |   |   | 2,255,000 |   |   |   | (39,000 | )  |
| Net workers’ compensation insurance reserves           |   | $                       | 6,767,000 |   |   | $ | 7,417,000 |   |   | $ | 6,053,000 |   |
|                                                         |   |                    |      |   |   |   |   |   |   |   |   |   |
| Re-estimation as a percentage of adjusted beginning reserves |   |                    | - 1.3%    |   |   |   | +37.3% |   |   |   | - 0.4% |   |

----

| · | bonds issued by government-sponsored enterprises (specifically, Freddie Mac and FNMA) with a market value of $18 million at December 31, 2009.  We expect that these bonds will be called for redemption during 2010; and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | two corporate bonds, with a combined market value of $2.8 million.                                                                                                                                                                  |

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 insurance companies |
|----|---------------------------------------------------|

| · | our medical professional liability reserves, net of reinsurance, were reduced by $1.3 million in 2009, $2.4 million in 2008, and $2.3 million in 2007, 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 increased by $55,000 in 2009, and decreased by $2.3 million in 2008 and $1.2 million in 2007; and                                                                     |
| · | net of reinsurance, Citation’s workers’ compensation loss reserves were decreased by $94,000 in 2009, compared to a $2.3 million increase in 2008 and a $39,000 decrease in 2007.                                                                 |

Insurance Operations In Run Off
Regulatory Insurance Disclosure

----

| 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 (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 (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 -- YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007 

| · | the issuance of 3.75 million new common shares, at $27 per share, for net proceeds of $95.7 million;                                                                                          |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | an increase in net unrealized appreciation in available-for-sale investments after-tax of $14.3 million and an increase in foreign currency translation of $8.2 million; which was offset by; |
| · | a net loss of $18 million.                                                                                                                                                                    |

| · | 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; and                                         |
| · | a $10 million decrease in foreign currency translation, as foreign currencies where we hold investments depreciated relative to the U.S. dollar. |

----

| · | loss before taxes and noncontrolling interests of $41 million; and                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a $19.3 million benefit for income taxes.  The effective tax rate for 2009 is 47%, which is higher than our federal corporate income tax rate of 35%.  This difference is due to a number of different factors including the reversal of previously accrued interest and penalties on uncertain tax positions and the recognitionof book and tax differences arising from the sale or deconsolidation of certain subsidiaries. |

| · | income before taxes and noncontrolling interests 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 our 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 our wholly-owned subsidiary Global Equity AG, and state taxes of $2.8million.  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 noncontrolling interests of $2 million; and                                                                                                                                                                                                                                                                                                                                          |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a $3.5 million provision for income taxes.  The effective tax rate for 2007 is 176%, which is higher than our federal corporate income tax rate of 35%, principally due to state tax charges and operating losses with no associated tax benefit from subsidiaries that are excluded from the consolidated federal income tax return and unableto use the losses on their own separate tax return. |

| · | comprehensive income of $4.5 million in 2009, consisting of a net loss of $18 million which was more than offset by net unrealized appreciation in investments of $14.3 million and an increase in foreign currency translation of $8.2 million;                                     |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a comprehensive loss of $52.3 million in 2008, consisting of a $70.9 million decrease in net unrealized appreciation in investments and a $10 million net decrease in foreign currency translation, which were partially offset by the year’s net income of $28.6 million; and |

| · | comprehensive income of $17.2 million in 2007, primarily consisting of a $16.3 million increase in net unrealized appreciation in investments and a $2.3 million net increase in foreign currency translation and partially offset by a net loss of $1.3 million. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                        |   | Year Ended December 31, |       |
|---------------------------------------------|--------|-------------------------|------------|
|                                        |   | 2009                    |       |   | 2008 |   |   | 2007 |   |
| Water Resource and Water Storage Operations |   | $                       | 4,334,000  |   |   | $ | 11,272,000 |   |   | $ | 7,938,000 |   |
| Real Estate Operations                      |   |                    | 12,436,000 |   |   |   | 5,470,000 |   |   |   | 13,479,000 |   |
| Corporate                                   |   |                    | 220,000    |   |   |   | 45,766,000 |   |   |   | 4,903,000 |   |
| Insurance Operations in Run Off             |   |                    | (958,000   | )  |   |   | (2,156,000 | ) |   |   | 7,609,000 |   |
| Total Revenues                              |   | $                       | 16,032,000 |   |   | $ | 60,352,000 |   |   | $ | 33,929,000 |   |

| · | a decline of $45.5 million in revenues generated by the Corporate segment.  This decline resulted largely from a gain of $46.1 million in the Corporate segment that was recognized in 2008 on the sale of our interest in Jungfraubahn Holding AG that was not repeated in 2009.  In 2009, the Corporate segment recognized a gainof $8.2 million on the deconsolidation of our former subsidiary, spigit, as well as a realized loss of $5.5 million on the sale of our Canadian subsidiary, Global Equity Corporation; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a decline of $6.9 million in revenues generated by the Water Resource and Water Storage segment.  This decline is largely due to a sale of our water storage facility in California in 2008 that generated revenues of $8.7 million that was not repeated in 2009.  Our largest transaction in 2009 was for the sale of water inCalifornia which generated revenues of $3.1 million; and                                                                                                                                  |
| · | an increase of $7 million in revenues generated by the Real Estate segment.  This was largely due to our California real estate operations generating $8.9 million of revenues in 2009 compared to zero in 2008.                                                                                                                                                                                                                                                                                                                    |

| · | a $40.9 million year over year increase in Corporate segment revenues, principally resulting from a $46.1 million gain from the sale of our interest in Jungfraubahn Holding AG;          |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Water Resource and Water Storage segment revenues increased $3.3 million year over year, principally due to an $8.7 million gain on the sale of our water storage facility in California; |
| · | a decrease of $8 million in Real Estate Operations, principally due to $7.2 million lower sales at Nevada Land; and                                                                       |
| · | a decrease of $9.8 million in Insurance Operations in Run Off, primarily due to a $9.5 million unfavorable change in net realized investment gains (losses).                              |

| · | In 2009, expenses included a $12.4 million charge for the impairment of our water assets in the Tule Desert Groundwater Basin in Lincoln County.  There were no impairment charges in 2008;                                                                                                                                                                                                                                                         |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | In addition, deferred compensation expense increased by $15.7 million in 2009 compared to 2008 as the fair value of deferred compensation assets increased during 2009;                                                                                                                                                                                                                                                                                       |
| · | In 2008, expenses were reduced by $15 million in foreign exchange gains while in 2009 the net foreign exchange effect was an expense of $193,000 giving rise to an overall increase of $15.2 million in expenses in 2009 compared to 2008; and                                                                                                                                                                                                                |
| · | Furthermore, our cost of sales for real estate increased by $5.6 million in 2009 compared to 2008 due largely to the increase in our California real estate transactions in 2009.  In 2007, the largest expense item was a $7.3 million charge to settle all outstanding claims and legal actions between Fish Springs Ranch and the PyramidLake Paiute Tribe.  See Item 3, Legal Proceedings – Fish Springs Ranch, LLC Litigation. |

----

|                                                           |   | Year Ended December 31, |        |
|----------------------------------------------------------------|--------|-------------------------|-------------|
|                                                           |   | 2009                    |        |   | 2008 |   |   | 2007 |   |
|                                                           |   |                    |        |   |   |   |   |   |   |
| Water Resource and Water Storage Operations                    |   | $                       | (16,850,000 | )  |   | $ | 4,185,000 |   |   | $ | (5,283,000 | )  |
| Real Estate Operations                                         |   |                    | (1,156,000  | ) |   |   | 366,000 |   |   |   | 8,109,000 |   |
| Corporate                                                      |   |                    | (21,271,000 | ) |   |   | 53,324,000 |   |   |   | (10,591,000 | ) |
| Insurance Operations in Run Off                                |   |                    | (1,742,000  | ) |   |   | (1,486,000 | ) |   |   | 9,779,000 |   |
| Income (loss) before income taxes and noncontrolling interests |   | $                       | (41,019,000 | ) |   | $ | 56,389,000 |   |   | $ | 2,014,000 |   |

| · | a $74.6 million lower contribution from the Corporate segment.  This principally resulted from:  a decrease of $44.8 million in net realized gains (losses) primarily represented by the $46.1 million realized gain before taxes on the sale of Jungfraubahn Holding AG in 2008, a decrease in foreign exchange gains of $15.2 millionand an increase in deferred compensation expense of $15.7 million; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a $21 million lower contribution from the Water Resource and Water Storage segment.  This was primarily due to an increased impairment charge of $12.4 million and a decrease of $6.9 million in revenues as noted above; and                                                                                                                                                                                       |
| · | a $1.5 million lower contribution from the Real Estate segment.  This was due principally to an increase in revenues of $7 million from increased real estate sale activity in 2009 offset by an increase in the cost of sales of $5.6 million and an increase in operating expenses of $2.9 million.                                                                                                               |

| · | a $63.9 million higher contribution from the Corporate segment.  This principally resulted from an increase of $43.1 million in realized gains (losses), primarily represented by the $46.1 million realized gain on the sale of Jungfraubahn Holding AG, and a $13 million increase in foreign exchange gains; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | 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 our water storage facility in California; 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 land at Nevada Land, and a $1.7 million increase in overhead, primarily attributable to building the UCP business.                                                       |

|                                                           |   | Year Ended December 31, |        |
|----------------------------------------------------------------|--------|-------------------------|-------------|
|                                                           |   | 2009                    |        |   | 2008 |   |   | 2007 |   |
| Revenues:                                                      |   |                    |        |   |   |   |   |   |   |
| Sale of real estate and water assets                           |   | $                       | 3,203,000   |   |   | $ | 9,757,000 |   |   | $ | 41,000 |   |
| Gain on release of restrictions on real estate                 |   |                    |        |   |   |   |   |   |   |   | 3,466,000 |   |
| Net investment income                                          |   |                    | 408,000     |   |   |   | 969,000 |   |   |   | 4,418,000 |   |
| Other                                                          |   |                    | 723,000     |   |   |   | 546,000 |   |   |   | 13,000 |   |
| Segment total revenues                                         |   |                    | 4,334,000   |   |   |   | 11,272,000 |   |   |   | 7,938,000 |   |
|                                                           |   |                    |        |   |   |   |   |   |   |   |   |   |
| Expenses:                                                      |   |                    |        |   |   |   |   |   |   |   |   |   |
| Cost of real estate and water assets                           |   |                    | (226,000    | ) |   |   | (235,000 | ) |   |   | (8,000 | ) |
| Impairment of water assets                                     |   |                    | (12,378,000 | ) |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                  |   |                    | (1,076,000  | ) |   |   | (1,099,000 | ) |   |   | (1,042,000 | ) |
| Overhead                                                       |   |                    | (2,949,000  | ) |   |   | (3,041,000 | ) |   |   | (1,839,000 | ) |
| Project expenses                                               |   |                    | (4,555,000  | ) |   |   | (2,712,000 | ) |   |   | (10,332,000 | ) |
| Segment total expenses                                         |   |                    | (21,184,000 | ) |   |   | (7,087,000 | )  |   |   | (13,221,000 | ) |
| Income (loss) before income taxes and noncontrolling interests |   | $                       | (16,850,000 | ) |   | $ | 4,185,000 |   |   | $ | (5,283,000 | ) |

----

| · | 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; and                                            |
| · | the exploration and drilling costs of Vidler’s water resource development project in New Mexico.                                       |

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 settlement agreement. |

|                                                    |   | Year Ended December 31, |        |
|---------------------------------------------------------|--------|-------------------------|-------------|
|                                                    |   | 2009                    |        |   | 2008 |   |   | 2007 |   |
| Revenues:                                               |   |                    |        |   |   |   |   |   |   |
| Sale of real estate – Nevada Land                 |   | $                       | 818,000     |   |   | $ | 2,297,000 |   |   | $ | 9,455,000 |   |
| Sale of real estate - UCP                               |   |                    | 8,915,000   |   |   |   |   |   |   |   |   |   |
| Net investment income                                   |   |                    | 960,000     |   |   |   | 2,203,000 |   |   |   | 3,140,000 |   |
| Other                                                   |   |                    | 1,743,000   |   |   |   | 970,000 |   |   |   | 884,000 |   |
| Segment total revenues                                  |   |                    | 12,436,000  |   |   |   | 5,470,000 |   |   |   | 13,479,000 |   |
|                                                    |   |                    |        |   |   |   |   |   |   |   |   |   |
| Expenses:                                               |   |                    |        |   |   |   |   |   |   |   |   |   |
| Cost of real estate – Nevada Land                 |   |                    | (232,000    | ) |   |   | (673,000 | ) |   |   | (2,676,000 | ) |
| Cost of real estate - UCP                               |   |                    | (6,090,000  | ) |   |   |   |   |   |   |   |   |
| Operating expenses                                      |   |                    | (7,270,000  | ) |   |   | (4,431,000 | ) |   |   | (2,694,000 | ) |
| Segment total expenses                                  |   |                    | (13,592,000 | ) |   |   | (5,104,000 | ) |   |   | (5,370,000 | ) |
| Income before income taxes and noncontrolling interests |   | $                       | (1,156,000  | ) |   | $ | 366,000 |   |   | $ | 8,109,000 |   |

----

| · | a $1 million lower gross margin from the sale of land at Nevada Land in 2009 compared to 2008.  The lower gross margin in 2009 is due to the effect of selling a lower volume of land (resulting in lower revenues) at a similar gross margin percentage.  The volume of land at Nevada Land sold decreased 61% year over year; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a $1 million increase in geothermal lease sale income in 2009;                                                                                                                                                                                                                                                                                      |
| · | an increase in gross margin of $2.8 million from land sales by UCP in 2009;                                                                                                                                                                                                                                                                         |
| · | a decrease in investment income of $1.2 million in 2009; and                                                                                                                                                                                                                                                                                        |
| · | an increase in operating expenses of $2.9 million in 2009.                                                                                                                                                                                                                                                                                          |

|                                                                            |   | Year Ended December 31, |        |
|---------------------------------------------------------------------------------|--------|-------------------------|-------------|
|                                                                            |   | 2009                    |        |   | 2008 |   |   | 2007 |   |
| Revenues:                                                                       |   |                    |        |   |   |   |   |   |   |
|    Net realized gain (loss) on sale or impairment of investments |   | $                       | (3,106,000  | ) |   | $ | 41,717,000 |   |   | $ | (1,426,000 | ) |
|    Net investment income                                         |   |                    | 2,003,000   |   |   |   | 3,760,000 |   |   |   | 6,025,000 |   |
|    Other                                                         |   |                    | 1,323,000   |   |   |   | 289,000 |   |   |   | 304,000 |   |
|    Segment total revenues                                        |   |                    | 220,000     |   |   |   | 45,766,000 |   |   |   | 4,903,000 |   |
|                                                                            |   |                    |        |   |   |   |   |   |   |   |   |   |
| Recoveries (Expenses):                                                          |   |                    |        |   |   |   |   |   |   |   |   |   |
|    Stock-based compensation expense                              |   |                    | (4,511,000  | ) |   |   | (3,989,000 | ) |   |   | (4,468,000 | ) |
|    Deferred compensation (expense) benefit                       |   |                    | (5,495,000  | ) |   |   | 10,184,000 |   |   |   | 548,000 |   |
|    Net foreign exchange gain (loss)                              |   |                    | (193,000    | ) |   |   | 15,020,000 |   |   |   | 1,994,000 |   |
|       Other                                       |   |                    | (11,292,000 | ) |   |   | (13,657,000 | )  |   |   | (13,568,000 | ) |
|       Segment total recoveries (expenses)         |   |                    | (21,491,000 | ) |   |   | 7,558,000 |   |   |   | (15,494,000 | ) |
| Income (loss) before income taxes and noncontrolling interests                  |   | $                       | (21,271,000 | ) |   | $ | 53,324,000 |   |   | $ | (10,591,000 | ) |

----

| · | an $8.2 million non-cash gain on the deconsolidation of spigit; which was more than offset by;                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a $5.5 million net realized loss on the sale of our interest in Global Equity Corporation (“Global Equity”); and                       |
| · | a $5.8 million net realized loss on the sale or impairment of other holdings, principally stocks and bonds held in deferred compensation accounts. |

| · | in October 2009, spigit received a $10 million equity investment from a global private equity firm.  As a result of this transaction, the new investor took 46% ownership of the outstanding voting shares of spigit, our majority ownership was reduced to a 37% equity interest, and spigit ceased to be a consolidated subsidiary.  Thetransaction placed a fair value of $9.2 million on our reduced interest in spigit.  In accordance with GAAP, we recorded a non-cash gain of $8.2 million on the deconsolidation of spigit.                                                                                                                             |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | during the fourth quarter of 2009, we sold our interest in Global Equity Corporation.  Global Equity is a Canadian corporation which holds interests in property syndicates and partnerships which were formed in Canada.  Although we reported a $5.5 million net realized loss on the sale of Global Equity, the transaction actuallyincreased PICO’s Shareholders’ Equity by $1.1 million, as the sale resulted in a $6.6 million accumulated foreign exchange loss (which was already reflected in Shareholders’ Equity) being transferred from the Other Comprehensive Income portion of Shareholders’ Equity to the Statement of Operations. |

| · | $2.1 million in provisions for other-than-temporary impairment of various stocks held in deferred compensation accounts, which were in an unrealized loss position for most of 2009.  Based on the extent and the duration of the unrealized losses, we determined that the declines in market value were 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 on the date that the provision was recorded; and                                                                            |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | $1.5 million in net realized gains on the disposal of bonds, which was more than offset by $5.2 million in provisions for other-than-temporary impairment of the bonds of three issuers held in deferred compensation accounts.  After evidence emerged that full collection of the principal and interest on bonds issued by these issuerswas doubtful, we recorded provisions for other-than-temporary impairment, by writing the bonds down from amortized cost to market value on the date that the provision was recorded.  The market prices of these bonds have subsequently recovered significantly. |

| · | deferred compensation expense of $5.5 million (see “Deferred Compensation Expense” below);                            |
|--------|-----------------------------------------------------------------------------------------------------------------------------------|
| · | stock-based compensation expense of $4.5 million (see “Stock-Based Compensation Expense” below);                      |
| · | operating expenses of $2.7 million from spigit from January 1, 2009 until the date that spigit was deconsolidated; and            |
| · | other parent company net overhead of approximately $8.6 million, including management incentive compensation expense of $900,000. |

----

| · | 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 loanover 2008 (see “Foreign Exchange Gain (Loss)” below).  These gains were recorded as reductions in expenses; |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a $10.2 million recovery of deferred compensation expense, which reflects a decrease in deferred compensation liabilities resulting from a decrease in the value of the related deferred compensation assets; which more than offset the following;                                                                                                                                                                                                                                      |
| · | stock-based compensation expense of $4 million;                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | spigit operating expenses of $2.6 million;                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| · | HyperFeed litigation expenses of $1.1 million; and                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | other parent company net overhead of approximately $9.9 million.                                                                                                                                                                                                                                                                                                                                                                                                                         |

| · | stock-based compensation 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; |
| · | spigit operating expenses of $1.4; and                                                                                                   |
| · | other parent company overhead of $9 million.                                                                                             |

| · | a $2 million foreign exchange gain resulting from the effect of appreciation in the Swiss Franc on the inter-company loan during 2007; and                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | a $548,000 recovery of deferred compensation expense, which reflects a decrease in deferred compensation liabilities resulting from a decrease in the value of the related deferred compensation assets. |

Foreign Exchange Gain (Loss) 

See Note 3 of Notes to Consolidated Financial Statements, “Borrowings

----

----

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

Insurance Operations in “Run Off”

|                                                           |   | Year Ended December 31, |       |
|----------------------------------------------------------------|--------|-------------------------|------------|
|                                                           |   | 2009                    |       |   | 2008 |   |   | 2007 |   |
| Revenues:                                                      |   |                    |       |   |   |   |   |   |   |
| Net investment income                                          |   | $                       | 2,568,000  |   |   | $ | 3,214,000 |   |   | $ | 3,457,000 |   |
| Net realized gain (loss) on sale or impairment of investments  |   |                    | (3,650,000 | ) |   |   | (5,480,000 | ) |   |   | 3,965,000 |   |
| Other                                                          |   |                    | 124,000    |   |   |   | 110,000 |   |   |   | 187,000 |   |
| Segment total revenues (charges)                               |   |                    | (958,000   | ) |   |   | (2,156,000 | )  |   |   | 7,609,000 |   |
|                                                           |   |                    |       |   |   |   |   |   |   |   |   |   |
| Recoveries (Expenses):                                         |   |                    |       |   |   |   |   |   |   |   |   |   |
| Underwriting (expenses)/recoveries                        |   |                    | (784,000   | ) |   |   | 670,000 |   |   |   | 2,170,000 |   |
| Income (loss) before income taxes and noncontrolling interests |   | $                       | (1,742,000 | ) |   | $ | (1,486,000 | )  |   | $ | 9,779,000 |   |

----

CompanySummary, Recent Developments, and Future Outlook” portion of Item 7.

LIQUIDITY AND CAPITAL RESOURCES -- YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007 

| · | the Water Resource and Water Storage Operations segment holds cash of $1.1 million;                                                                                                                                                                                                                                                                                                                                                                           |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | the Real Estate Operations segment holds cash of $44.7 million;                                                                                                                                                                                                                                                                                                                                                                                               |
| · | the Insurance in “Run Off” segment holds cash of $9.6 million, fixed-income securities with a market value of $15.3 million, and equities with a market value of $110 million; and                                                                                                                                                                                                                                                                |
| · | the Corporate segment holds cash of $92.3 million and fixed-income securities with a market value of $20.7 million.  In addition, cash of $6.9 million, fixed-income securities with a market value of $14.6 million, and equity securities with a market value of $8.1 million are held in deferred compensation Rabbi Trusts within the Corporatesegment, which will be used to pay the related and offsetting 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;                                                                                                                                                                                                                                                                                                                                                                    |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Although UCP made some initial sales of lots during 2009, we are still acquiring finished and partially-developed residential lots in select California markets.  During 2009, we acquired a defaulted note for $22.6 million.  We foreclosed on the note as planned and, as a result, acquired 1,400 entitled residential unitson a 244-acre property (East Garrison) in Monterey County, California.  Over the next two years, we plan to expend approximately $20 million to complete the first phase of the development and to prepare other parts of the property for potential future development; |
| · | 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 revenuesexceed Nevada Land’s operating and development costs, so Nevada Land is generating positive cash flow; 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 reinsurancecompanies.                                                                                                                                                                                                                                                                       |

| · | in 2009, tax refunds of $26.5 million, and the cash proceeds of real estate and water assets sales by Vidler, UCP and Nevada Land, as well as payments on notes related to sales in previous periods.  In addition, cash flow was provided by investment income from the Insurance Operations in Run Off segment and from liquid funds heldin the other segments; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | 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; and                                                                                                                                    |
| · | in 2007, sale of real estate by Nevada Land.                                                                                                                                                                                                                                                                                                                           |

----

| · | in 2009, an $18.1 million net increase in fixed-income securities.  We received cash of $4.3 million from the maturity or call of bonds, and used approximately $22.4 million to buy new bonds.  This principally reflects the temporary investment of $19.1 million of the parent company’s liquid funds in high quality fixed-incomesecurities, and activity in our insurance company and deferred compensation investment portfolios.  We also generated $26 million from the sale of stocks, and used $9 million to buy new stocks in the insurance company investment portfolios and deferred compensation accounts;                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | 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.  Proceedsfrom 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; and |
| · | 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.  Inaddition, $16.2 million net was invested in stocks, primarily in the insurance company portfolios.                                                                                                                                                                                                                                                                  |

| · | in 2009, the sale of 3,750,000 newly-issued shares of PICO common stock at $27 per share in June 2009, for net cash proceeds of $95.7 million (after deducting approximately $5.5 million in underwriting commission and offering expenses).  We also borrowed CHF5.8 million ($5.4 million) under our Swiss Franc current account credit facilityto purchase securities, and paid down the facility by CHF14.3 million ($13.4 million) with proceeds from the sale of securities.  Also Vidler repaid $2.9 million in notes on ranch properties during 2009; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | in 2008, an $8.2 million increase in Swiss Franc borrowings from our bank in Switzerland.  This represented borrowings of CHF4.3 million (US$4 million) on our current account facility, and the proceeds of an additional fixed advance of CHF4.5 million (US$4.2 million); and                                                                                                                                                                                                                                                                                        |
| · | 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.                                                                                                                                                                                                                                                                                                                                                 |

| · | a fixed advance of CHF3 million maturing in February 2014, at a 3.81% interest rate; and |
|--------|------------------------------------------------------------------------------------------|
| · | a fixed advance of CHF12.5 million maturing in May 2014, at a 3.72% interest rate.       |

----

| 1. | At December 31, 2009: |
|----|-----------------------|

| · | We had no “off balance sheet” financing arrangements.                                                                                                                                                                                                                                           |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | We have not provided any debt guarantees.                                                                                                                                                                                                                                                                   |
| · | 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. |

|                                                                                                                                               |   | Payments Due by Period |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|------------|
|  Contractual Obligations                                                                                                                      |   | Less than1 year        |       |   | 1-3 years |   |   | 3-5 years |   |   | More than5 years |   |   | Total |   |
| Borrowings                                                                                                                                         |   | $                      | 2,958,186  |   |   | $ | 20,830,822 |   |   |  $ | 17,431,506 |   |   |   |   |   |  $ | 41,220,514 |   |
| Interest on borrowings (1)                                                                                                                         |   |                   | 1,968,797  |   |   |   | 2,820,826 |   |   |   | 256,753 |   |   |   |   |   |   | 5,046,376 |   |
| Operating leases                                                                                                                                   |   |                   | 729,381    |   |   |   | 267,225 |   |   |   | 1,502 |   |   |   |   |   |   | 998,108 |   |
| Expected claim payouts                                                                                                                             |   |                   | 3,879,244  |   |   |   | 8,654,734 |   |   |   | 4,477,920 |   |   |  $ | 7,162,965 |   |   |   | 24,174,863 |   |
| Other borrowings/obligations (primarily commitments for water purchases for the Recharge Site and the amounts due under the Tribe settlement) |   |                   | 9,233,038  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 9,233,038 |   |
| Total                                                                                                                                              |   | $                      | 18,768,646 |   |   | $ | 32,573,607 |   |   |  $ | 22,167,681 |   |   |  $ | 7,162,965 |   |   |  $ | 80,672,899 |   |

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

----

REGULATORY INSURANCE DISCLOSURES

----

----

Note 11 of Notes to Consolidated Financial Statements, “Reserves for Unpaid Loss and Loss Adjustment Expenses”.

----

See Note 9 of Notes to Consolidated Financial Statements, “Reinsurance

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

----

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

|                                                  |   | Three Months Ended |    |
|-------------------------------------------------------|--------|--------------------|---------|
|                                                  |   | March 31,          |    |   | June 30, |   |   | September 30, |   |   | December 31, |   |
|                                                  |   | 2009               |    |   | 2009 |   |   | 2009 |   |   | 2009 |   |
| Net investment income and net realized gain (loss)    |   | $                  | (11,175 | ) |   | $ | 3,102 |   |   | $  | (569 | )  |   | $ | 7,825 |   |
| Sale of real estate and water assets                  |   | $                  | 310     |   |   | $  | 4,958 |   |   | $  | 536 |   |   | $  | 7,132 |   |
| Total revenues (charges)                              |   | $             | (10,325 | ) |   | $  | 9,000 |   |   | $  | 965 |   |   | $  | 16,393 |   |
| Gross profit                                          |   | $             | 230     |   |   | $  | 3,538 |   |   | $  | 229 |   |   | $  | 2,391 |   |
| Net income (loss) attributable to PICO Holdings, Inc. |   | $             | (18,506 | ) |   | $  | (2,358 | ) |   | $  | (1,824 | ) |   | $  | 4,653 |   |
|                                                  |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) per common share:                   |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                 |   | $                  | (0.98   | ) |   | $ | (0.12 | )  |   | $ | (0.08 | )  |   | $ | 0.21 |   |
|                                                  |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                               |   | $                  | (0.98   | )  |   | $ | (0.12 | )  |   | $ | (0.08 | )  |   | $ | 0.20 |   |

|                                                  |   | 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) attributable to PICO Holdings, Inc. |   | $             | (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 |   |   | $ | 0.02 |   |   | $ | 0. 08 |   |

----

| Report of Independent Registered Public Accounting Firm                                                     | 57    |
|-------------------------------------------------------------------------------------------------------------|-------|
| Consolidated Balance Sheets as of December 31, 2009 and 2008                                                | 58    |
| Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and 2007                  | 59    |
| Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2009, 2008, and 2007 | 60    |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007                  | 61    |
| Notes to Consolidated Financial Statements                                                                  | 65-86 |

----

----

BALANCE SHEETS

| ASSETS                                  |   | 2009   |        |   | 2008   |   |
|-----------------------------------------|--------|--------|-------------|--------|--------|--------|
| Available for Sale Investments          |   |   |        |   |   |   |
| Fixed maturities                        |   | $      | 50,575,026  |   |   | $      | 29,058,562 |   |
| Equity securities                       |   |   | 118,326,742 |   |   |   | 120,358,461 |   |
| Total available for sale investments    |   |   | 168,901,768 |   |   |   | 149,417,023 |   |
| Investment in unconsolidated affiliate  |   |   | 8,884,229   |   |   |   |   |   |
| Total investments                       |   |   | 177,785,997 |   |   |   | 149,417,023 |   |
|                                    |   |   |        |   |   |   |   |   |
| Cash and cash equivalents               |   |   | 154,544,814 |   |   |   | 96,316,018 |   |
| Notes and other receivables, net        |   |   | 15,411,728  |   |   |   | 24,352,367 |   |
| Reinsurance receivables                 |   |   | 15,012,695  |   |   |   | 16,373,132 |   |
| Real estate and water assets            |   |   | 299,833,320 |   |   |   | 271,714,300 |   |
| Property and equipment, net             |   |   | 1,328,136   |   |   |   | 1,512,370 |   |
| Net deferred income taxes               |   |   | 11,165,246  |   |   |   | 25,274,232 |   |
| Federal, foreign and state income taxes |   |   | 8,879,341   |   |   |   | 4,519,920 |   |
| Other assets                            |   |   | 3,655,346   |   |   |   | 3,154,434 |   |
| Total assets                            |   | $      | 687,616,623 |   |   | $      | 592,633,796 |   |

| LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                      |   |   |        |   |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Reserves for unpaid losses and loss adjustment expenses                                                                                                                                        |   | $      | 24,174,863  |   |   | $      | 27,773,320 |   |
| Deferred compensation                                                                                                                                                                          |   |   | 31,144,366  |   |   |   | 27,744,528 |   |
| Other liabilities                                                                                                                                                                              |   |   | 11,381,689  |   |   |   | 16,988,040 |   |
| Borrowings                                                                                                                                                                                     |   |   | 41,220,514  |   |   |   | 42,381,718 |   |
| Total liabilities                                                                                                                                                                              |   |   | 107,921,432 |   |   |   | 114,887,606 |   |
|                                                                                                                                                                                           |   |   |        |   |   |   |   |   |
| Commitments and Contingencies (Notes 10 - 15)                                                                                                                                                  |   |   |        |   |   |   |   |   |
|                                                                                                                                                                                           |   |   |        |   |   |   |   |   |
| SHAREHOLDERS' EQUITY                                                                                                                                                                           |   |   |        |   |   |   |   |   |
| Common stock, $.001 par value; authorized 100,000,000; 27,020,473 issued and 22,595,678 outstanding at December 31, 2009 and 23,265,187 issued and 18,840,392 outstanding at December 31, 2008 |   |   | 27,020      |   |   |   | 23,265 |   |
| Additional paid-in capital                                                                                                                                                                     |   |   | 539,791,922 |   |   |   | 439,381,715 |   |
| Accumulated other comprehensive income (loss)                                                                                                                                                  |   |   | 21,094,385  |   |   |   | (1,423,863 | ) |
| Retained earnings                                                                                                                                                                              |   |   | 100,001,801 |   |   |   | 118,036,716 |   |
| Less treasury stock, at cost (common shares: 4,424,795 in 2009 and 2008)                                                                                                                       |   |   | (78,271,643 | )      |   |   | (78,271,643 | ) |
| Total PICO Holdings Inc. shareholders’ equity                                                                                                                                            |   |   | 582,643,485 |   |   |   | 477,746,190 |   |
| Noncontrolling interest in subsidiaries                                                                                                                                                        |   |   | (2,948,294  | )      |   |   |   |   |
| Total shareholders’ equity                                                                                                                                                               |   |   | 579,695,191 |   |   |   | 477,746,190 |   |
| Total liabilities and shareholders' equity                                                                                                                                                     |   | $      | 687,616,623 |   |   | $      | 592,633,796 |   |

----

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                            |   | 2009   |        |    | 2008   |   |       | 2007    |   |
|-----------------------------------------------------------------|--------|--------|-------------|---------|--------|--------|------------|---------|--------|
| Revenues:                                                       |   |   |        |    |   |   |       |    |   |
| Sale of real estate and water assets                            |   | $      | 12,935,660  |    |   | $      | 3,337,460  |    |   | $ | 9,496,156 |   |
| Net investment income                                           |   |   | 5,938,571   |    |   |   | 10,145,430 |    |   |   | 17,039,800 |   |
| Net realized gain (loss) on sale and impairment of investments  |   |   | (6,755,637  | )       |   |   | 36,227,458 |    |   |   | 2,747,958 |   |
| Gain on sale of water storage                                   |   |   |        |    |   |   | 8,716,082  |    |   |   |   |   |
| Other                                                           |   |   | 3,913,399   |    |   |   | 1,925,110  |    |   |   | 4,644,834 |   |
| Total revenues                                                  |   |   | 16,031,993  |    |   |   | 60,351,540 |    |   |   | 33,928,748 |   |
| Costs and expenses:                                             |   |   |        |    |   |   |       |    |   |   |   |   |
| Operating and other costs                                       |   |   | 36,929,488  |    |   |   | 4,250,234  |    |   |   | 31,725,964 |   |
| Impairment loss on real estate and water assets                 |   |   | 12,378,000  |    |   |   |       |    |   |   |   |   |
| Cost of real estate and water assets sold                       |   |   | 6,547,671   |    |   |   | 908,186    |    |   |   | 2,684,183 |   |
| Loss and loss adjustment recovery                               |   |   | (1,344,669  | )  |   |   | (2,456,386 | )  |   |   | (3,601,091 | )  |
| Depreciation and amortization                                   |   |   | 1,289,819   |    |   |   | 1,260,471  |    |   |   | 1,106,027 |   |
| Interest                                                        |   |   | 1,250,946   |    |   |   |       |    |   |   |   |   |
| Total costs and expenses                                        |   |   | 57,051,255  |    |   |   | 3,962,505  |    |   |   | 31,915,083 |   |
| Income (loss) before income taxes and noncontrolling interest   |   |   | (41,019,262 | )  |   |   | 56,389,035 |    |   |   | 2,013,665 |   |
| Provision (benefit) for federal, foreign and state income taxes |   |   | (19,260,625 | )  |   |   | 28,491,016 |    |   |   | 3,535,699 |   |
| Net income (loss)                                               |   |   | (21,758,637 | )  |   |   | 27,898,019 |    |   |   | (1,522,034 | )  |
| Net loss attributable to noncontrolling interest                |   |   | 3,723,722   |    |   |   | 732,954    |    |   |   | 252,307 |   |
| Net income (loss) attributable to PICO Holdings, Inc.           |   | $      | (18,034,915 | )  |   | $      | 28,630,973 |    |   |   $ | (1,269,727 | )  |
|                                                            |   |   |        |    |   |   |       |    |   |   |   |   |
|                                                            |   |   |        |    |   |   |       |    |   |   |   |   |
| Net income (loss) per common share – basic:               |   | $      | (0.86       | )  |   | $      | 1.52       |    |   | $ | (0.07 | )  |
| Weighted average shares outstanding                             |   |   | 20,926,769  |    |   |   | 18,835,002 |    |   |   | 18,321,449 |   |
|                                                            |   |   |        |    |   |   |       |    |   |   |   |   |
| Net income (loss) per common share – diluted:             |   | $      | (0.86       | )  |   | $      | 1.52       |    |   | $ | (0.07 | )  |
| Weighted average shares outstanding                             |   |   | 20,926,769  |    |   |   | 18,861,853 |    |   |   | 18,321,449 |   |

----

STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE 

|                                                                                                                | Total  |           | Comprehensive Income Attributable to PICO Holdings, Inc. |   | Retained Earnings |   | Accumulated OtherComprehensiveIncome (Loss) |       | Common Stock |       | Paid-in Capital |   | TreasuryStock |   | Noncontrolling Interest |
|---------------------------------------------------------------------------------------------------------------------|--------|----------------|----------------------------------------------------------|--------|-------------------|--------|---------------------------------------------|------------|--------------|------------|-----------------|--------|---------------|--------|-------------------------|
| Beginning balance,January 1, 2007                                                                                   | $      | 405,227,299    |                                                     |   |              | $      | 90,968,815                                  |       | $            | 60,950,679 |            | $      | 20,307        |   | $                       | 331,582,308 |   | $ | (78,294,810 | ) |   |
| Impact of adopting accountingfor uncertain tax positions                                                            |   | (293,345       | )                                                        |   |              |   | (293,345                                    | )          |         |       |            |   |          |   |                    |   |   |   |   |   |   |   |
| Common stock offering, net of $4.3 million of expenses                                                              |   | 100,141,935    |                                                     |   |              |   |                                        |       |         |       |            |   | 2,823         |   |                    | 100,139,112 |   |   |   |   |   |   |
| Changes in ownership ofnoncontrolling interest                                                                      |   |   413,110 |                                                     |   |              |   |                                        |       |         |       |            |   |          |   |                    |   |   |   |   |   | $ | 413,110 |
| Stock-based compensationexpense                                                                                     |   | 4,468,334      |                                                     |   |              |   |                                        |       |         |       |            |   |          |   |                    | 4,468,334 |   |   |   |   |   |   |
| Exercise of stock-settled stock appreciation rights, net of excesstax benefits of $4.4 million                      |   | (972,078       | )                                                        |   |              |   |                                        |       |         |       |            |   | 129           |   |                    | (972,207 | ) |   |   |   |   |   |
| Disposition of treasury stock from deferred compensation plans                                                      |   | 29,392         |                                                     |   |              |   |                                        |       |         |       |            |   |          |   |                    | 17,811 |   |   |  11,581 |   |   |   |
| Comprehensive income:                                                                                               |   |           |                                                     |   |              |   |                                        |       |         |       |            |   |          |   |                    |   |   |   |   |   |   |   |
| Net loss                                                                                                            |   | (1,522,034     | )                                                        | $      | (1, 269,727       | )      |                                        | (1,269,727 | )            |       |            |   |          |   |                    |   |   |   |   |   |   |   | (252,307) |
| Other comprehensive income net of tax:                                                                              |   |           |                                                     |   |              |   |                                        |       |         |       |            |   |          |   |                    |   |   |   |   |   |   |   |   |
| Unrealized gains on securities, net of deferred tax of $7.7 million and reclassification adjustment of $2.5 million |   | 16,263,071     |                                                     |   | 16,263,071        |   |                                        |       |         |       | 16,263,071      |   |          |   |                    |   |   |   |   |   |   |   |   |
| Foreign currency translation                                                                                        |   | 2,255,688      |                                                     |   | 2,255,688         |   |                                        |       |         |       | 2,255,688       |   |          |   |                    |   |   |   |   |   |   |   |   |
| Other comprehensive income                                                                                          |   | 18,518,759     |                                                     |   | 18,518,759        |   |                                        |       |         |       |            |   |          |   |                    |   |   |   |   |   |   |   |   |
| Comprehensive income                                                                                                |   | 16,996,725     |                                                     | $      | 17,249,032        |   |                                        |       |         |       |            |   |          |   |                    |   |   |   |   |   |   |   |   |
| Ending balance, December 31, 2007                                                                                   | $      | 526,011,372    |                                                     |   |              |   | $                                           | 89,405,743 |         | $          | 79,469,438      |   | $             | 23,259 |                    | $ | 435,235,358 |   | $ | (78,283,229 | )  | $ | 160,803 |

----

|                                                                                                                 | Total  |        |    | ComprehensiveLossAttributable toPICO Holdings, Inc. |   | Retained Earnings | Accumulated OtherComprehensiveIncome (Loss) |       | Common Stock | Paid-in Capital |        | TreasuryStock |   | Noncontrolling Interest |        |
|----------------------------------------------------------------------------------------------------------------------|--------|-------------|---------|-----------------------------------------------------|--------|-------------------|---------------------------------------------|------------|--------------|-----------------|-------------|---------------|--------|-------------------------|-------------|
| Beginning balance, December 31, 2007                                                                                 | $      | 526,011,372 |    |                                                |   |              | $                                           | 89,405,743 | $            | 79,469,438      |        | $             | 23,259 | $                       | 435,235,358 |   | $ | (78,283,229 | ) | $             160,803  |   |
| Changes in ownership of noncontrolling interest                                                                      |   | 572,151     |    |                                                |   |              |                                        |       |         |            |        |          |   |                    |        |   |   |   |   | 572,151 |   |
| Issuance of restrictedPICO stock                                                                                     |   | 157,206     |    |                                                |   |              |                                        |       |         |            |        |          | 4      |                    | 157,202     |   |   |   |   |   |   |
| Stock-based compensation expense                                                                                     |   | 3,988,596   |    |                                                |   |              |                                        |       |         |            |        |          |   |                    | 3,988,596   |   |   |   |   |   |   |
| Exercise of stock-settledstock appreciation rights, net of excess tax benefits of $62,000                       |   | (16,227     | )       |                                                |   |              |                                        |       |         |            |        |          | 2      |                    | (16,229     | ) |   |   |   |   |   |
| Sale of treasury stock from deferred compensation plans                                                              |   | 28,374      |    |                                                |   |              |                                        |       |         |            |        |          |   |                    | 16,788      |   |   | 11,586 |   |   |   |
| Comprehensive Loss:                                                                                                  |   |        |    |                                                |   |              |                                        |       |         |            |        |          |   |                    |        |   |   |   |   |   |   |
| Net income                                                                                                           |   | 27,898,019  |    |                                                | $      | 28,630,973        |                                        |       | 28,630,973   |            |        |          |   |                    |        |   |   |   |   |   | (732,954 | ) |
| Other comprehensiveloss net of tax:                                                                                  |   |        |    |                                                |   |              |                                        |       |         |            |        |          |   |                    |        |   |   |   |   |   |   |   |
| Unrealized losses on securities, net ofdeferred tax of $42.5 million and reclassificationadjustment of $54.2 million |   | (70,889,523 | )       |                                                |   | (70,889,523       | )                                           |       |         |            | (70,889,523 | )             |   |                    |        |   |   |   |   |   |   |   |
| Foreign currency translation                                                                                         |   | (10,003,778 | )  |                                                |   | (10,003,778       | )                                      |       |         |            | (10,003,778 | )             |   |                    |        |   |   |   |   |   |   |   |
| Other Comprehensive loss                                                                                             |   | (80,893,301 | )  |                                                |   | (80,893,301       | )                                      |       |         |            |        |          |   |                    |        |   |   |   |   |   |   |   |
| Comprehensive loss                                                                                                   |   | (52,995,282 | )  |                                                | $      | (52,262,328       | )                                      |       |         |            |        |          |   |                    |        |   |   |   |   |   |   |   |
| Ending balance, December 31, 2008                                                                               | $      | 477,746,190 |    |                                                |   |              |                                        | $          | 118,036,716  | $               | (1,423,863  | )        | $      | 23,265                  | $           | 439,381,715 |   | $ | (78,271,643 | ) |   |   |

----

|                                                                                                                                  |   | Total  |        | Comprehensive Income Attributable to PICO Holdings, Inc. |   |   | Retained Earnings |   |        | Accumulated OtherComprehensiveIncome (Loss) |        |   | Common Stock |   |       | Paid-in Capital |   |   | TreasuryStock |   |        | Noncontrolling Interest |        |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|----------------------------------------------------------|--------|--------|-------------------|--------|-------------|---------------------------------------------|-------------|--------|--------------|--------|------------|-----------------|--------|--------|---------------|--------|-------------|-------------------------|-------------|
| Beginning balance,December 31, 2008                                                                                                   |   | $      | 477,746,190 |                                                     |   |   |              | $      | 118,036,716 |                                        |        | $      | (1,423,863   | )      |       | $               | 23,265 |   |          | $      | 439,381,715 |                    |        | $ | (78,271,643 | ) |   |   |   |
| Changes in ownership ofnoncontrolling Interest                                                                                        |   |   | 947,120     |                                                     |   |   |              |   |        |                                        |        |   |         |   |       |            |   |   |          |   | 171,692     |                    |        |   |   |   |   | $ | 775,428 |   |
| Common stock offering, net of $5.4 million of expenses                                                                                |   |   | 95,731,035  |                                                     |   |   |              |   |        |                                        |        |   |         |   |       |            | 3,750  |   |          |   | 95,727,285  |                    |        |   |   |   |   |   |   |   |
| Restricted stock awards                                                                                                               |   |   | 83,765      |                                                     |   |   |              |   |        |                                        |        |   |         |   |       |            | 5      |   |          |   | 83,760      |                    |        |   |   |   |   |   |   |   |
| Stock based compensation expense                                                                                                      |   |   | 4,427,470   |                                                     |   |   |              |   |        |                                        |        |   |         |   |       |            |   |   |          |   | 4,427,470   |                    |        |   |   |   |   |   |   |   |
| Comprehensive income:                                                                                                                 |   |   |        |                                                     |   |   |              |   |        |                                        |        |   |         |   |       |            |   |   |          |   |        |                    |        |   |   |   |   |   |   |   |
| Net loss                                                                                                                              |   |   | (21,758,637 | )                                                        |   | $      | (18,034,915       | )      |        |                                        | (18,034,915 | )      |         |   |       |            |   |   |          |   |        |                    |        |   |   |   |   |   |   |   | (3,723,722 | ) |
| Other comprehensive income, net of tax:                                                                                          |   |   |        |                                                     |   |   |              |   |        |                                        |        |   |         |   |       |            |   |   |          |   |        |                    |        |   |   |   |   |   |   |   |   |   |
| Unrealized gains on securities, net of deferred income tax of $10.5 million and reclassification adjustment of $5.1 million |   |   | 14,285,601  |                                                     |   |   | 14,285,601        |   |        |                                        |        |   |         |   | 14,285,601 |            |   |   |          |   |        |                    |        |   |   |   |   |   |   |   |   |   |
| Foreign currency translation                                                                                                          |   |   | 8,232,647   |                                                     |   |   | 8,232,647         |   |        |                                        |        |   |         |   | 8,232,647  |            |   |   |          |   |        |                    |        |   |   |   |   |   |   |   |   |   |
| Other comprehensive  Income                                                                                                 |   |   | 22,518,248  |                                                     |   |   | 22,518,248        |   |        |                                        |        |   |         |   |       |            |   |   |          |   |        |                    |        |   |   |   |   |   |   |   |   |   |
| Comprehensive income                                                                                                                  |   |   | 759,611     |                                                     |   | $      | 4,483,333         |   |        |                                        |        |   |         |   |       |            |   |   |          |   |        |                    |        |   |   |   |   |   |   |   |   |   |
| Ending balance, December 31, 2009                                                                                                |   | $      | 579,695,191 |                                                     |   |   |              |   |        | $                                           | 100,001,801 |   |         | $      | 21,094,385 |            |   | $      | 27,020        |   |        | $                       | 539,791,922 |   |   | $ | (78,271,643 | ) |   | $ | (2,948,294 | ) |

----

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                 |   | 2009    |        |   | 2008   |    |         | 2007   |   |
|--------------------------------------------------------------------------------------|--------|---------|-------------|--------|--------|---------|--------------|--------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                |   |    |        |   |   |    |         |   |   |
| Net income (loss)                                                                    |   |  $ | (21,758,637 | )      |   |  $ | 27,898,019   |   |   |  $ | (1,522,034 | ) |
| Adjustments to reconcile net income (loss) to net cash used in operating activities: |   |    |        |   |   |    |         |   |   |   |   |   |
| Provision (benefit) for deferred income taxes                                        |   |    | 1,465,598   |   |   |    | 2,676,025    |   |   |   | (6,592,013 | ) |
| Depreciation and amortization                                                        |   |    | 1,725,522   |   |   |    | 1,354,352    |   |   |   | 1,634,698 |   |
| Bad debt expense                                                                     |   |    | 806,721     |   |   |    |         |   |   |   |   |   |
| Stock based compensation expense (including restricted stock awards)                 |   |    | 4,511,235   |   |   |    | 4,156,960    |   |   |   | 4,468,334 |   |
| (Gain) loss on sale or impairment of investments                                     |   |    | 6,755,637   |   |   |    | (36,227,458  | )      |   |   | (2,747,958 | ) |
| Impairment losses on intangible assets                                               |   |    | 12,378,000  |   |   |    |         |   |   |   |   |   |
| Gain on sale of water storage                                                        |   |    |        |   |   |    | (8,716,082   | )      |   |   |   |   |
| Gain on non-monetary exchange                                                        |   |    |        |   |   |    |         |   |   |   | (3,466,402 | ) |
| Changes in assets and liabilities, net of effects of acquisitions:                   |   |    |        |   |   |    |         |   |   |   |   |   |
| Notes and other receivables                                                          |   |    | 10,704,535  |   |   |    | (7,233,633   | )      |   |   | 25,633 |   |
| Real estate and water assets                                                         |   |    | (35,776,657 | )      |   |    | (53,571,725  | )      |   |   | (30,596,350 | ) |
| Federal, foreign and state income taxes                                              |   |    | (4,267,863  | )      |   |    | (7,667,886   | )      |   |   | 3,923,893 |   |
| Other assets                                                                         |   |    | (684,812    | )      |   |    | 937,460      |   |   |   | (1,073,719 | ) |
| Unpaid losses and loss adjustment expenses                                           |   |    | (3,598,457  | )      |   |    | (4,602,698   | )      |   |   | (8,707,283 | ) |
| Deferred compensation                                                                |   |    | 3,399,838   |   |   |    | (20,300,776  | )      |   |   | 2,770,191 |   |
| Other liabilities                                                                    |   |    | (5,666,126  | )      |   |    | (1,209,451   | )      |   |   | (10,881,075 | ) |
| Excess tax benefits from stock based payment arrangements                            |   |    |        |   |   |    | (62,153      | )      |   |   | (4,426,789 | ) |
| All other operating activities                                                       |   |    | 1,783,465   |   |   |    | 1,703,066    |   |   |   | 572,974 |   |
| Cash used in operating activities                                                    |   |    | (28,222,001 | )      |   |    | (100,865,980 | )      |   |   | (56,617,900 | ) |
|                                                                                 |   |    |        |   |   |    |         |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                |   |    |        |   |   |    |         |   |   |   |   |   |
| Proceeds from the sale of available for sale investments:                            |   |    |        |   |   |    |         |   |   |   |   |   |
| Fixed maturities                                                                     |   |    | 2,743,176   |   |   |    | 10,714,552   |   |   |   |   |   |
| Equity securities                                                                    |   |    | 26,015,429  |   |   |    | 98,190,571   |   |   |   | 10,410,021 |   |
| Proceeds from maturity of available for sale investments                             |   |    | 1,531,200   |   |   |    | 63,192,968   |   |   |   | 83,603,560 |   |
| Purchases of available for sale investments:                                         |   |    |        |   |   |    |         |   |   |   |   |   |
| Fixed maturities                                                                     |   |    | (22,337,363 | )      |   |    | (9,294,830   | )      |   |   | (130,220,057 | ) |
| Equity securities                                                                    |   |    | (8,980,439  | )      |   |    | (26,322,941  | )      |   |   | (26,628,779 | ) |
| Real estate and water asset capital expenditure                                      |   |    | (242,076    | )      |   |    | (14,634,706  | )      |   |   | (48,141,339 | ) |
| Proceeds on the sale of water storage                                                |   |    |        |   |   |    | 11,749,900   |   |   |   |   |   |
| All other investing activities                                                       |   |    | (207,813    | )      |   |    | (680,264     | )      |   |   | (959,092 | ) |
| Cash provided by (used in) investing activities                                      |   |    | (1,477,886  | )      |   |    | 132,915,250  |   |   |   | (111,935,686 | ) |
|                                                                                 |   |    |        |   |   |    |         |   |   |   |   |   |
|                                                                                 |   |    |        |   |   |    |         |   |   |   |   |   |

----

| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                           |   |    |        |    |   |    |        |   |   |
|-----------------------------------------------------------------------------------------------------------------|--------|---------|-------------|---------|--------|---------|-------------|--------|--------|
| Proceeds from issuance of common stock, net of expenses                                                         |   |    | 95,731,035  |    |   |    |        |   |   | 100,141,935 |   |
| Proceeds from bank and other borrowings                                                                         |   |    | 5,417,365   |    |   |    | 8,240,668   |   |   |   |   |   |
| Repayment of bank and other borrowings                                                                          |   |    | (16,303,277 | )  |   |    |        |   |   |   |   |   |
| 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                                                                           |   |    | 84,845,123  |    |   |    | 8,331,195   |   |   |   | 104,598,116 |   |
| Effect of exchange rate changes on cash                                                                         |   |    | 3,083,560   |    |   |    | (14,855,472 | )      |   |   | (1,875,083 | ) |
| Net increase (decrease) in cash and cash equivalents                                                            |   |    | 58,228,796  |    |   |    | 25,524,993  |   |   |   | (65,830,553 | ) |
| Cash and cash equivalents, beginning of year                                                                    |   |    | 96,316,018  |    |   |    | 70,791,025  |   |   |   | 136,621,578 |   |
| Cash and cash equivalents, end of year                                                                          |   |  $ | 154,544,814 |    |   |  $ | 96,316,018  |   |   |  $ | 70,791,025 |   |
|                                                                                                            |   |    |        |    |   |    |        |   |   |   |   |   |
| Supplemental disclosure of cash flow information:                                                               |   |    |        |    |   |    |        |   |   |   |   |   |
| Cash paid during the year for:                                                                                  |   |    |        |    |   |    |        |   |   |   |   |   |
| (Refund) payment of federal, foreign and state income taxes                                                     |   | $       | (26,536,621 | )       |   | $       | 43,585,667  |   |   | $ | 6,229,674 |   |
| Interest paid, net of amounts capitalized                                                                       |   | $       | 967,390     |    |   |    |        |   |   |   |   |   |
| Non-cash investing and financing activities:                                                                    |   |    |        |    |   |    |        |   |   |   |   |   |
| Distribution of debt and equity securities to settle deferred compensation liability                            |   |    |        |    |   | $       | 4,500,930   |   |   |   |   |   |
| Construction in progress costs incurred but not paid                                                            |   |    |        |    |   | $       | 457,372     |   |   | $ | 7,905,643 |   |
| Mortgage incurred to purchase real estate                                                                       |   | $       | 5,255,100   |    |   | $       | 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 |   |

----

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 primarily in Nevada and California;                                 |
| · | Acquiring and financing businesses; and                                                               |
| · | “Running off” insurance loss reserves.                                                    |

----

impairment review.  The Company recognizes an impairment charge when a decline in the fair value of its investments below the cost basis is judged to be other-than-temporary.  Factors considered in determining whether a loss is temporary on anequity security included the length of time and extent to which the investments fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, extent of the loss related to credit of the issuer, the expected cash flows from the security, the Company’s intent to sell the security and whether or not the Company will be required to sell the security before the recovery of its amortized cost.  If a security is impaired and continues to decline in value,additional impairment charges are recorded in the period of the decline if deemed other-than-temporary.  Subsequent recoveries of such securities are reported as an unrealized gain and part of other comprehensive results in future periods.  Any subsequent gains on impaired securities are recognized only when sold.  Impairment charges of $18.8 million, $21.2 million, and $2 million are included in realized losses for the years ended December 31, 2009, 2008 and 2007, respectively,related to various securities where the unrealized losses had been deemed other-than-temporary. 

----

----

----

|                                          | December 31, |   |
|-----------------------------------------------|--------------|--------|
|                                          | 2009         |   | 2008 |   |
| Net unrealized gain on securities             |         | $      | 25,852,577 |   |   | $ | 11,566,976 |   |
| Foreign currency translation                  |         |   | (4,758,192 | ) |   |   | (12,990,839 | )  |
| Accumulated other comprehensive income (loss) |         | $      | 21,094,385 |   |   | $ | (1,423,863 | )  |

----

| 2. | INVESTMENTS |
|----|-------------|

| 2009:                            | Cost   |   | Gross Unrealized Gains |   | Gross Unrealized Losses |   | Carrying Value |   |
|----------------------------------|--------|--------|------------------------|--------|-------------------------|--------|----------------|--------|
| Fixed maturities:                |   |   |                   |   |                    |   |           |   |
| U.S. Treasury securities         |   | $      | 1,105,848              |   |                    | $      | 80,418         |   |   |   |   |   | $ | 1,186,266 |   |
| Municipal bonds                  |   |   | 3,174,739              |   |                    |   |  64,031   |   |   |   |   |   |   |   | 3,238,770 |   |
| Corporate bonds                  |   |   | 21,217,517             |   |                    |   | 2,278,020      |   |   | $  | (2,224,316 | )  |   |   | 21,271,221 |   |
| Government sponsored enterprises |   |   | 24,763,730             |   |                    |   | 328,854   |   |   |   | (213,815 | )  |   |   | 24,878,769 |   |
|                             |   |   | 50,261,834             |   |                    |   | 2,751,323      |   |   |   | (2,438,131 | )  |   |   | 50,575,026 |   |
| Marketable equity securities     |   |   | 81,935,407             |   |                    |   | 37,008,958     |   |   |   | (617,623 | )  |   |   | 118,326,742 |   |
| Total                            |   | $      | 132,197,241            |   |                    | $      | 39,760,281     |   |   | $ | (3,055,754 | )  |   | $ | 168,901,768 |   |

| 2008:                            | Cost   |   | Gross Unrealized Gains |   | Gross Unrealized Losses |   | Carrying 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 |   |

|                                  |   | Amortized |       |   | Carrying |   |
|---------------------------------------|--------|-----------|------------|--------|----------|--------|
|                                  |   | Cost      |       |   | Value    |   |
| Due in one year or less               |   | $         | 3,002,700  |   |     | $      | 4,698,858 |   |
| Due after one year through five years |   |      | 23,979,889 |   |     |   | 22,961,818 |   |
| Due after five years                  |   |      | 23,279,245 |   |     |   | 22,914,350 |   |
|                                  |   | $         | 50,261,834 |   |     | $      | 50,575,026 |   |

|                           |   | 2009   |      |   | 2008   |   |       | 2007    |   |
|--------------------------------|--------|--------|-----------|--------|--------|--------|------------|---------|--------|
| Investment income:             |   |   |      |   |   |   |       |    |   |
| Fixed maturities               |   | $      | 2,175,209 |   |   | $      | 2,618,183  |    |   | $ | 3,952,102 |   |
| Equity securities              |   |   | 2,478,825 |   |   |   | 2,965,296  |    |   |   | 4,202,648 |   |
| Other, primarily cash balances |   |   | 1,509,033 |   |   |   | 4,823,212  |    |   |   | 9,034,590 |   |
| Total investment income        |   |   | 6,163,067 |   |   |   | 10,406,691 |    |   |   | 17,189,340 |   |
| Investment expenses            |   |   | (224,496  | )      |   |   | (261,261   | )  |   |   | (149,540 | )  |
| Net investment income          |   | $      | 5,938,571 |   |   | $      | 10,145,430 |    |   | $ | 17,039,800 |   |

----

|                                    |   | 2009   |        |   | 2008   |   |        | 2007   |   |
|-----------------------------------------|--------|--------|-------------|--------|--------|--------|-------------|--------|--------|
| Gross realized gains:                   |   |   |        |   |   |   |        |   |   |
| Fixed maturities                        |   | $      | 1,534,728   |   |   | $      | 52,280      |   |   | $ | 561 |   |
| Equity securities and other investments |   |   | 16,572,846  |   |   |   | 58,246,969  |   |   |   | 4,726,158 |   |
| Total gain                              |   |   | 18,107,574  |   |   |   | 58,299,249  |   |   |   | 4,726,719 |   |
| Gross realized losses:                  |   |   |        |   |   |   |        |   |   |   |   |   |
| Fixed maturities                        |   |   | (5,225,452  | )      |   |   | (3,119,497  | )      |   |   | (1,603,852 | )  |
| Equity securities and other investments |   |   | (19,637,759 | )      |   |   | (18,952,294 | )      |   |   | (374,909 | ) |
| Total loss                              |   |   | (24,863,211 | )      |   |   | (22,071,791 | )      |   |   | (1,978,761 | ) |
| Net realized gain (loss)                |   | $      | (6,755,637  | )      |   | $      | 36,227,458  |   |   | $ | 2,747,958 |   |

|                             | 2009       |   | 2008                  |   |
|----------------------------------|------------|--------|-----------------------|--------|
| Less than 12 months              | Fair Value |   | Gross Unrealized Loss |   | Fair Value |   | Gross Unrealized Loss |   |
| Fixed maturities:                |       |   |                  |   |   |   |   |   |
| Municipal bonds                  |       |   |                  |   |   |   |   |   |   | $ | 2,128,480 |   |   | $ | 8,523 |   |
| Corporate bonds                  |       | $      | 779,417               |   |   | $ | 10,399 |   |   |   | 5,290,363 |   |   |   | 1,586,298 |   |
| Government sponsored enterprises |       |   | 17,960,579            |   |   |   | 213,816 |   |   |   |   |   |   |   |   |   |
|                             |       |   | 18,739,996            |   |   |   | 224,215 |   |   |   | 7,418,843 |   |   |   | 1,594,821 |   |
| Marketable equity securities     |       |   | 5,589,971             |   |   |   | 488,523 |   |   |   | 40,880,566 |   |   |   | 9,290,041 |   |
| Total                            |       | $      | 24,329,967            |   |   | $ | 712,738 |   |   | $ |  48,299,409 |   |   | $ | 10,884,862 |   |

|                         | 2009       |    | 2008                  |   |
|------------------------------|------------|---------|-----------------------|--------|
| Greater than 12 months       | Fair Value |    | Gross Unrealized Loss |   | Fair Value |   | Gross Unrealized Loss |   |
| Fixed maturities:            |       |    |                  |   |   |   |   |   |
| Corporate bonds              |       | $  | 9,510,246             |   |   | $  | 2,213,916 |   |   | $  | 10,044,022 |   |   | $  | 6,236,152 |   |
| Marketable equity securities |       |    | 1,345,288             |   |   |   | 129,100 |   |   |   | 160,430 |   |   |   | 22,250 |   |
| Total                        |       | $       | 10,855,534            |   |   | $ | 2,343,016 |   |   | $ | 10,204,452 |   |   | $ | 6,258,402 |   |

----

|  Assets                       |   | Quoted Prices In Active Markets for Identical Assets (Level 1) |        | Significant OtherObservable Inputs (Level 2) | SignificantUnobservable Inputs (Level 3) |   | Balance at December 31, 2009 |   |
|------------------------------------|--------|----------------------------------------------------------------|-------------|----------------------------------------------|------------------------------------------|--------|------------------------------|--------|
| Available for sale investments (A) |   | $                                                              | 168,901,768 |                                         |                                     |   |                         | $      | 168,901, 768 |   |
| Liabilities                        |   |                                                           |        |                                         |                                     |   |                         |   |   |   |
| Deferred compensation (B)          |   | $                                                              | 31,144,366  |                                         |                                     |   |                         | $      | 31,144,366 |   |

|  Assets                       |   | Quoted Prices In Active Markets for Identical Assets (Level 1) |        |   | Significant Other Observable Inputs (Level 2) |   |    | Significant Unobservable Inputs (Level 3) |   |   | Balance at December 31, 2008 |   |
|------------------------------------|--------|----------------------------------------------------------------|-------------|--------|-----------------------------------------------|--------|---------|-------------------------------------------|--------|--------|------------------------------|--------|
| Available for sale investments (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 anddebt securities are valued using a market quote in an active market.  Level 2 available for sale investments include securities where the markets are not active, that is where there are few transactions, or the prices are not current or the price quotations vary substantially over time.  Level 3 available for sale investments include securities where valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of theassets.  This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (B) Deferred compensation plans are compensation plans directed by the Company and structured as Rabbi Trusts 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 sharesheld in each trust account including the shares of PICO Holdings, Inc. common stock held in the trusts.  The related deferred compensation liability represents the fair value of the investment assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

----

| Asset Description              |   | Fair Value at Beginning of Period |      | Unrealized Gain Included in Income |   | Accumulated Other Comprehensive Income |   | Purchases, Sales, and Issuances |   | Transfers Out |   | Fair Value at End of Period |
|--------------------------------|--------|-----------------------------------|-----------|------------------------------------|--------|----------------------------------------|--------|---------------------------------|--------|---------------|--------|-----------------------------|
| Available for sale investments |   | $                                 | 2,998,055 |                               |   |                                   | $      | 5,895,529                       |   |          |   | $                           | (8,893,584 | )  |   |

| Asset Description                                    | Quoted Prices In Active Markets for Identical Assets (Level 1) |   | Significant Other Observable Inputs (Level 2) |      | Significant Unobservable Inputs(Level 3) |   | TotalGain/(Loss) |   |
|------------------------------------------------------|----------------------------------------------------------------|--------|-----------------------------------------------|-----------|------------------------------------------|--------|------------------|--------|
| (A) Intangible asset (applications for water rights) |                                                           |   | $                                             | 3,953,033 |                                     |   |             | $      | (12,378,000 | ) |
| (B) Investment in unconsolidated affiliate           |                                                           |   | $                                             | 9,161,715 |                                     |   |             | $      | 8,181,296 |   |

| (A)   | As of March 31, 2009, the Company had a non-recurring fair value measurement for an intangible asset with a carrying amount of $16.4 million that was written down to its implied fair value of $4 million, resulting in an impairment charge of $12.4 million, which was included in earnings for 2009.  The implied fair value was estimated as the revenuesthe Company estimated it will receive on the sale of the intangible asset. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (B)   | During the fourth quarter of 2009, the Company had a non-recurring fair value measurement for spigit, a consolidated subsidiary that was deconsolidated when the Company’s voting ownership was diluted from 74% to 37% after a new investor purchased newly-issued shares of spigit for $10 million.  The transaction resulted in a gain of approximately$8.2 million before income taxes, which is included in the caption, net realized gain (loss) on sale and impairment of investments, in the accompanying consolidated statements of operations.  The fair value was based upon the price paid by the new investor. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -- | Cash and Cash Equivalents:  Carrying amounts for these items approximate fair value because of the short maturity of these instruments.  The majority of the Company’s cash is held in the Federated Government Obligations Money Market.                                                                                                                                                                                                                     |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| -- | Investments in fixed maturities and equity securities: 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 evaluatesthe carrying value of securities to determine whether there has been any diminution in value that is other-than-temporary. |
| -- | Borrowings: Carrying amounts for these items approximates fair value because they are based on current interest rates.                                                                                                                                                                                                                                                                                                                                                                  |

|                              |   | December 31, 2009 |        |
|-----------------------------------|--------|-------------------|-------------|
|                              |   | CarryingAmount    |        |   | Estimated Fair Value |   |
| Financial assets:                 |   |              |        |   |   |   |
| Cash and cash equivalents         |   | $                 | 154,544,814 |   |   | $ | 154,544,814 |   |
| Investments with fixed maturities |   | $                 | 50,575,026  |   |   | $ | 50,575,026 |   |
| Equity securities                 |   | $                 | 118,326,742 |   |   | $ | 118,326,742 |   |
| Notes and other receivables, net  |   | $                 | 15,411,728  |   |   | $  | 15,411,728 |   |
| Reinsurance receivables           |   | $                 | 15,012,695  |   |   | $ | 15,012,695 |   |
| Financial liabilities:            |   |              |        |   |   |   |   |   |
| Borrowings                        |   | $                 | 41,220,514  |   |   | $ | 41,220,514 |   |

----

| 3. | BORROWINGS: |
|----|-------------|

|                                                           |   | 2009   |       |   | 2008   |   |
|----------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Swiss Borrowings:                                              |   |   |       |   |   |   |
| 4.43% fixed due in 2011                                        |   | $      | 4,346,566  |   |   | $      | 4,219,409 |   |
| 3.72% fixed due in 2014                                        |   |   | 12,073,795 |   |   |   |   |   |
| 3.81% fixed due in 2014                                        |   |   | 2,897,711  |   |   |   |   |   |
| 4.19% fixed due in 2009                                        |   |   |       |   |   |   | 2,812,940 |   |
| 3.98% fixed due in 2009                                        |   |   |       |   |   |   | 11,720,581 |   |
| 4.87% floating due on demand                                   |   |   |       |   |   |   | 4,030,532 |   |
| Mortgage Borrowings:                                           |   |   |       |   |   |   |   |   |
| 6.50% fixed payment due in 2009 and 2010                       |   |   | 2,590,000  |   |   |   | 5,180,000 |   |
| 8.00% fixed due in equal annual installments from 2009 to 2013 |   |   | 1,659,086  |   |   |   | 2,000,000 |   |
| 4.00% fixed due in 2011                                        |   |   | 7,079,070  |   |   |   | 7,079,070 |   |
| 12.00% fixed due in 2011                                       |   |   | 1,604,186  |   |   |   | 1,604,186 |   |
| 6.25% fixed due in 2011                                        |   |   | 3,715,000  |   |   |   | 3,715,000 |   |
| 6.00% fixed due in 2012                                        |   |   | 2,795,100  |   |   |   |   |   |
| 6.00% fixed due in 2014                                        |   |   | 2,460,000  |   |   |   |   |   |
| Other Borrowings:                                              |   |   |       |   |   |   |   |   |
| 6.00% fixed due on demand                                      |   |   |       |   |   |   | 20,000 |   |
|                                                           |   | $      | 41,220,514 |   |   | $      | 42,381,718 |   |

| Year  |   |   |       |
|-------|--------|--------|------------|
| 2010  |   | $      | 2,958,186  |   |
| 2011  |   |   | 17,142,462 |   |
| 2012  |   |   | 3,224,552  |   |
| 2013  |   |   | 463,808    |   |
| 2014  |   |   | 17,431,506 |   |
| Total |   | $      | 41,220,514 |   |

----

| 4. | REAL ESTATE AND WATER ASSETS: |
|----|-------------------------------|

|                                                                                                             | 2009   |             | 2008   |   |
|------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|--------|
| Real estate                                                                                                      | $      | 127,530,016      |   | $      | 93,999,364 |   |
| Real estate improvements, net of accumulated amortization of $6.5 million in 2009 and $5.6 million in 2008  |   |  10,450,408 |   |   |  11,029,152 |   |
| Water and water rights                                                                                           |   | 60,738,916       |   |   | 65,813,882 |   |
| Pipeline rights and water credits at Fish Springs                                                                |   | 101,113,980      |   |   | 100,871,902 |   |
|                                                                                                             | $      | 299,833,320      |   | $      | 271,714,300 |   |

| · | 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. |

----

| 5. | NOTES AND OTHER RECEIVABLES: |
|----|------------------------------|

|                |   | 2009   |       |   | 2008   |   |
|---------------------|--------|--------|------------|--------|--------|--------|
| Notes receivable    |   | $      | 10,343,760 |   |   | $      | 11,121,764 |   |
| Interest receivable |   |   | 1,053,955  |   |   |   | 984,619 |   |
| Other receivables   |   |   | 4,014,013  |   |   |   | 12,245,984 |   |
|                |   | $      | 15,411,728 |   |   | $      | 24,352,367 |   |

| 6. | FEDERAL, FOREIGN AND STATE INCOME TAX: |
|----|----------------------------------------|

|                                                        |   | 2009   |       |   | 2008   |   |
|-------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Deferred tax assets:                                        |   |   |       |   |   |   |
| Deferred compensation                                       |   | $      | 12,579,517 |   |   | $      | 6,968,887 |   |
| Basis difference on investment                              |   |   | 1,100,381  |   |   |   | 1,816,373 |   |
| Impairment charges on securities                            |   |   | 11,011,727 |   |   |   | 9,608,437 |   |
| Impairment charges on water assets                          |   |   | 4,647,459  |   |   |   |   |   |
| Net operating losses                                        |   |   | 2,254,228  |   |   |   | 1,325,112 |   |
| Legal settlement expense                                    |   |   | 1,351,660  |   |   |   | 1,260,000 |   |
| Excess tax basis in subsidiary                              |   |   |       |   |   |   | 4,219,575 |   |
| Accumulated foreign currency translation adjustments        |   |   | 2,337,178  |   |   |   | 3,308,326 |   |
| Unearned revenue                                            |   |   | 543,144    |   |   |   | 1,995,976 |   |
| Employee benefits, including stock-based compensation  |   |   | 6,033,618  |   |   |   | 4,115,964 |   |
| Other                                                       |   |   | 3,195,229  |   |   |   | 6,530,633 |   |
| Total deferred tax assets                                   |   |   | 45,054,141 |   |   |   | 41,149,283 |   |
| Deferred tax liabilities:                                   |   |   |       |   |   |   |   |   |
| Unrealized appreciation on securities                       |   |   | 12,153,784 |   |   |   | 1,622,410 |   |
| Revaluation of real estate and water assets                 |   |   | 5,101,807  |   |   |   | 4,761,461 |   |
| Foreign receivables                                         |   |   | 3,716,941  |   |   |   | 3,364,641 |   |
| Real estate installment sales                               |   |   | 3,918,205  |   |   |   | 3,469,044 |   |
| Excess tax basis in subsidiary                              |   |   | 2,262,005  |   |   |   |   |   |
| Other                                                       |   |   | 2,686,365  |   |   |   | 1,332,383 |   |
| Total deferred tax liabilities                    |   |   | 29,839,107 |   |   |   | 14,549,939 |   |
| Valuation allowance                                         |   |   | (4,049,788 | )      |   |   | (1,325,112 | )  |
| Net deferred income tax asset (liability)                   |   | $      | 11,165,246 |   |   | $      | 25,274,232 |   |

----

|          | 2009   |        | 2008    |   |       | 2007    |   |
|---------------|--------|-------------|---------|--------|------------|---------|--------|
| United States | $      | (40,800,551 | )  | $      | (7,352,018 | )  |   | $ | 2,110,723 |   |
| Foreign       |   | (218,711    | )  |   | 63,741,053 |    |   |   | (97,058 | )  |
| Total         | $      | (41,019,262 | )  | $      | 56,389,035 |    |   | $ | 2,013,665 |   |

|                                 | 2009   |        | 2008    |   |       | 2007    |   |
|--------------------------------------|--------|-------------|---------|--------|------------|---------|--------|
| Current tax expense (benefit):       |   |        |    |   |       |    |   |
| United States Federal and state      | $      | (20,633,829 | )       | $      | 13,754,797 |    |   | $ | 10,407,829 |   |
| Foreign                              |   | (92,394     | )  |   | 12,060,194 |    |   |   | (280,117 | ) |
|                                 |   | (20,726,223 | )       |   | 25,814,991 |    |   |   | 10,127,712 |   |
| Deferred tax expense (benefit):      |   |        |    |   |       |    |   |   |   |   |
| United States Federal and state      |   | 703,790     |    |   | 2,679,940  |    |   |   | (6,591,909 | ) |
| Foreign                              |   | 761,808     |    |   | (3,915     | )  |   |   | (104 | ) |
|                                 |   | 1,465,598   |    |   | 2,676,025  |    |   |   | (6,592,013 | )  |
| Total income tax provision (benefit) | $      | (19,260,625 | )       | $      | 28,491,016 |    |   | $ | 3,535,699 |   |

|                                                                    |   | 2009   |        |   | 2008   |   |       | 2007   |   |
|-------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|------------|--------|--------|
| Federal income tax provision at statutory rate                          |   | $      | (14,356,741 | )      |   | $      | 19,736,162 |   |   | $ | 704,783 |   |
| Change in valuation allowance                                           |   |   | 3,248,908   |   |   |   | 833,516    |   |   |   | 455,426 |   |
| State taxes, net of federal benefit                                     |   |   | (5,209,176  | )      |   |   | 2,774,181  |   |   |   | 383,379 |   |
| Change in liability for uncertain tax positions                         |   |   | (2,475,791  | )      |   |   | 1,720,329  |   |   |   | 350,526 |   |
| Previously untaxed earnings and profits from foreign subsidiaries       |   |   | (1,709,694  | )      |   |   | 2,773,286  |   |   |   |   |   |
| Basis difference on sale of subsidiary                                  |   |   | 2,401,696   |   |   |   |       |   |   |   |   |   |
| Deferred Compensation – amounts no longer subject to §162(m) |   |   | (2,000,000  | )      |   |   |       |   |   |   |   |   |
| Other                                                                   |   |   | 840,173     |   |   |   | 653,542    |   |   |   | 1,641,585 |   |
| Total income tax provision                                              |   | $      | (19,260,625 | )      |   | $      | 28,491,016 |   |   | $ | 3,535,699 |   |

|                                                    |   | 2009   |        |   | 2008   |   |       | 2007   |   |
|---------------------------------------------------------|--------|--------|-------------|--------|--------|--------|------------|--------|--------|
| Balance at beginning of year                            |   | $      | 12,608,476  |   |   | $      | 3,277,654  |   |   | $ | 3,277,654 |   |
| Additions for tax positions related to the current year |   |   |        |   |   |   | 9,330,822  |   |   |   |   |   |
| Reductions due to expiration of assessment period       |   |   | (10,016,523 | )      |   |   |       |   |   |   |   |   |
| Balance at end of year                                  |   | $      | 2,591,953   |   |   | $      | 12,608,476 |   |   | $ | 3,277,654 |   |

----

| 7. | PROPERTY AND EQUIPMENT: |
|----|-------------------------|

|                                     |   | 2009   |       |    | 2008   |   |
|------------------------------------------|--------|--------|------------|---------|--------|--------|
| Office furniture, fixtures and equipment |   | $      | 3,808,640  |    |   | $      | 3,921,822 |   |
| Building and leasehold improvements      |   |   | 705,128    |    |   |   | 668,834 |   |
|                                     |   |   | 4,513,768  |    |   |   | 4,590,656 |   |
| Accumulated depreciation                 |   |   | (3,185,632 | )  |   |   | (3,078,286 | ) |
| Property and equipment, net              |   | $      | 1,328,136  |    |   | $      | 1,512,370 |   |

| 8. | SHAREHOLDERS’ EQUITY: |
|----|-----------------------------|

| Outstanding at January 1, 2009 (all RSA)                      |   |   | 4,200   |   |
|---------------------------------------------------------------|--------|--------|---------|--------|
| Granted (RSU – expected to vest in March 2012)          |   |   | 300,000 |   |
| Granted (RSA – expected to vest in May and August 2010) |   |   | 5,286   |   |
| Total RSA and RSU Outstanding at December 31, 2009            |   |   | 309,486 |   |

----

| 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 Average Exercise Price |   | Weighted Average Contractual Term Remaining |
|---------------------------------------------|-----------|--------|---------------------------------|--------|---------------------------------------------|
| Outstanding at January 1, 2009              | 1,995,018 |   |  $                         | 36.89  |                                        |   |
| Granted                                     |      |   |                            |   |                                        |   |
| Exercised                                   |      |   |                            |   |                                        |   |
| Outstanding at December 31, 2009            | 1,995,018 |   |  $                         | 36.89  |                                        | 6.5 years |
| Vested and exercisable at December 31, 2009 | 1,937,372 |   |  $                         | 36.66  |                                        | 6.5 years |

|                                                     | SAR     |   | Weighted Average GrantDate Fair Value |   |
|----------------------------------------------------------|---------|--------|---------------------------------------|--------|
| Unvested at January 1, 2009                              | 275,828 |   | $                                     | 18.31  |   |
| Granted                                                  |    |   |                                  |   |   |
| Vested                                                   | 218,182 |   |                                  | 18.14  |   |
| Unvested at December 31, 2009 (expected to vest in 2010) | 57,646  |   | $                                     | 18.93  |   |

----

| 9. | REINSURANCE: |
|----|--------------|

|                                                     | 2009   |   | 2008       |
|----------------------------------------------------------|--------|--------|------------|
| Estimated reinsurance recoverable on:                    |   |   |       |
| Unpaid losses and loss adjustment expense                |   | $      | 14,526,642 |   |   | $ | 15,877,372 |   |
| Reinsurance recoverable on paid losses and loss expenses |   |   | 486,053    |   |   |   | 495,760 |   |
| Reinsurance receivables                                  |   | $      | 15,012,695 |   |   | $ | 16,373,132 |   |

|                                |   | Reported Claims |      |   | Unreported Claims |   |      | Reinsurer Balances |   |
|-------------------------------------|--------|-----------------|-----------|--------|-------------------|--------|-----------|--------------------|--------|
| General Reinsurance (A++)           |   | $               | 6,826,502 |   |              | $      | 7,592,574 |               |   | $ | 14,419,076 |   |
| Swiss Reinsurance America Corp (A+) |   |            | 71,069    |   |              |   | 201,928   |               |   |   | 272,997 |   |
| All others                          |   |            | 109,392   |   |              |   | 211,230   |               |   |   | 320,622 |   |
|                                |   | $               | 7,006,963 |   |              | $      | 8,005,732 |               |   | $ | 15,012,695 |   |

|    | 2009   |       | 2008   |   |           | 2007 |   |
|---------|--------|------------|--------|--------|----------------|------|--------|
| Direct  | $      | (1,596,375 | )      | $      | (2,069,991     | )    |   | $ | (2,323,098 | )  |
| Assumed |   |       |   |   |  (145,487 | )    |   |   |   |   |
| Ceded   |   | 251,706    |   |   | (240,908       | )    |   |   | (1,277,993 | ) |
|    | $      | (1,344,669 | )      | $      | (2,456,386     | )    |   | $ | (3,601,091 | ) |

| 10. | RESERVES FOR UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES: |
|-----|--------------------------------------------------------|

----

|                                                                      | 2009   |        |   | 2008   |   |        | 2007   |   |
|---------------------------------------------------------------------------|--------|-------------|--------|--------|--------|-------------|--------|--------|
| Balance at January 1                                                      | $      | 27,773,320  |   |   | $      | 32,376,018  |   |   | $ | 41,083,301 |   |
| Less reinsurance recoverable                                              |   | (15,877,372 | )      |   |   | (16,653,254 | )      |   |   | (16,972,280 | ) |
| Net balance at January 1                                                  |   | 11,895,948  |   |   |   | 15,722,764  |   |   |   | 24,111,021 |   |
| Incurred loss and loss adjustment recovery for prior accident year claims |   | (1,344,669  | )      |   |   | (2,456,386  | )      |   |   | (3,601,091 | ) |
| Payments for claims occurring during prior accident years                 |   | (903,058    | )      |   |   | (1,370,430  | )      |   |   | (4,787,166 | ) |
| Net change for the year                                                   |   | (2,247,727  | )      |   |   | (3,826,816  | )      |   |   | (8,388,257 | ) |
| Net balance at December 31                                                |   | 9,648,221   |   |   |   | 11,895,948  |   |   |   | 15,722,764 |   |
| Plus reinsurance recoverable                                              |   | 14,526,642  |   |   |   | 15,877,372  |   |   |   | 16,653,254 |   |
| Balance at December 31                                                    | $      | 24,174,863  |   |   | $      | 27,773,320  |   |   | $ | 32,376,018 |   |

| 11. | EMPLOYEE BENEFITS, COMPENSATION AND INCENTIVE PLAN: |
|-----|-----------------------------------------------------|

| 12. | REGULATORY MATTERS: |
|-----|---------------------|

| 13. | COMMITMENTS AND CONTINGENCIES: |
|-----|--------------------------------|

| 2010  |  $ | 729,381 |
|-------|---------|---------|
| 2011  |    | 180,171 |
| 2012  |    | 77,906  |
| 2013  |    | 9,148   |
| 2014  |    | 1,502   |
| Total |  $ | 998,108 |

----

| 14. | RELATED-PARTY TRANSACTIONS: |
|-----|-----------------------------|

----

| 15. | 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.                                                                                  |

----

|                                  | 2009        |       | 2008    |   |       | 2007    |   |
|---------------------------------------|-------------|------------|---------|--------|------------|---------|--------|
| Physicians Insurance Company of Ohio: | (Unaudited) |       |    |   |       |    |   |
| Policyholders’ surplus          | $           | 50,822,989 |    | $      | 43,749,365 |    |   | $ | 80,257,090 |   |
| Statutory net income (loss)           | $           | (4,301,529 | )  | $      | (6,303,194 | )  |   | $ | 3,795,340 |   |
| Citation Insurance Company:           |        |       |    |   |       |    |   |   |   |   |
| Policyholders’ surplus          | $           | 20,108,876 |    | $      | 15,242,226 |    |   | $ | 25,143,218 |   |
| Statutory net income (loss)           | $           | (1,199,806 | )  | $      | (3,787,721 | )       |   | $ | 2,858,624 |   |

| 16. | SEGMENT REPORTING: |
|-----|--------------------|

| · | The 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 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The 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.                                                                                                                            |

----

|                                                          |   | Real Estate Operations |        |   | Water Resources and Water Storage Operations |    |        | Insurance Operations in Run Off |   |   | Corporate   |    |   | Consolidated |        |
|---------------------------------------------------------------|--------|------------------------|-------------|--------|----------------------------------------------|---------|-------------|---------------------------------|--------|--------|-------------|---------|--------|--------------|-------------|
| 2009                                                          |   |                   |        |   |                                         |    |        |                            |   |   |        |    |   |         |        |
| Total revenues (charges)                                      |   | $                      | 12,435,718  |   |                                         |  $ | 4,334,190   |                            |   | $      | (957,837    | )       |   | $            | 219,922     |   |   | $ | 16,031,993 |   |
| Net investment income                                         |   |                   | 960,154     |   |                                         |    | 408,086     |                            |   |   | 2,567,621   |    |   |         | 2,002,710   |   |   |   | 5,938,571 |   |
| Depreciation and amortization                                 |   |                   | 43,399      |   |                                         |    | 1,076,430   |                            |   |   | 2,757       |    |   |         | 167,233     |   |   |   | 1,289,819 |   |
| Income (loss) before income taxes and noncontrolling interest |   |                   | (1,156,098  | )      |                                         |    | (16,850,291 | )                          |   |   | (1,741,576  | )  |   |         | (21,271,297 | ) |   |   | (41,019,262 | ) |
| Total assets                                                  |   |                   | 149,217,191 |   |                                         |    | 207,565,121 |                            |   |   | 161,688,938 |    |   |         | 169,145,373 |   |   |   | 687,616,623 |   |
| Capital expenditure                                           |   |                   | 60,872      |   |                                         |    | 325,456     |                            |   |   | 20,947      |    |   |         | 42,614      |   |   |   | 449,889 |   |
|                                                          |   |                   |        |   |                                         |    |        |                            |   |   |        |    |   |         |        |   |   |   |   |   |
| 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 noncontrolling 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 noncontrolling 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 |   |

|                                                          |   | United States |        |   | Europe |   |       | Consolidated |   |
|---------------------------------------------------------------|--------|---------------|-------------|--------|--------|--------|------------|--------------|--------|
| 2009                                                          |   |          |        |   |   |   |       |         |   |
| Total revenues                                                |   | $             | 16,013,199  |   |   | $      | 18,794     |         |   | $ | 16,031,993 |   |
| Net investment income                                         |   |          | 5,933,401   |   |   |   | 5,170      |         |   |   | 5,938,571 |   |
| Loss before income taxes and noncontrolling interest          |   |          | (40,866,513 | )      |   |   | (152,749   | )            |   |   | (41,019,262 | ) |
| Long-lived assets                                             |   |          | 301,161,456 |   |   |   |       |         |   |   | 301,161,456 |   |
|                                                          |   |          |        |   |   |   |       |         |   |   |   |   |
| 2008                                                          |   |          |        |   |   |   |       |         |   |   |   |   |
| Total revenues                                                |   | $             | 11,222,981  |   |   | $      | 49,128,559 |         |   | $ | 60,351,540 |   |
| Net investment income                                         |   |          | 9,045,735   |   |   |   | 1,099,695  |         |   |   | 10,145,430 |   |
| Income (loss) before income taxes and noncontrolling interest |   |          | (3,645,458  | )      |   |   | 60,034,493 |         |   |   | 56,389,035 |   |
| Long-lived assets                                             |   |          | 273,226,670 |   |   |   |       |         |   |   | 273,226,670 |   |
|                                                          |   |          |        |   |   |   |       |         |   |   |   |   |
| 2007                                                          |   |          |        |   |   |   |       |         |   |   |   |   |
| Total revenues                                                |   | $             | 32,341,826  |   |   | $      | 1,586,922  |         |   | $ | 33,928,748 |   |
| Net investment income                                         |   |          | 15,493,618  |   |   |   | 1,546,182  |         |   |   | 17,039,800 |   |
| Income before income taxes and noncontrolling interest        |   |          | 1,876,937   |   |   |   | 136,728    |         |   |   | 2,013,665 |   |
| Long-lived assets                                             |   |          | 201,818,186 |   |   |   |       |         |   |   | 201,818,186 |   |

----

| 17. | SUBSEQUENT EVENTS: |
|-----|--------------------|

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

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

----

| Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk thatthe controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2009 of the Company and our report dated February26, 2010 expressed an unqualified opinion on those financial statements and included an explanatory paragraph relating to the adoption of  the provisions of accountingguidance for uncertain tax positions now codified as Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, Income Taxes, effective January 1, 2007. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| /s/ DELOITTE & TOUCHE LLP |
|-------------------------------|

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

| San Diego, CA |
|---------------|

| February 26, 2010 |
|-------------------|

----

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

PART III

| ITEM10. |  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
|---------|--------------------------------------------------------------|

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

PART IV

| 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 Indenture relating to Debt Securities. (3) |
|          | 10.1†             |                                      | PICO Holdings, Inc. 2005 Long-Term Incentive Plan. (4) |
|          | 10.2†             |                                      | Form of Restricted Stock Units Agreement. (5) |
|          | 10.3†             |                                      | Form of Notice of Grant of Restricted Stock Units. (5) |
|          | 10.4†             |                                      | Form of Restricted Stock Award Grant for Directors. (6) |
|          | 10.5†   |                                      | Trust for PICO Deferred Holdings, LLC Executive Deferred Compensation dated November 25, 2008 between PICO Deferred Holdings, LLC and Union Bank of California, N.A. relating to a Deferred Compensation Plan originally established in December 31, 1997. |
|          | 10.6†   |                                      | Trust for PICO Deferred Holdings, LLC Executive Deferred Compensation dated November 25, 2008 between PICO Deferred Holdings, LLC and Union Bank of California, N.A. relating to a Deferred Compensation Plan originally established in December 7, 2004. |
|          | 10.7†   |                                      | Trust for PICO Deferred Holdings, LLC Non-Employee Director Deferred Compensation dated November 25, 2008 between PICO Deferred Holdings, LLC and Union Bank of California, N.A. relating to a Deferred Compensation Plan originally established in September 25, 2001. |
|          | 10.8†             |                                      | PICO Deferred Holdings, LLC Deferred Compensation Plan. |
|          | 10.9†             |                                      | Employment Agreement dated May 7, 2007, by and between PICO Holdings, Inc. and John R. Hart. (7) |
|          | 10.10†            |                                      | Amendment to Employment Agreement, effective as of January 1, 2009, by and between PICO Holdings, Inc. and John R. Hart. (8) |
|          | 10.11†            |                                      | Amendment to PICO Holdings, Inc. 2005 Long-Term Incentive Plan 2009 Restricted Stock Unit Award Agreement, dated as of April 2, 2009 by and between the Company and W. Raymond Webb. (9) |
|          | 10.12†            |                                      | Employment Agreement, dated March 3, 2009, by and between PICO Holdings, Inc. and Richard H. Sharpe. (5) |
|          | 10.13†            |                                      | Employment Agreement, dated March 3, 2009, by and between PICO Holdings, Inc. and Maxim C.W. Webb. (5) |
|          | 10.14†            |                                      | Employment Agreement, dated March 3, 2009, by and between PICO Holdings, Inc. and Damian C. Georgino. (5) |
|          | 10.15†            |                                      | Infrastructure Dedication Agreement between Fish Springs Ranch, LLC, and Washoe County, Nevada. (10) |
|          | 21.1                    |                                      | Subsidiaries of PICO Holdings, Inc. |
|          | 23.1                    |                                      | Consent of Independent Registered Public Accounting Firm - Deloitte & Touche LLP. |
|          | 23.2                    |                                      | Consent of Daniel B. Stephens and Associates, Inc. |
|          | 23.3                    |                                      | Consent of Peter A. Mock, Ph.D., R.G.P.H. |
|          | 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). |
|          |                    |                                      |   |
|          | †                 |                                      | Indicates compensatory plan, contract or arrangement in which directors or executive officers may participate.  |

|   | (1  | ) | Incorporated by reference to with the Quarterly Report on Form 10-Q filed with the SEC on November 7, 2007.                                                               |
|--------|-----|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (2  | ) | Incorporated by reference to Form 8-K filed with the SEC on May 19, 2009.                                                                                                 |
|   | (3  | ) | Incorporated by reference to Form S-3 filed with the SEC on November 20, 2007.                                                                                            |
|   | (4  | ) | 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. |
|   | (5  | ) | Incorporated by reference to Form 8-K filed with the SEC on March 9, 2009.                                                                                                |
|   | (6  | ) | Incorporated by reference to the Quarterly Report on Form 10-Q filed with the SEC on November 6, 2009.                                                                    |
|   | (7  | ) | Incorporated by reference to Form 8-K filed with the SEC on May 9, 2007.                                                                                                  |
|   | (8  | ) | Incorporated by reference to the Annual Report filed on Form 10-K with the SEC on March 2, 2009.                                                                          |
|   | (9  | ) | Incorporated by reference to Form 8-K filed with the SEC on April 7, 2009.                                                                                                |
|   | (10 | ) | Incorporated by reference to the Quarterly Report filed on Form 10-Q with the SEC on November 7, 2007.                                                                    |

----

SIGNATURES

| Date:  February 26, 2010 | PICO Holdings, Inc.   By:  /s/ John R. HartJohn R. HartChief Executive OfficerPresident 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/ Carlos C. Campbell            | Director                                        |
| Carlos C. Campbell                |                                            |
|                              |                                            |
| /s/ S. Walter Foulkrod, III, Esq. | Director                                        |
| S. Walter Foulkrod, III, Esq.     |                                            |
|                              |                                            |
| /s/ Ronald Langley                | Director                                        |
| Ronald Langley                    |                                            |
|                              |                                            |
| /s/ Kristina M. Leslie            | Director                                        |
| Kristina M. Leslie                |                                            |
|                              |                                            |
| /s/ Richard D. Ruppert, MD        | Director                                        |
| Richard D. Ruppert, MD            |                                            |
|                              |                                            |
| /s/ Kenneth J. Slepicka           | Director                                        |
| Kenneth J. Slepicka               |                                            |
|                              |                                            |
| /s/ Julie H. Sullivan, Ph.D.      | Director                                        |
| Julie H. Sullivan, Ph.D.          |                                            |