----

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

| o | 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 T | Accelerated                filer ¨ | Non-accelerated                filer ¨ | Smaller                reporting company ¨ |
|------------------------------------------|-----------------------------------------|---------------------------------------------|-------------------------------------------------|

----

----

----

|                      |                      |                                                                                                                                                                  | Page                No. |
|---------------------------|---------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|
| PART                I     |                      |
|                      |                      |                                                                                                                                                                  |                    |
|                      | Item                  1.  | BUSINESS                                                                                                                                                              | 2                       |
|                      | Item                  1A. | RISK                  FACTORS                                                                                                                                         | 8                       |
|                      | Item                  1B. | UNRESOLVED                  STAFF COMMENTS                                                                                                                            | 15                      |
|                      | Item                  2.  | PROPERTIES                                                                                                                                                            | 15                      |
|                      | Item                  3.  | LEGAL                  PROCEEDINGS                                                                                                                                    | 15                      |
|                      | Item                  4.  | SUBMISSION                  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                                  | 16                      |
|                      |                      |                                                                                                                                                                  |                    |
| PART                  II  |                      |
|                      |                      |                                                                                                                                                                  |                    |
|                      | 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                                         | 19                      |
|                      |                      |                                                                                                                                                                  |                    |
|                      | Item                  7A. | QUANTITATIVE                  AND                  QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                          | 48                 |
|                      | Item                  8.  | FINANCIAL                  STATEMENTS AND SUPPLEMENTARY DATA                                                                                                          | 48                 |
|                      | Item                  9.  | CHANGES                  IN                  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL                  DISCLOSURE                               | 80                 |
|                      |                      |                                                                                                                                                                  |                    |
|                      | Item                  9A. | CONTROLS                  AND                  PROCEDURES                                                                                                             | 80                 |
|                      | Item                  9B. | OTHER                  INFORMATION                                                                                                                                    | 82                 |
|                      |                      |                                                                                                                                                                  |                    |
| PART                  III |                      |
|                      |                      |                                                                                                                                                                  |                    |
|                      | Item                  10. | DIRECTORS,                  EXECUTIVE OFFICERS, AND CORPORATE                  GOVERNANCE                                                                             | 82                 |
|                      | Item                  11. | EXECUTIVE                  COMPENSATION                                                                                                                               | 82                 |
|                      | Item                  12. | SECURITY                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED                  STOCKHOLDER MATTERS                                      | 82                 |
|                      | Item                  13. | CERTAIN                  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR                  INDEPENDENCE                                                           | 82                 |
|                      | Item                  14. | PRINCIPAL                  ACCOUNTING FEES AND SERVICES                                                                                                               | 82                 |
|                      |                      |                                                                                                                                                                  |                    |
| PART                  IV  |                      |
|                      |                      |                                                                                                                                                                  |                    |
|                      | Item                  15. | EXHIBITS                  AND                  FINANCIAL STATEMENT SCHEDULES                                                                                          | 83                 |
|                      |                      |                                                                                                                                                                  |                    |
| SIGNATURES                | 84                   |

----

. BUSINESS 

| · | Water                Resource and Water Storage                Operations; |
|--------|----------------------------------------------------------------------------|

| · | Real                Estate                Operations; |
|--------|-------------------------------------------------------|

| · | Business                Acquisitions &                Financing Operations; and |
|--------|-------------------------------------------------------------------------------------|

| · | Insurance                Operations in “Run                Off”. |
|--------|------------------------------------------------------------------------------|

|   | Currently                our major consolidated subsidiaries are: |
|--------|-------------------------------------------------------------------|

| · | Vidler                Water Company, Inc.                (“Vidler”), a business that we started more than 10 years ago, acquires                and develops water resources and water storage operations in the                southwestern United States, with assets in Nevada, Arizona, Idaho,                California and Colorado; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Nevada                Land and Resource Company,                LLC (“Nevada Land”), an operation that we built since we acquired the                company more than 10 years ago, which currently owns approximately                460,000                acres of former railroad land in Nevada, and certain mineral rights                and                water rights related to the                property; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Physicians                Insurance Company of                Ohio (“Physicians”),                which is “running                off” its medical professional liability insurance loss                reserves; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Citation                Insurance Company                (“Citation”), which is "running off” its property & casualty                and workers’ compensation loss reserves;                and |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Global                Equity AG, which holds our                interest in Jungfraubahn Holding AG (“Jungfraubahn”). Jungfraubahn is a                Swiss public company that operates railway and related tourism and                transport activities in the Swiss Alps.  Jungfraubahn’s shares                trade on the SWX                Swiss                Exchange. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | the                majority of water rights are                currently owned or controlled by agricultural users, and in many                locations                there are insufficient water rights owned or controlled by municipal                and                industrial users to meet present and future                demand; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | certain                areas of the Southwest                experiencing rapid growth have insufficient known supplies of water                to                support future growth. Vidler identifies and develops new water supplies                for communities with no other known water resources to support future                community growth. In certain cases, to supply water from the water                resources identified by Vidler, it may require regulatory approval                to                import the water from its source to where development is occurring,                or                require permitting of the infrastructure required to convey the water;                and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | infrastructure                to recharge water                will be required to store supplies during times of surplus to enable                transfers from stored supplies in years where there is either no                surplus                or no other water sources are available (e.g., in drought                conditions). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | additional                water rights and                related assets, predominantly in Nevada andArizona,                the two leading states in                population growth and new home construction. A water right is the                legal                right to divert water and put it to beneficial use. Water rights                are                assets which can be bought and sold. The value of a water right depends                on                a number of factors, which may include location, the seniority of                the                right, whether or not the right is transferable, or if the water                can be                exported. We seek to acquire water rights at prices consistent with                their                current use, typically agricultural, with the expectation of an increase                in value if the water right can be converted through the development                process to a higher use, such as municipal and industrial use. Typically,                our water resources are the most competitive source of water (i.e.,                the                most economical and practical source of water supply) to support                new                growth in municipalities and new industry;                and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | a                water storage facility in Arizona and an interest in Semitropic,                a water                storage facility in California. At December 31, 2007, Vidler had“net                recharge credits” (that is, an acre-foot of water) of more than 139,000                acre-feet of water in storage on its own account at the Vidler Arizona                Recharge Facility. An acre-foot is a unit commonly used to measure                the                volume of water, being the volume of water required to cover 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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | development                of water resources                for end-users in the Southwest, namely water utilities, municipalities,                developers, or industrial users. Typically, we identify and develop                the                source of water from a new water supply, or a change in the use                of an existing water supply from agricultural to municipal and industrial;                and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| · | selling                or leasing its developed                water resources to real estate developers or industrial users who                must                secure an assured supply of water in order to receive permits for                their                projects; and |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | storing                water at its water                storage facilities in Arizona and California from currently available                surplus supplies, and then selling the stored water in future years                to                developers or municipalities that have either exhausted their existing                water supplies, or in instances where our water represents the most                economical source of water for their developments or                communities. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

| Name                of asset & approximate location                                                                                           |   | Brief                Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | Present                commercial use                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| WATER                RESOURCES                                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Arizona                :                                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Harquahala                  Valley ground water basin La                Paz County 75                miles northwest of metropolitan Phoenix |   | 3,840                acre-feet of transferable groundwater.3,206                acres of land                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | Leased                to farmers                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Nevada                :                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Fish                Springs Ranch, LLC (51% interest) Washoe                County, 40 miles north of Reno                                        |   | 13,000                  acre-feet of permitted water rights, 8,000 of which are currently                  transferable to the Reno/Sparks area8,600                  acres of ranch                  land                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Vidler                has constructed a total of 35 miles of pipeline to deliver an initial                8,000 acre-feet of water annually from Fish Springs Ranch to the                North Valleys of Reno, Nevada                                                                                                                                                                                                                                     |
| Lincoln                County water delivery teaming agreement                                                                                    |   | Applications*                for more than 100,000 acre-feet of water rights through an agreement                with                Lincoln County. It is currently anticipated that up to 40,000                acre-feet of the applications will be permitted, and the water put                to use                on projects approved in Lincoln   County / northern Clark County,                Nevada   *The                numbers indicated for                water rights applications are the maximum amount which we have filed                for.                In some cases, we anticipate that the actual permits received will                be for                smaller  quantities |   | Agreement                to sell 7,240 acre-feet of water as, and when, supplies are permitted                from                existing applications in Tule Desert Groundwater Basin, in Lincoln                County,                Nevada  Agreement                to sell water to a developer as, and when, supplies are permitted                from                applications in Kane Springs Basin in Lincoln County,                Nevada |

| Sandy                Valley Near                the Nevada/California state line near the Interstate 15 corridor                                                    |   | 415                acre-feet of permitted water rights Application                for 1,000 acre-feet of water rights                                                                                                                                                                                                                                                              |   | Agreement                to sell at least 415 acre-feet of water pending resolution of a protest                of                the permitting of the water rights                                                                                                                                                                                                                                       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                |   |                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                       |
| Muddy                River water rights In                the Moapa Valley, approximately 35 miles east of Las Vegas near the                Interstate 15 corridor |   | 267                acre-feet of water rights                                                                                                                                                                                                                                                                                                                                            |   |                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                |   |                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                       |
| Carson                River Carson                City, Lyon County and Douglas County, Nevada                                                                      |   | 75                acre - feet of municipal use water rights and 1,994 acre - feet of                Carson River agricultural use water rights.Options                over 1,652 acre - feet of Carson River agricultural use water                rights                                                                                                                     |   | Development                and Improvement agreements with Carson City and Lyon County to                provide water resources for planned future growth in Lyon County and                to connect the water systems of both municipalities                                                                                                                                                 |
|                                                                                                                                                                |   | 43                acres of ranch land                                                                                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                       |
| Other                states :                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                |   |                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                       |
| Colorado                water rights                                                                                                                                |   | 179.5                acre-feet of water rights                                                                                                                                                                                                                                                                                                                                          |   | 66.1                acre-feet leased. 113.4                acre-feet are available for sale or lease                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                |   |                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                       |
| ­­­­­­­­­­­­­Idaho                Near                Boise, Idaho                                 |   | 7,044                acre - feet of water rights and 1,886 acres of farm land                                                                                                                                                                                                                                                                                                           |   | Vidler                is currently farming the properties                                                                                                                                                                                                                                                                                                                                                  |
| WATER                STORAGE                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                |   |                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                       |
| Arizona                :                                                                                                                                            |   |                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                       |
| Vidler                Arizona Recharge Facility Harquahala                Valley, Arizona                                                                           |   | An                underground water storage facility with permitted recharge capacity                exceeding 1 million acre-feet and annual recharge capability of 35,000                acre-feet                                                                                                                                                                                    |   | Vidler                is currently buying water and storing it on its own account. At December                31, 2007, Vidler had net recharge credits of approximately 139,000                acre-feet of water in storage at the Arizona Recharge Facility. In                addition, Vidler has ordered approximately 25,000 acre-feet of water                for                recharge in 2008. |
| California                :                                                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                       |
| Semitropic                water storage facility                                                                                                                    |   | The                right to store 30,000 acre-feet of water at Semitropic until 2035.                This                includes the right to minimum guaranteed recovery of approximately                2,700                acre-feet of water every year, and the right to recover up to                approximately 6,800 acre-feet in any one year under certain circumstances. |   | Vidler                is currently storing surplus flow water, when available, from the                state of                California, and at December 31, 2007 had approximately 10,000 acre-feet                of                water in storage at the facility                                                                                                                                   |

----

| · | the                sale of real estate and                water rights. There is demand for real estate and water for a variety                of purposes including residential development, residential estate                living,                farming, ranching, and from industrial                users; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | the                development of water rights.                Nevada Landhas                applied for additional water                rights on land it owns and intends to improve. Where water rights                are                permitted, we anticipate that the value, productivity, and marketability                of the related real estate will                increase; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | the                development of real                estate in and around growing municipalities;                and |
|--------|----------------------------------------------------------------------------------------------------------------------------|

| · | the                management of mineral rights. |
|--------|--------------------------------------------------|

----

| · | we                retain management of the                associated investment portfolios. We manage our insurance company                portfolios directly, and believe that the return on our portfolio                assets                has been attractive in absolute terms, and very competitive in relative                terms. Since the claims reserves of the “run off” insurance companies                effectively recognize the cost of paying and handling claims in future                years, the investment return on the corresponding investment assets,                less                non-insurance expenses, accrues to PICO.                We aim to maximize this source                of income; and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | to                participate in favorable                development in our claims reserves if there is any, although this                entails                the corresponding risk that we could be exposed to unfavorable                development. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

See      Item 3.  Legal Proceedings 
Note      2 of Notes to Consolidated Financial Statements, "Discontinued      Operations”.

----

| Name                                         | Age    | Position                                                                                   |
|----------------------------------------------|--------|--------------------------------------------------------------------------------------------|
|                                         |   |                                                                                       |
| John R. Hart                       | 48     | President,                  Chief Executive Officer and Director                           |
| Richard H.                  Sharpe      | 52     | Executive                  Vice President and Chief Operating Officer                      |
| Damian C.                  Georgino     | 47     | Executive                  Vice President of Corporate Development and Chief Legal Officer |
| James                    F. Mosier | 60     | General                  Counsel and Secretary                                             |
| Maxim                    C. W. Webb     | 46     | Executive                  Vice President and Chief Financial Officer and Treasurer        |
| W.                  Raymond Webb        | 46     | Vice                  President, Investments                                               |
| John T. Perri                      | 38     | Vice                  President, Controller                                                |

----

RISK FACTORS

----

----

----

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

| · | the                diversity 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. |
|--------|-------------------------------------------------------------------|

----

| · | 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. export laws; |
|--------|-----------------------------------------------------------------------------------------|

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

| · | trade                restrictions; |
|--------|------------------------------------|

| · | changes                in tariffs and taxes; |
|--------|----------------------------------------------|

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

| · | changes                in certain commodity prices; |
|--------|-----------------------------------------------------|

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

| · | the                greater difficulty of administering business overseas; and |
|--------|-------------------------------------------------------------------------------|

| · | general                economic conditions outside the United States. |
|--------|-----------------------------------------------------------------------|

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

----

----

----

UNRESOLVED STAFF COMMENTS 

ITEM      3. LEGAL PROCEEDINGS 

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

----

SUBMISSION OF MATTERS TO A VOTE OF SECURITY      HOLDERS

|                           |   | 2007 |   |   | 2006   |   |
|--------------------------------|--------|------|--------|--------|--------|--------|
|                           |   | High |   |   | Low    |   |   | High |   |   | Low |   |
| 1st                    Quarter |   | $    | 47.21  |   |   | $      | 34.10 |   |   | $ | 35.37 |   |   | $ | 31.59 |   |
| 2nd                    Quarter |   | $    | 48.29  |   |   | $      | 43.26 |   |   | $ | 35.03 |   |   | $ | 30.05 |   |
| 3rd                    Quarter |   | $    | 47.22  |   |   | $      | 40.21 |   |   | $ | 35.53 |   |   | $ | 29.72 |   |
| 4th                    Quarter |   | $    | 43.44  |   |   | $      | 33.62 |   |   | $ | 34.91 |   |   | $ | 30.42 |   |

----

|  |
|--|

|                                |   |                                                |   |                                            |   |                                                                                                                              |   |                                                                                                                                                                         |
|-------------------------------------|--------|-----------------------------------------------------|--------|-------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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) |
|                                |   |                                                |   |                                            |   |                                                                                                                              |   |                                                                                                                                                                         |
| 10/1/07                  - 10/31/07 |   | -                                                   |   | -                                               |   |                                                                                                                              |   |                                                                                                                                                                         |
| 11/1/07                  - 11/30/07 |   | -                                                   |   | -                                               |   |                                                                                                                              |   |                                                                                                                                                                         |
| 12/1/07                  - 12/31/07 |   | -                                                   |   | -                                               |   |                                                                                                                              |   |                                                                                                                                                                         |

----

 SELECTED FINANCIAL DATA 

|                                                                                  |   | Year                Ended December                31, |       |
|---------------------------------------------------------------------------------------|--------|-------------------------------------------------------|------------|
|                                                                                  |   | 2007                                                  |       |   | 2006 |   |   | 2005 |   |   | 2004 |   |   | 2003 |   |
| OPERATING                RESULTS                                                      |   | (In                thousands, except share data)      |       |
| Revenues:                                                                             |   |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  investment income                                              |   | $                                                     | 19,788     |   |   | $ | 39,609 |   |   | $ | 15,917 |   |   | $ | 9,056 |   |   | $ | 8,100 |   |
| Sale                  of real estate and water assets                                 |   |                                                  | 9,496      |   |   |   | 41,509 |   |   |   | 124,984 |   |   |   | 10,879 |   |   |   | 19,751 |   |
| Other                  income                                                         |   |                                                  | 4,645      |   |   |   | 1,605 |   |   |   | 1,210 |   |   |   | 2,188 |   |   |   | 3,648 |   |
| Total                  revenues                                                       |   | $                                                     | 33,929     |   |   | $ | 82,723 |   |   | $ | 142,111 |   |   | $ | 22,123 |   |   | $ | 31,499 |   |
|                                                                                  |   |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  (loss) from continuing operations                             |   | $                                                     | (1,270     | )  |   | $ | 31,511 |   |   | $ | 22,267 |   |   | $ | (7,860 | ) |   | $ | (5,982 | ) |
| Income                  (loss) from discontinued operations, net                      |   |                                                  |       |   |   |   | (2,268 | ) |   |   | (6,065 | ) |   |   | (2,698 | )  |   |   | 2,744 |   |
| Net                  income (loss)                                                    |   | $                                                     | (1,270     | ) |   | $ | 29,243 |   |   | $ | 16,202 |   |   | $ | (10,558 | ) |   | $ | (3,238 | ) |
| PERCOMMON                  SHARE BASIC                  AND                  DILUTED: |   |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income (loss) from continuing operations                         |   | $                                                     | (0.07      | ) |   | $ | 2.10 |   |   | $ | 1.72 |   |   | $ | (0.64 | ) |   | $ | (0.48 | ) |
| Net                  income (loss) from discontinued operations                       |   |                                                  |       |   |   |   | (0.15 | ) |   |   | (0.47 | ) |   |   | (0.21 | )  |   |   | 0.22 |   |
| Net                  income (loss)                                                    |   | $                                                     | (0.07      | ) |   | $ | 1.95 |   |   | $ | 1.25 |   |   | $ | (0.85 | ) |   | $ | (0.26 | ) |
| Weighted                  Average Shares Outstanding                                  |   |                                                  | 18,321,449 |   |   |   | 14,994,947 |   |   |   | 12,959,029 |   |   |   | 12,368,068 |   |   |   | 12,375,933 |   |

|                                                        |   | As                of December                31, |    |
|-------------------------------------------------------------|--------|-------------------------------------------------------|---------|
|                                                        |   | 2007                                                  |    | 2006 |   | 2005 |   | 2004 |   | 2003 |   |
| FINANCIAL                CONDITION                          |   | (In                thousands, except per share data)  |    |
| Total                  assets                               |   | $                                                     | 676,342 |   | $ | 549,043 |   | $ | 441,830 |   | $ | 354,658 |   | $ | 330,937 |   |
| Total                  asset of discontinued operations     |   |                                                  |    |   |   |   |   | $ | 4,616 |   | $ | 3,974 |   | $ | 9,864 |   |
| Unpaid                  losses and loss adjustment expenses |   | $                                                     | 32,376  |   | $ | 41,083 |   | $ | 46,647 |   | $ | 55,944 |   | $ | 60,864 |   |
| Borrowings                                                  |   | $                                                     | 18,878  |   | $ | 12,721 |   | $ | 11,835 |   | $ | 17,556 |   | $ | 15,377 |   |
| Liabilities                  of discontinued operations     |   |                                                  |    |   |   |   |   | $ | 4,282 |   | $ | 3,121 |   | $ | 3,784 |   |
| Total                  liabilities and minority interest    |   | $                                                     | 150,492 |   | $ | 143,816 |   | $ | 140,955 |   | $ | 114,729 |   | $ | 101,777 |   |
| Shareholders'                  equity                       |   | $                                                     | 525,851 |   | $ | 405,227 |   | $ | 300,875 |   | $ | 239,929 |   | $ | 229,160 |   |
| Book                  value per share (1)                   |   | $                                                     | 27.92   |   | $ | 25.52 |   | $ | 22.67 |   | $ | 19.40 |   | $ | 18.52 |   |

----

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

See Note        2 of Notes to Consolidated Financial Statements,“Discontinued 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 consolidated financial statements; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

----

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

----

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

|   | · | .                a cash payment of $500,000, which was made during 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 due and paid on January 8, 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                the                London Inter-Bank Offered Rate (“LIBOR”) from January 8, 2009. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

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

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

| · | in                2005, Vidler closed on the                sale of approximately 5.5 acre-feet of water rights for $261,000;                and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|

| · | in                2006, Vidler closed on the sale of various water rights and related                assets                to the City of Golden, Colorado for $1.2 million. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | in                2007, Vidler closed on the sale of approximately 0.6 acre-feet of                water                rights for $45,000 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

Item 1,“Business

----

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

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

----

----

|  Year                Ended December 31, |   |  Total                return on domestic stocks |   | Domestic                stocks as a percentage of total portfolio (Excluding Swiss) |   | Total                return on foreign stocks in US$ (Excluding                Swiss) |   | Foreign                stocks as a percentage of total portfolio (Excluding Swiss) |
|----------------------------------------------|--------|------------------------------------------------------|--------|-------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|
| 2007                                         |   | -                6%                                  |   | 62%                                                                                 |   | 37%                                                                                   |   | 21%                                                                                |
| 2006                                         |   | 8%                                                   |   | 62%                                                                                 |   | 47%                                                                                   |   | 16%                                                                                |
| 2005                                         |   | 51%                                                  |   | 64%                                                                                 |   | 17%                                                                                   |   | 9%                                                                                 |

----

|                                                                   | December                31, |   |
|------------------------------------------------------------------------|-----------------------------|--------|
|                                                                   | 2007                        |   | 2006 |   | 2005 |   |
|                                                                   |                        |   |   |   |   |   |
| Direct                  reserves                                       |                        | $      | 6,603,000 |   |   | $ | 10,374,000 |   |   | $ | 12,844,000 |   |
| Ceded                  reserves                                        |                        |   | (83,000 | ) |   |   | (989,000 | ) |   |   | (988,000 | ) |
| Net                  medical professional liability insurance reserves |                        | $      | 6,520,000 |   |   | $ | 9,385,000 |   |   | $ | 11,856,000 |   |

|                                                     |   | Year                Ended December 31, |             |
|----------------------------------------------------------|--------|----------------------------------------|------------------|
|                                                     |   | 2007                                   |             |   | 2006 |   |   | 2005 |   |
|                                                     |   |                                   |             |   |   |   |   |   |   |
| Open                  claims at the start of the year    |   |                                   | 18               |   |   |   | 28 |   |   |   | 41 |   |
| New                  claims reported during the year     |   |                                   |             |   |   |   | 2 |   |   |   | 6 |   |
| Claims                  closed during the year           |   |                                   | -              6 |   |   |   | -12 |   |   |   | -19 |   |
| Open                  claims at the end of the year      |   |                                   | 12               |   |   |   | 18 |   |   |   | 28 |   |
|                                                     |   |                                   |             |   |   |   |   |   |   |   |   |   |
| Total                  claims closed during the year     |   |                                   | 6                |   |   |   | 12 |   |   |   | 19 |   |
| Claims                  closed with no indemnity payment |   |                                   | -4               |   |   |   | -11 |   |   |   | -16 |   |
| Claims                  closed with an indemnity payment |   |                                   | 2                |   |   |   | 1 |   |   |   | 3 |   |
|                                                     |   |                                   |             |   |   |   |   |   |   |   |   |   |
| Net                  indemnity payments                  |   | $                                      | 310,000          |   |   | $ | 1,233,000 |   |   | $ | 878,000 |   |
| Net                  loss adjustment expense payments    |   |                                   | 225,000          |   |   |   | 397,000 |   |   |   | 499,000 |   |
| Total                  claims payments during the year   |   | $                                      | 535,000          |   |   | $ | 1,630,000 |   |   | $ | 1,377,000 |   |
|                                                     |   |                                   |             |   |   |   |   |   |   |   |   |   |
| Average                  indemnity payment               |   | $                                      | 155,000          |   |   | $ | 1,233,000 |   |   | $ | 293,000 |   |

|                                                                              |   | Year                Ended December 31, |                   |
|-----------------------------------------------------------------------------------|--------|----------------------------------------|------------------------|
|                                                                              |   | 2007                                   |                   |   | 2006 |   |   | 2005 |   |
|                                                                              |   |                                   |                   |   |   |   |   |   |   |
| Beginning                  reserves                                               |   | $                                      | 9,385,000              |   |   | $ | 11,856,000 |   |   | $ | 16,399,000 |   |
| Loss                  and loss adjustment expense payments                   |   |                                   | (              535,000 | ) |   |   | (              1,658,000 | ) |   |   | (              1,388,000 | ) |
| Re-estimation                  of prior year loss reserves                        |   |                                   | (2,330,000             | ) |   |   | (              813,000 | ) |   |   | (              3,155,000 | ) |
| Net                  medical professional liability insurance reserves            |   | $                                      | 6,520,000              |   |   | $ | 9,385,000 |   |   | $ | 11,856,000 |   |
|                                                                              |   |                                   |                   |   |   |   |   |   |   |   |   |   |
| Re-estimation                  as a percentage of undiscounted beginning reserves |   |                                   | -              24.8    | % |   |   | -              6.9 | % |   |   | -              19.2 | % |

See“Critical      Accounting Policies” and “Risk Factors.”

----

|                                                                          |   | Year                  Ended December 31, |   |
|-------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                          |   | 2007                                     |   |   | 2006 |   |   | 2005 |   |
|                                                                          |   |                                     |   |   |   |   |   |   |   |
| Open                    claims at the start of the year                       |   |                                     | 78     |   |   |   | 149 |   |   |   | 217 |   |
| New                    claims reported during the year                        |   |                                     | 31     |   |   |   | 58 |   |   |   | 101 |   |
| Claims                    closed during the year                              |   |                                     | -70    |   |   |   | -129 |   |   |   | -169 |   |
| Open                    claims at the end of the year                         |   |                                     | 39     |   |   |   | 78 |   |   |   | 149 |   |
|                                                                          |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Total                    claims closed during the year                        |   |                                     | 70     |   |   |   | 129 |   |   |   | 169 |   |
| Claims                    closed with no payment                              |   |                                     | -30    |   |   |   | -51 |   |   |   | -77 |   |
| Claims                    closed with LAE payment only (no indemnity payment) |   |                                     | -17    |   |   |   | -36 |   |   |   | -17 |   |
| Claims                    closed with an indemnity payment                    |   |                                     | 23     |   |   |   | 42 |   |   |   | 75 |   |

See “Critical      Accounting Policies”
and“Risk Factors

|                               |   | December                  31, |      |
|------------------------------------|--------|-------------------------------|-----------|
|                               |   | 2007                          |      |   | 2006 |   |   | 2005 |   |
| Direct                    reserves |   | $                             | 3,587,000 |   |   | $ | 6,635,000 |   |   | $ | 8,247,000 |   |
| Ceded                    reserves  |   |                          | (438,000  | )  |   |   | (1,558,000 | )  |   |   | (                1,784,000 | )  |
| Net                    reserves    |   | $                             | 3,149,000 |   |   | $ | 5,077,000 |   |   | $ | 6,463,000 |   |

|                                                                 |   | Year                Ended December 31, |                |
|----------------------------------------------------------------------|--------|----------------------------------------|---------------------|
|                                                                 |   | 2007                                   |                |   | 2006 |   |   | 2005 |   |
|                                                                 |   |                                   |                |   |   |   |   |   |   |
| Beginning                  reserves                                  |   | $                                      | 5,077,000           |   |   | $ | 6,463,000 |   |   | $ | 10,227,000 |   |
| Loss                  and loss adjustment expense payments      |   |                                   | (695,000            | ) |   |   | (748,000 | ) |   |   | (1,929,000 | ) |
| Re-estimation                  of prior year loss reserves           |   |                                   | (1,233,000          | ) |   |   | (638,000 | ) |   |   | (1,835,000 | ) |
| Net                  property and casualty insurance reserves   |   | $                                      | 3,149,000           |   |   | $ | 5,077,000 |   |   | $ | 6,463,000 |   |
|                                                                 |   |                                   |                |   |   |   |   |   |   |   |   |   |
| Re-estimation                  as a percentage of beginning reserves |   |                                   | -              24.3 | % |   |   | -              9.9 | % |   |   | -              17.9 | % |

----

|                                                    |   | Year                  Ended December 31, |   |
|---------------------------------------------------------|--------|------------------------------------------|--------|
|                                                    |   | 2007                                     |   | 2006 |   |   | 2005 |   |
|                                                    |   |                                     |   |   |   |   |   |   |
| Open                    claims at the start of the year |   |                                     | 216    |   |   |   | 232 |   |   |   | 227 |   |
| New                    claims reported during the year  |   |                                     | 22     |   |   |   | 30 |   |   |   | 33 |   |
| Claims                    reopened during the year      |   |                                     | 10     |   |   |   | 37 |   |   |   | 22 |   |
| Claims                    closed during the year        |   |                                     | -76    |   |   |   | -83 |   |   |   | -50 |   |
| Open                    claims at the end of the year   |   |                                     | 172    |   |   |   | 216 |   |   |   | 232 |   |

|                               |   | December                  31, |        |
|------------------------------------|--------|-------------------------------|-------------|
|                               |   | 2007                          |        |   | 2006 |   |   | 2005 |   |
|                               |   |                          |        |   |   |   |   |   |   |
| Direct                    reserves |   | $                             | 22,186,000  |   |   | $ | 24,074,000 |   |   | $ | 25,556,000 |   |
| Ceded                    reserves  |   |                          | (16,133,000 | )  |   |   | (14,425,000 | )  |   |   | (13,086,000 | )  |
| Net                    reserves    |   | $                             | 6,053,000   |   |   | $ | 9,649,000 |   |   | $ | 12,470,000 |   |

| · | the                long “tail” (that is, the                period between the occurrence of the alleged event giving rise to                the                claim and the claim being reported to us);                and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | the                extended period over which                policy benefits are paid. |
|--------|----------------------------------------------------------------------------------------|

See“Critical      Accounting Policies” and “Risk      Factors.”

|                                                                          |   | Year                Ended December 31, |       |
|-------------------------------------------------------------------------------|--------|----------------------------------------|------------|
|                                                                          |   | 2007                                   |       |   | 2006 |   |   | 2005 |   |
|                                                                          |   |                                   |       |   |   |   |   |   |   |
| Beginning                  net reserves                                       |   | $                                      | 9,649,000  |   |   | $ | 12,470,000 |   |   | $ | 12,066,000 |   |
| Loss                  and loss adjustment expense payments               |   |                                   | (3,557,000 | ) |   |   | (1,047,000 | ) |   |   | (922,000 | ) |
| Re-estimation                  of prior year loss reserves                    |   |                                   | (39,000    | ) |   |   | (1,774,000 | ) |   |   | 1,326,000 |   |
| Net                  workers’ compensation insurance reserves           |   | $                                      | 6,053,000  |   |   | $ | 9,649,000 |   |   | $ | 12,470,000 |   |
|                                                                          |   |                                   |       |   |   |   |   |   |   |   |   |   |
| Re-estimation                  as a percentage of adjusted beginning reserves |   |                                   | 0          | % |   |   | -              14 | % |   |   | +              11 | % |

----

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 malpractice reserves,                net of reinsurance, were reduced by $2.3 million in 2007, $812,000                in                2006, and $3.1 million in 2005, after we concluded that Physicians’ claims                reserves were greater than projected claims                payments; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | net                of reinsurance, Citation’s                property and casualty insurance loss reserves were reduced by $1.2                million                in 2007, $638,000 in 2006, and by $1.8 million in 2005;                and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | net                of reinsurance, Citation’s                workers’ compensation loss reserves were reduced by $39,000 in 2007 and                $1.8 million in 2006, but they were increased by $1.3 million in                2005. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Citation,                $16.8 million;                and |
|--------|------------------------------------------------------------|

| · | Physicians,                $83,000. |
|--------|-------------------------------------|

See“Insurance      Operations In Run Off” and “Regulatory Insurance      Disclosure” in Item 7.

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

----

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

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

| (a) | there                is a legally binding sale                contract; |
|-----|-------------------------------------------------------------------------|

| (b) | the                profit is determinable (that                is, the collectability of the sales price is reasonably assured,                or any                amount that will not be collectable can be                estimated); |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | the                earnings process is virtually                complete (that is, we are not obliged to perform significant activities                after the sale to earn the profit, meaning we have transferred all                risks                and rewards to the buyer);                and |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | the                buyer’s initial and                continuing investment are sufficient to demonstrate a commitment                to pay                for the property. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | a                $16.3 million increase in net unrealized appreciation in investments                after-tax, in particular Jungfraubahn and our other holdings in                Switzerland ; and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | the                issuance of 2.8 million new                shares, at $37 per share, for net proceeds of $100.1                million. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

| · | the                year’s $29.2 million in net income;                and |
|--------|---------------------------------------------------------------------------------|

| · | the                issuance of 2.6 million new                shares, at $30 per share, for net proceeds of $73.9                million. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

| · | income                before taxes and minority                interest of $2 million; and |
|--------|--------------------------------------------------------------------------------------------|

| · | a                $3.5 million provision for income taxes. The effective tax rate for                2007                is 175.6%, which is higher than the federal corporate income tax                rate of                35%, principally due to state tax charges, the recording of valuation                allowances against income tax losses in some subsidiaries, and certain                compensation expense which is not                tax-deductible. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| · | income                before taxes and minority                interest of $50.9 million from continuing                operations; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|

| · | a                $19.4 million provision for                income taxes. The effective tax rate for 2006 is 38.1%, which is                higher                than the federal corporate rate of 35%, principally due to state                tax                charges and certain compensation expense which is not tax-deductible;                and |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | a                net loss from discontinued                operations of $2.3 million. |
|--------|----------------------------------------------------------------------------------------|

| · | income                before taxes and minority                interest of $40.3 million from continuing operations;                and |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

| · | the                add-back of $536,000 in                minority interest in continuing operations, which reflects the interest                of                outside shareholders in the net losses of subsidiaries which are                less than                100%-owned by PICO;                which were partially offset                by |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | an                $18.6 million provision for                income taxes. The effective tax rate for 2005 is 46%, which is greater                than the 35% federal corporate rate. This is principally due to the                accrual of state taxes and other permanent differences, primarily                resulting from certain management compensation which was not                tax-deductible; and |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | a                net loss from discontinued                operations of $6.1 million. |
|--------|----------------------------------------------------------------------------------------|

| · | comprehensive                income of $17.2 million in 2007, primarily consisting of a $16.3                million                increase in net unrealized appreciation in investments (after-tax)                and a                $2.3 million net increase in foreign currency translation; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | comprehensive                income of $30.1                million in 2006, which primarily consisted of the year’s net income of                $29.2 million. In addition, there was a $69,000 net increase in net                unrealized appreciation in investments (after-tax) and a $789,000                net                increase in foreign currency translation;                and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | comprehensive                income of $39.6                million in 2005, primarily consisting of a $24.2 million net increase                in                net unrealized appreciation in investments and net income of $16.2                million, which were partially offset by a $810,000 net decrease in                foreign                currency translation. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                              |   | Year                  Ended December 31, |       |
|-------------------------------------------------------------------|--------|------------------------------------------|------------|
|                                                              |   | 2007                                     |       |   | 2006 |   |   | 2005 |   |
|                                                              |   |                                     |       |   |   |   |   |   |   |
| Water                    Resource and Water Storage Operations    |   | $                                        | 7,938,000  |   |   | $ | 6,182,000 |   |   | $ | 106,449,000 |   |
| Real                    Estate Operations                         |   |                                     | 13,479,000 |   |   |   | 41,406,000 |   |   |   | 21,811,000 |   |
| Business                    Acquisitions and Financing Operations |   |                                     | 4,903,000  |   |   |   | 21,858,000 |   |   |   | 5,743,000 |   |
| Insurance                    Operations in Run Off                |   |                                     | 7,609,000  |   |   |   | 13,277,000 |   |   |   | 8,109,000 |   |
|                                                              |   |                                     |       |   |   |   |   |   |   |   |   |   |
| Total                    Revenues                                 |   | $                                        | 33,929,000 |   |   | $ | 82,723,000 |   |   | $ | 142,112,000 |   |

See “Business      Acquisitions and Financing” results of operations later in Item      7.

|                                                              |   | Year                  Ended December 31, |        |
|-------------------------------------------------------------------|--------|------------------------------------------|-------------|
|                                                              |   | 2007                                     |        |   | 2006 |   |   | 2005 |   |
|                                                              |   |                                     |        |   |   |   |   |   |   |
| Water                    Resource and Water Storage Operations    |   | $                                        | (5,283,000  | )  |   | $ | (                2,451,000 | )  |   | $ | 56,212,000 |   |
| Real                    Estate Operations                         |   |                                     | 8,109,000   |   |   |   | 30,499,000 |   |   |   | 12,038,000 |   |
| Business                    Acquisitions and Financing Operations |   |                                     | (10,591,000 | )  |   |   | 6,839,000 |   |   |   | (38,464,000 | )  |
| Insurance                    Operations in Run Off                |   |                                     | 9,779,000   |   |   |   | 15,980,000 |   |   |   | 10,539,000 |   |
| Income                    Before Taxes and Minority Interest      |   | $                                        | 2,014,000   |   |   | $ | 50,867,000 |   |   | $ | 40,325,000 |   |

| · | $22.4                million lower income from                Real Estate Operations, primarily due to the $18.8 million gross                margin on                the sale of Spring Valley Ranch which was included in 2006                income; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | a                $17.4 million lower contribution from the Business Acquisitions and                Financing Operations segment. This principally resulted from a $17.4                million decrease in realized gains year over year; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | $6.2                million lower income from                Insurance Operations in Run Off, primarily due to a $6.1 million                year over                year decrease in realized gains;                and |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | a                $2.8millionlower                result from Water Resource                and Water Storage Operations due to various factors.  The 2007                segment loss included a $3.5 million gain on the release of restrictions                on real estate, which was more than offset by a $7.3 million expense                related to the Pyramid Lake Paiute Tribe settlement.  See "Item                3. Legal                Proceedings - Fish Springs Ranch, LLC                Litigation". |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | $18.5                million higher income from                Real Estate Operations, essentially due to the sale of Spring Valley                Ranch; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | a                $45.3 million higher                contribution from the Business Acquisitions and Financing Operations                segment. This principally resulted from a $13.2 million increase                in                realized gains year over year, and SAR expense of zero in 2006 compared                to                $23.9 million in 2005; and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | $5.5                million higher income from                Insurance Operations in Run Off, primarily due to a $5 million year                over                year increase in realized                gains; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | which,                combined, exceeded the                $58.7 million lower result from Water Resource and Water Storage                Operations. The total gross margin earned from the sale of real estate                and                water assets in 2006 was $1.4 million, compared to $65.9 million                in 2005,                which included the two significant sales of water discussed in preceding                paragraphs. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                              |   | Year                Ended December 31, |        |
|-------------------------------------------------------------------|--------|----------------------------------------|-------------|
|                                                              |   | 2007                                   |        |   | 2006 |   |   | 2005 |   |
| Revenues:                                                         |   |                                   |        |   |   |   |   |   |   |
| Sale                  of real estate and water assets             |   | $                                      | 41,000      |   |   |   | 2,969,000 |   |   | $ | 104,812,000 |   |
| Gain                  on release of restrictions on real estate   |   |                                   | 3,466,000   |   |   |   |   |   |   |   |   |   |
| Net                  investment income                            |   |                                   | 4,418,000   |   |   |   | 2,805,000 |   |   |   | 1,177,000 |   |
| Other                                                             |   |                                   | 13,000      |   |   |   | 408,000 |   |   |   | 460,000 |   |
| Segment                  total revenues                           |   |                                   | 7,938,000   |   |   |   | 6,182,000 |   |   |   | 106,449,000 |   |
|                                                              |   |                                   |        |   |   |   |   |   |   |   |   |   |
| Expenses:                                                         |   |                                   |        |   |   |   |   |   |   |   |   |   |
| Cost                  of real estate and water assets             |   | $                                 | (8,000      | ) |   | $  | (1,614,000 | ) |   | $  | (38,957,000 | ) |
| Commission                  and other cost of sales               |   |                                   |        |   |   |   |   |   |   |   | (1,066,000 | ) |
| Depreciation and                  amortization               |   |                                   | (1,042,000  | ) |   |   | (1,084,000 | ) |   |   | (1,173,000 | ) |
| Interest                                                          |   |                                   |        |   |   |   |   |   |   |   | (270,000 | ) |
| Overhead                                                          |   |                                   | (1,839,000  | ) |   |   | (3,068,000 | ) |   |   | (4,449,000 | ) |
| Project                  expenses                                 |   |                                   | (10,332,000 | ) |   |   | (2,867,000 | ) |   |   | (4,322,000 | ) |
| Segment                  total expenses                           |   |                                   | (13,221,000 | ) |   |   | (8,633,000 | ) |   |   | (50,237,000 | ) |
| Income                  (loss) before taxes and minority interest |   | $                                      | (5,283,000  | ) |   | $ | (2,451,000 | ) |   | $ | 56,212,000 |   |

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

| · | Vidler                sold its water rights at                Golden, Colorado                for $1.2                million. |
|--------|--------------------------------------------------------------------------------------------------------------------------------|

| · | the                sale of approximately 42,000                acre-feet of transferable groundwater rights, and the related land,                in the                Harquahala Valley Irrigation District of Arizona. This transaction                added                $94.4 million to revenues and $56.6 million to gross margin;                and |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | the                sale of approximately 2,100                acre-feet of water in Lincoln Countyby                Lincoln/Vidler. Under the                agreement between the Lincoln County Water District and Vidler, the                proceeds from the sale of water will be shared equally after Vidler                is                reimbursed for the expenses incurred in developing water resources                in                Lincoln County.                Consequently, the net cash                proceeds to Vidler were approximately $10.8 million, and the transaction                added $10.1 million to revenues and $9.1 million to gross                margin. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | the                operation and maintenance of                the Vidler Arizona Recharge                Facility; |
|--------|---------------------------------------------------------------------------------------------------------------------|

| · | the                development of water rights                in the Tule Desertgroundwater                basin (part of the                Lincoln Countyagreement); |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | the                utilization of water rights                at Fish Springs Ranch as future municipal water supply for the north                valleys of the Reno, Nevada area;                and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | the                operation of Fish Springs                Ranch, and maintenance of the associated water                rights. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------|

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

|   | · | a                cash payment of $500,000, which was made during 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 due and paid on January 8, 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                the                London Inter-Bank Offered Rate (“LIBOR”) from January 8, 2009. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                               |   | Year                Ended December 31, |       |
|--------------------------------------------------------------------|--------|----------------------------------------|------------|
|                                                               |   | 2007                                   |       |   | 2006 |   |   | 2005 |   |
| Revenues:                                                          |   |                                   |       |   |   |   |   |   |   |
| Saleof                Real Estate and                Water Assets: |   |                                   |       |   |   |   |   |   |   |
| Sale                  of former railroad land                      |   | $                                      | 9,455,000  |   |   | $ | 16,541,000 |   |   | $ | 20,173,000 |   |
| Sale                  of Spring Valley Ranch                       |   |                                   |       |   |   |   | 22,000,000 |   |   |   |   |   |
| Net                  investment income                             |   |                                   | 3,140,000  |   |   |   | 2,003,000 |   |   |   | 1,054,000 |   |
| Other                                                              |   |                                   | 884,000    |   |   |   | 862,000 |   |   |   | 584,000 |   |
| Segment                  total revenues                            |   |                                   | 13,479,000 |   |   |   | 41,406,000 |   |   |   | 21,811,000 |   |
|                                                               |   |                                   |       |   |   |   |   |   |   |   |   |   |
| Expenses:                                                          |   |                                   |       |   |   |   |   |   |   |   |   |   |
| Cost                  of former railroad land sold                 |   | $                                      | (2,676,000 | ) |   | $  | (5,489,000 | ) |   | $ | (7,573,000 | ) |
| Cost                  of Spring Valley Ranch                       |   |                                   |       |   |   |   | (3,174,000 | ) |   |   |   |   |
| Operating                  expenses                                |   |                                   | (2,694,000 | ) |   |   | (2,244,000 | ) |   |   | (2,200,000 | ) |
| Segment                  total expenses                            |   |                                   | (5,370,000 | ) |   |   | (10,907,000 | ) |   |   | (9,773,000 | ) |
| Income before                    taxes and minority interest  |   | $                                      | 8,109,000  |   |   | $ | 30,499,000 |   |   | $ | 12,038,000 |   |

----

|                                                                        |   | Year                  Ended December 31, |        |
|-----------------------------------------------------------------------------|--------|------------------------------------------|-------------|
|                                                                        |   | 2007                                     |        |   | 2006 |   |   | 2005 |   |
| Business                  Acquisitions and Financing Operations Revenues:   |   |                                     |        |   |   |   |   |   |   |
| Realized                    gain (loss) on sale or impairment of securities |   | $                                        | (1,426,000  | ) |   | $ | 15,943,000 |   |   | $ | 2,666,000 |   |
| Net                    investment income                                    |   |                                     | 6,025,000   |   |   |   | 5,611,000 |   |   |   | 2,957,000 |   |
| Other                                                                       |   |                                     | 304,000     |   |   |   | 304,000 |   |   |   | 120,000 |   |
| Segment                    total revenues                                   |   |                                     | 4,903,000   |   |   |   | 21,858,000 |   |   |   | 5,743,000 |   |
|                                                                        |   |                                     |        |   |   |   |   |   |   |   |   |   |
| Stock                    appreciation rights expense                        |   | $                                        | (4,468,000  | )  |   |   |   |   |   | $ | (23,894,000 | )  |
| Other                                                                  |   |                                     | (11,026,000 | ) |   | $ | (15,019,000 | )  |   |   | (20,313,000 | )  |
| Segment                    total expenses                                   |   |                                     | (15,494,000 | )  |   |   | (15,019,000 | )  |   |   | (44,207,000 | )  |
| Income                      (loss) before taxes and minority interest       |   | $                                        | (10,591,000 | )  |   | $ | 6,839,000 |   |   | $ | (38,464,000 | )  |

----

| · | SAR                expense of $ 4.5 million (see description of SAR expense below); |
|--------|-------------------------------------------------------------------------------------|

| · | HyperFeed                litigation expenses of $1.7 million; |
|--------|---------------------------------------------------------------|

| · | the                accrual of $1.5 million in incentive compensation, being a discretionary                bonus awarded to our President and Chief Executive Officer; and |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | other                parent company overhead of $7.8 million. Other expenses were reduced                by a                $548,000 net decrease in deferred compensation expense, which reflects                a                decrease in deferred compensation liabilities resulting from a decrease                in                the value of deferred compensation assets. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | the                accrual of $5.9 million in                incentive compensation.  In 1996, six of PICO’s                officers participated in an                incentive compensation program tied to growth in our book value per                share relative to a pre-determined threshold;                and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | other                parent company overhead of                $11.7 million. This includes deferred compensation expense of $3.6                million, which reflects an increase in deferred compensation liabilities                resulting from growth in the value of invested assets corresponding                to the                deferred compensation liabilities. In effect, this expense was offset                by                investment income and realized gains, which are recorded as revenue                in                this segment, and by unrealized appreciation in the invested                assets. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

----

|                                                                |   | Year                  Ended December 31, |      |
|---------------------------------------------------------------------|--------|------------------------------------------|-----------|
|                                                                |   | 2007                                     |      |   | 2006 |   |   | 2005 |   |
| Revenues:                                                           |   |                                     |      |   |   |   |   |   |   |
| Net                    investment income                            |   | $                                        | 3,457,000 |   |   | $ | 3,159,000 |   |   | $  | 3,052,000 |   |
| Realized                    gain on sale of investments             |   |                                     | 3,965,000 |   |   |   | 10,110,000 |   |   |   | 5,057,000 |   |
| Other                                                               |   |                                     | 187,000   |   |   |   | 8,000 |   |   |   |   |   |
| Segment                    total revenues                           |   |                                     | 7,609,000 |   |   |   | 13,277,000 |   |   |   | 8,109,000 |   |
|                                                                |   |                                     |      |   |   |   |   |   |   |   |   |   |
| Recoveries:                                                         |   |                                     |      |   |   |   |   |   |   |   |   |   |
| (Expenses),                    net of underwriting recoveries  |   | $                                   | 2,170,000 |   |   | $  | 2,703,000 |   |   | $  | 2,430,000 |   |
|                                                                |   |                                     |      |   |   |   |   |   |   |   |   |   |
| Income                    Before Taxes:                             |   |                                     |      |   |   |   |   |   |   |   |   |   |
| Physicians                    Insurance Company of Ohio             |   | $                                        | 5,938,000 |   |   | $ | 10,914,000 |   |   | $  | 8,552,000 |   |
| Citation                    Insurance Company                       |   | $                                   | 3,841,000 |   |   | $  | 5,066,000 |   |   | $  | 1,987,000 |   |
| Income before                      taxes and minority interest |   | $                                        | 9,779,000 |   |   | $ | 15,980,000 |   |   | $ | 10,539,000 |   |

See the      Physicians      and Citation sections of the “Company Summary, Recent Developments, and Future      Outlook” portion of Item 7.

----

|                                                                                                    |   | Year                  Ended December 31, |        |
|---------------------------------------------------------------------------------------------------------|--------|------------------------------------------|-------------|
|                                                                                                    |   | 2006                                     |        |   | 2005 |   |
|                                                                                                    |   |                                     |        |   |   |   |
| Loss                    before tax and minority interest                                                |   | $                                        | (10,257,000 | ) |   | $ | (7,316,000 | ) |
| Minority                    interest in net loss                                                        |   |                                     |        |   |   |   | 706,000 |   |
|                                                                                                    |   |                                     | (10,257,000 | ) |   |   | (6,610,000 | ) |
| Gain                    on disposal, before tax                                                         |   |                                     | (3,002,000  | ) |   |   |   |   |
| Benefit                    for income taxes                                                        |   |                                     | (4,657,000  | ) |   |   |   |   |
| Gain                    on disposal, net                                                                |   |                                     | 7,659,000   |   |   |   |   |   |
|                                                                                                    |   |                                     |        |   |   |   |   |   |
| Gain                    on sale of HyperFeed's discontinued operations, net                             |   |                                     | 330,000     |   |   |   | 545,000 |   |
|                                                                                                    |   |                                     |        |   |   |   |   |   |
| Gain                    on sale of disposal and sale of discontinued operations,                    net |   | $                                        | 7,989,000   |   |   | $ | 545,000 |   |
|                                                                                                    |   | $                                        | (2,268,000  | ) |   | $ | (6,065,000 | ) |

| · | the                $10.3 million net loss                consisted of a $5.3 million loss, and a $4.9 million write-down in                the                third quarter of 2006 of HyperFeed’s assets to estimated fair value of                zero; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | during                the fourth quarter of                2006, HyperFeed filed for bankruptcy under Chapter 7 of the Bankruptcy                Code. The $8 million gain on disposal and the sale of discontinued                operations was comprised of a $7.7 million after-tax gain on disposal,                and                a $330,000 after-tax gain on the sale of discontinued operations.                The $7.7                million after-tax gain on disposal consisted of a $3 million gain                on                disposal before tax due to the removal of HyperFeed’s liabilities from                PICO’s                financial statements after the                bankruptcy filing, and a $4.7 million income tax benefit.  See Notes 2 and 7                of Notes to                Consolidated Financial Statements, "Discontinued Operations" and "Federal,                Foreign                and State Income Tax",                respectively. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | As                Vidler’s water assets are                monetized, Vidler should generate free cash flow as receipts from                the sale                of real estate and water assets will have overtaken maintenance capital                expenditure, development costs, financing costs, and operating                expenses; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Nevada Landis                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 Landhas                provided vendor financing.                These receipts and other revenues exceed Nevada Land’s operating and                development costs, so Nevada Land is generating strong 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                reinsurance companies. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | in                2007, sale of real estate by Nevada Land; |
|--------|------------------------------------------------------------------|

| · | in                2006, the sale of Spring Valley Ranch for $22 million, and $11.1                million                from cash land sales by Nevada Land; and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | in                2005, Vidler’s sale of water rights and real estate in the Harquahala                Valley Irrigation District generated an operating cash flow of                approximately $87.4 million ($94.4 million gross sales price, less                $5.7                million to exercise options to acquire certain farms that we sold                in the                transaction, and $1.2 million closing and other costs). In addition,                Lincoln/Vidler’s sale of 2,100 acre-feet of water resulted in an operating                cash flow to Vidler of approximately $10.8 million. Due to the income                recognized on these sales, we paid $24.2 million in estimated federal                and                state taxes in 2005. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | in                2007, a $46.6 million net increase in fixed-income securities, which                represents the temporary investment of a portion of the proceeds                of the                February 2007 stock offering. The principal use of investing cash                was                $48.1 million in outlays for property and equipment, primarily related                to                the Fish Springs pipeline project. In addition, $16.2 million net                was                invested in stocks primarily in the insurance company portfolios; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | in                2006, the proceeds from the                maturity or sale of fixed-income investments exceeded new purchases,                providing cash of $28.9 million, and proceeds from the sale of stocks                exceeded new purchases, providing $16.7 million in cash. The principal                use                of investing cash was $27.2 million in outlays for property and equipment,                primarily related to the Fish Springs pipeline project;                and |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | in                2005, the sale or maturity of                fixed-income securities provided cash of $23.6 million, but $78.7                million                of cash was used to purchase fixed-income securities. This principally                reflected the temporary investment of liquid funds from Vidler’s water                sales and the PICO's commonstock                offering in May 2005. Cash                outflows of $22.6 million for the purchase of stocks exceeded cash                inflows                of $12 million from the sale of stocks;                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; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | in                2006, the sale of 2.6 million newly-issued shares of PICO common                stock at                $30 per share, for net cash proceeds of $73.9 million; and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | in                2005, the sale of 905,000                newly-issued shares of PICO common                stock at $25 per share,                for net proceeds of $21.4 million, which was partially offset by                the                repayment of $3.9 million in principal on notes collateralized by                certain                of the farm properties which Vidler sold in the Harquahala Valley                Irrigation District. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 1. | At                December 31, 2007: |
|----|--------------------------------------|

| · | 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 subsidiaries, Global Equity AG and PICO European                Holdings, LLC have Swiss Franc borrowings which partially finance                some of                their investments in European equities. The equities provide                collateral for the borrowings. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| Contractual                Obligations                                                                                                                                               |   | Payments                Due by Period |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|------------|
|                                                                                                                                                                                 |   | Less                than 1 year       |       |   | 1                -3 years |   |   | 3                -5 years |   |   | More                than 5 years |   |   | Total |   |
| Borrowings                  (including interest of $676,797)                                                                                                                         |   | $                                     | 696,797    |   |   | $ | 18,858,080 |   |   |   |   |   |   |   |   | $ | 19,554,877 |   |
| Operating                  leases                                                                                                                                                    |   |                                  | 750,415    |   |   |   | 882,374 |   |   | $ | 427,942 |   |   | $ | 2,784,962 |   |   |   | 4,845,693 |   |
| Expected                  claim payouts                                                                                                                                              |   |                                  | 6,824,076  |   |   |   | 12,879,732 |   |   |   | 7,516,995 |   |   |   | 5,155,215 |   |   |   | 32,376,018 |   |
| Other                  borrowings/obligations (primarily commitments for water purchases for                  the Recharge Site and the amounts due under the Tribe settlement) |   |                                  | 4,574,504  |   |   |   | 3,653,509 |   |   |   |   |   |   |   |   |   |   |   | 8,228,013 |   |
| Total                                                                                                                                                                                |   | $                                     | 12,845,792 |   |   | $ | 36,273,695 |   |   | $ | 7,944,937 |   |   | $ | 7,940,177 |   |   | $ | 65,004,601 |   |

----

----

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

----

----

|                                                      |   |   |    |    |   |    |    |                          |   |    |   |   |   |    |   |
|-----------------------------------------------------------|--------|--------|---------|---------|--------|---------|---------|-------------------------------|--------|---------|--------|--------|--------|---------|--------|
|                                                      |   | 1997   |    |    | 1998   |    |    | 1999                          |   |    | 2000   |   |   | 2001    |   |
|                                                      |   |   |    |    |   |    |    |                          |   |    |   |   |   |    |   |
|                                                      |   |   |    |    |   |    |    | (In                Thousands) |   |    |   |   |   |    |   |
| Net                  liability as originally estimated:   |   | $      | 110,931 |    |   | $       | 89,554  |                          |   | $       | 88,112 |   |   | $       | 74,896 |   |   | $ | 54,022 |   |
| Discount                                                  |   |   | 9,159   |    |   |    | 8,515   |                          |   |    | 7,521  |   |   |    | 0      |   |   |   | 0 |   |
| Gross                  liability as originally estimated: |   |   | 120,090 |    |   |    | 98,069  |                          |   |    | 95,633 |   |   |    | 74,896 |   |   |   | 54,022 |   |
| Cumulative                  payments as of:               |   |   |    |    |   |    |    |                          |   |    |   |   |   |    |   |   |   |   |   |   |
| One                  year later                           |   |   | 37,043  |    |   |    | 23,696  |                          |   |    | 22,636 |   |   |    | 9,767  |   |   |   | 7,210 |   |
| Two                  years later                          |   |   | 57,622  |    |   |    | 41,789  |                          |   |    | 31,987 |   |   |    | 16,946 |   |   |   | 13,426 |   |
| Three                  years later                        |   |   | 73,096  |    |   |    | 50,968  |                          |   |    | 39,150 |   |   |    | 23,162 |   |   |   | 19,939 |   |
| Four                  years later                         |   |   | 82,249  |    |   |    | 58,129  |                          |   |    | 45,140 |   |   |    | 29,675 |   |   |   | 24,166 |   |
| Five                  Years later                         |   |   | 89,398  |    |   |    | 64,119  |                          |   |    | 51,566 |   |   |    | 33,902 |   |   |   | 27,591 |   |
| Six                  years later                          |   |   | 95,454  |    |   |    | 70,545  |                          |   |    | 55,793 |   |   |    | 37,327 |   |   |   | 30,338 |   |
| Seven                  years later                        |   |   | 101,877 |    |   |    | 74,772  |                          |   |    | 59,218 |   |   |    | 40,074 |   |   |   |   |   |
| Eight                  years later                        |   |   | 106,088 |    |   |    | 78,198  |                          |   |    | 61,965 |   |   |    |   |   |   |   |   |   |
| Nine                  years later                         |   |   | 109,485 |    |   |    | 76,395  |                          |   |    |   |   |   |    |   |   |   |   |   |   |
| Ten                  years later                          |   |   | 112,232 |    |   |    |    |                          |   |    |   |   |   |    |   |   |   |   |   |   |
| Liability                  re-estimated as of:            |   |   |    |    |   |    |    |                          |   |    |   |   |   |    |   |   |   |   |   |   |
| One                  year later                           |   |   | 129,225 |    |   |    | 114,347 |                          |   |    | 96,727 |   |   |    | 63,672 |   |   |   | 52,115 |   |
| Two                  years later                          |   |   | 145,543 |    |   |    | 115,539 |                          |   |    | 85,786 |   |   |    | 61,832 |   |   |   | 56,782 |   |
| Three                  years later                        |   |   | 146,618 |    |   |    | 104,689 |                          |   |    | 83,763 |   |   |    | 66,494 |   |   |   | 56,540 |   |
| Four                  years later                         |   |   | 135,930 |    |   |    | 102,704 |                          |   |    | 88,460 |   |   |    | 66,275 |   |   |   | 52,784 |   |
| Five                  Years later                         |   |   | 133,958 |    |   |    | 107,409 |                          |   |    | 88,167 |   |   |    | 62,519 |   |   |   | 49,562 |   |
| Six                  years later                          |   |   | 138,520 |    |   |    | 107,127 |                          |   |    | 84,412 |   |   |    | 59,298 |   |   |   | 47,999 |   |
| Seven                  years later                        |   |   | 138,386 |    |   |    | 103,374 |                          |   |    | 81,200 |   |   |    | 57,736 |   |   |   |   |   |
| Eight                  years later                        |   |   | 134,637 |    |   |    | 100,153 |                          |   |    | 79,639 |   |   |    |   |   |   |   |   |   |
| Nine                  years later                         |   |   | 131,379 |    |   |    | 98,606  |                          |   |    |   |   |   |    |   |   |   |   |   |   |
| Ten                  years later                          |   |   | 129,854 |    |   |    |    |                          |   |    |   |   |   |    |   |   |   |   |   |   |
|                                                      |   |   |    |    |   |    |    |                          |   |    |   |   |   |    |   |   |   |   |   |   |
| Cumulative                  Redundancy (Deficiency)       |   | $      | (9,764  | )  |   | $  | (537    | )                             |   | $  | 15,994 |   |   | $  | 17,160 |   |   | $  | 6,023 |   |

----

|                                                                                                                        | Year                Ended December 31, |    |
|-----------------------------------------------------------------------------------------------------------------------------|----------------------------------------|---------|
|                                                                                                                        | 2002                                   |    | 2003 |   | 2004 |   | 2005 |   | 2006 |   | 2007 |   |
|                                                                                                                        |                                   |    |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                        |                                   |    |   |   | (In                Thousands) |   |   |   |   |   |   |   |
| Net                  liability as originally estimated:                                                                     | $                                      | 44,905  |   | $  | 43,357 |   | $  | 36,602 |   | $  | 28,618 |   | $  | 21,972 |   | $  | 15,623 |   |
| Discount                                                                                                                    |                                   | -  |   |   | -  |   |   | -  |   |   | -  |   |   | -  |   |   | -  |   |
| Gross                  liability before discount as originally estimated:                                                   |                                   | 44,905  |   |   | 43,357 |   |   | 36,602 |   |   | 28,618 |   |   | 21,972 |   |   | 15,623 |   |
| Cumulative                  payments as of:                                                                                 |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One                  year later                                                                                             |                                   | 6,216   |   |   | 6,513 |   |   | 4,227 |   |   | 3,425 |   |   | 2,747 |   |   |   |   |
| Two                  years later                                                                                            |                                   | 12,729  |   |   | 10,740 |   |   | 7,652 |   |   | 6,172 |   |   |   |   |   |   |   |
| Three                  years later                                                                                          |                                   | 16,956  |   |   | 14,165 |   |   | 10,399 |   |   |   |   |   |   |   |   |   |   |
| Four                  years later                                                                                           |                                   | 20,381  |   |   | 21,162 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Five                  Years later                                                                                           |                                   | 23,128  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Six                  years later                                                                                            |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Seven                  years later                                                                                          |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Eight                  years later                                                                                          |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nine                  years later                                                                                           |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ten                  years later                                                                                            |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liability                  re-estimated as of:                                                                              |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One                  year later                                                                                             |                                   | 49,573  |   |   | 43,115 |   |   | 32,845 |   |   | 25,397 |   |   | 18,370 |   |   |   |   |
| Two                  years later                                                                                            |                                   | 49,331  |   |   | 39,358 |   |   | 29,623 |   |   | 23,834 |   |   |   |   |   |   |   |
| Three                  years later                                                                                          |                                   | 45,574  |   |   | 36,135 |   |   | 28,061 |   |   |   |   |   |   |   |   |   |   |
| Four                  years later                                                                                           |                                   | 42,352  |   |   | 34,574 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Five                  Years later                                                                                           |                                   | 40,790  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Six                  years later                                                                                            |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Seven                  years later                                                                                          |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Eight                  years later                                                                                          |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nine                  years later                                                                                           |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ten                  years later                                                                                            |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative                  Redundancy                                                                                      | $                                      | 4,115   |   | $  | 8,783 |   | $  | 8,541 |   | $  | 4,784 |   | $  | 3,602 |   |   |   |   |
|                                                                                                                        |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| RECONCILIATION                  TO FINANCIAL STATEMENTS                                                                     |                                   |    |   |   |   |   |   |   |   |   |   |   |   |
| Gross                  liability - end of year                                                                              |                                   |    |   |   |   |   |   |   |   | $ | 44,476 |   | $ | 38,944 |   | $ | 32,276 |   |
| Reinsurance                  recoverable                                                                                    |                                   |    |   |   |   |   |   |   |   |   | (15,858 | ) |   | (16,972 | ) |   | (16,653 | ) |
| Net                  liability - end of year                                                                                |                                   |    |   |   |   |   |   |   |   |   | 28,618 |   |   | 21,972 |   |   | 15,623 |   |
| Reinsurance                  recoverable                                                                                    |                                   |    |   |   |   |   |   |   |   |   | 15,858 |   |   | 16,972 |   |   | 16,653 |   |
|                                                                                                                        |                                   |    |   |   |   |   |   |   |   |   | 44,476 |   |   | 38,944 |   |   | 32,276 |   |
| Discontinued                  personal lines insurance                                                                      |                                   |    |   |   |   | 132 |   |   | 101 |   |   | 100 |   |
| Liability                  to California Insurance Guarantee Association for Workers' Compensation                  payouts |                                   | 2,038   |   |   | 2,038 |   |   | -  |   |
| Balance                  sheet liability                                                                                    |                                   |    |   |   |   |   |   |   |   | $ | 46,646 |   | $ | 41,083 |   | $ | 32,376 |   |
|                                                                                                                        |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross                  re-estimated liability - latest                                                                      |                                   |    |   |   |   |   |   |   |   | $ | 43,491 |   | $ | 36,620 |   |   |   |   |
| Re-estimated                  recoverable - latest                                                                          |                                   |    |   |   |   |   |   |   |   |   | (19,657 | ) |   | (18,250 | ) |   |   |   |
| Net                  re-estimated liability - latest                                                                        |                                   |    |   |   |   |   |   |   |   | $ | 23,834 |   | $ | 18,370 |   |   |   |   |
| Net                  cumulative redundancy                                                                                  |                                   |    |   |   |   |   |   |   |   | $ | 4,784 |   | $ | 3,602 |   |   |   |   |

----

----

Note      10 of Notes to Consolidated Financial Statements,“Reinsurance

See      Note 10 of Notes to Consolidated Financial Statements,“Reinsurance,” 

----

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET      RISK

|                                                                             |   | Three                Months Ended |       |
|----------------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                             |   | March                31,          |       |   | June                30, |   |   | September                30, |   |   | December                31, |   |
|                                                                             |   | 2007                              |       |   | 2007 |   |   | 2007 |   |   | 2007 |   |
| Net                  investment income and net realized gain                     |   | $                                 | 5,217      |   |   | $ | 5,940 |   |   | $  | 3,333 |   |   | $  | 5              ,              295 |   |
| Sale                  of real estate and water assets                            |   |                              | 2,309      |   |   |   | 2,117 |   |   |   | 1,477 |   |   |   | 3              ,              592 |   |
| Total                  revenues                                                  |   |                              | 7,815      |   |   |   | 8,314 |   |   |   | 8,415 |   |   |   | 9              ,              486 |   |
| Gross                  profit                                                    |   |                              | 1,514      |   |   |   | 1,413 |   |   |   | 1,051 |   |   |   | 2              ,              805 |   |
| Net                  income (loss)                                               |   |                              | 521        |   |   |   | (3,713 | ) |   |   | 474 |   |   |   | 1              ,              449 |   |
|                                                                             |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic:                                                                           |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income (loss) per share                                     |   | $                                 | 0.03       |   |   | $ | (0.20 | ) |   | $ | 0.03 |   |   | $ | 0.              08 |   |
| Diluted:                                                                         |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income (loss) per share                                     |   | $                                 | 0.03       |   |   | $ | (0.20 | ) |   | $ | 0.02 |   |   | $ | 0.              08 |   |
|                                                                             |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                  weighted average common and equivalent shares outstanding |   |                              | 16,882,284 |   |   |   | 18,769,015 |   |   |   | 18,883,737 |   |   |   | 18,833,737 |   |

|                                                                       |   | Three                Months Ended |       |
|----------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                       |   | March                31,          |       |   | June                30, |   |   | September                30, |   |   | December                31, |   |
|                                                                       |   | 2006                              |       |   | 2006 |   |   | 2006 |   |   | 2006 |   |
| Net                  investment income and net realized gain               |   | $                                 | 16,758     |   |   | $ | 5,119 |   |   | $ | 7,215 |   |   | $ | 10,518 |   |
| Sale                  of land and water rights                             |   |                              | 1,256      |   |   |   | 3,833 |   |   |   | 28,311 |   |   |   | 8,109 |   |
| Total                  revenues                                            |   |                              | 18,247     |   |   |   | 9,548 |   |   |   | 36,199 |   |   |   | 18,730 |   |
| Gross                  profit                                              |   |                              | 876        |   |   |   | 2,531 |   |   |   | 22,494 |   |   |   | 5,331 |   |
| Net                  income (loss)                                         |   |                              | 7,218      |   |   |   | 382 |   |   |   | 11,830 |   |   |   | 9,813 |   |
|                                                                       |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                  and Diluted:                                        |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income (loss) per share                               |   | $                                 | 0.54       |   |   | $ | 0.03 |   |   | $ | 0.74 |   |   | $ | 0.62 |   |
|                                                                       |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                  average common and equivalent shares outstanding |   |                              | 13,271,440 |   |   |   | 14,927,125 |   |   |   | 15,880,458 |   |   |   | 15,880,458 |   |

----

| Report                  of Independent Registered Public Accounting Firm                                                                      | 50          |
|-----------------------------------------------------------------------------------------------------------------------------------------------|-------------|
| Consolidated                  Balance Sheets as of December 31, 2007 and 2006                                                                 | 51          |
| Consolidated                  Statements of Operations for the Years Ended December 31, 2007,                  2006 and                  2005 | 52     |
| Consolidated                  Statements of Shareholders’ Equity for the Years Ended December 31, 2007,                  2006, and 2005 | 53-55       |
| Consolidated                  Statements of Cash Flows for the Years Ended December 31, 2007,                  2006 and                  2005 | 56     |
| Notes                  to Consolidated Financial Statements                                                                                   | 57-79  |

----

----

| ASSETS                                                     |   | 2007   |        |   | 2006   |   |
|------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Available                for Sale Investments (Note 3)     |   |   |        |   |   |   |
| Fixed                  maturities                          |   | $      | 105,780,499 |   |   | $      | 63,483,271 |   |
| Equity                  securities                         |   |   | 259,743,145 |   |   |   | 208,478,670 |   |
| Total                  investments                         |   |   | 365,523,644 |   |   |   | 271,961,941 |   |
|                                                       |   |   |        |   |   |   |   |   |
| Cash                  and cash equivalents                 |   |   | 70,791,025  |   |   |   | 136,621,578 |   |
| Notes                  and other receivables, net (Note 6) |   |   | 17,151,065  |   |   |   | 17,177,827 |   |
| Reinsurance                  receivables (Note 10)         |   |   | 16,887,953  |   |   |   | 17,290,039 |   |
| Real                  estate and water assets (Note 5)     |   |   | 200,605,792 |   |   |   | 102,538,859 |   |
| Property                  and equipment, net (Note 8)      |   |   | 1,212,394   |   |   |   | 518,564 |   |
| Other                  assets                              |   |   | 4,170,407   |   |   |   | 2,934,131 |   |
|                                                       |   |   |        |   |   |   |   |   |
| Total                  assets                              |   | $      | 676,342,280 |   |   | $      | 549,042,939 |   |

| LIABILITIES              AND SHAREHOLDERS'              EQUITY                                                                                                                                                   |   |        |        |   |        |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Policy                liabilities and accruals:                                                                                                                                                                       |   |   |        |   |   |   |
| Unpaid                  losses and loss adjustment expenses (Note 11)                                                                                                                                                 |   | $      | 32,376,018  |   |   | $      | 41,083,301 |   |
| Deferred                  compensation (Note 1)                                                                                                                                                                       |   |   | 52,546,234  |   |   |   | 49,776,043 |   |
| Other                  liabilities                                                                                                                                                                                    |   |   | 29,016,217  |   |   |   | 22,282,989 |   |
| Borrowings                  (Note 4)                                                                                                                                                                                  |   |   | 18,878,080  |   |   |   | 12,720,391 |   |
| Net                  deferred income taxes (Note 7)                                                                                                                                                                   |   |   | 17,675,162  |   |   |   | 17,952,916 |   |
|                                                                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| Total                  liabilities                                                                                                                                                                                    |   |   | 150,491,711 |   |   |   | 143,815,640 |   |
|                                                                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| Commitments                  and Contingencies (Notes 10 - 15)                                                                                                                                                        |   |   |        |   |   |   |   |   |
|                                                                                                                                                                                                                  |   |   |        |   |   |   |   |   |
| Shareholders'              Equity                                                                                                                                                                                     |   |   |        |   |   |   |   |   |
| Common                  stock, $.001 par value; authorized 100,000,000; 23,259,367 issued                  and                  outstanding at December 31, 2007 and 20,306,923 at December 31,                  2006 |   |   | 23,259      |   |   |   | 20,307 |   |
| Additional                  paid-in capital                                                                                                                                                                           |   |   | 435,235,358 |   |   |   | 331,582,308 |   |
| Accumulated                  other comprehensive income (Note 1)                                                                                                                                                      |   |   | 79,469,438  |   |   |   | 60,950,679 |   |
| Retained                  earnings                                                                                                                                                                                    |   |   | 89,405,743  |   |   |   | 90,968,815 |   |
|                                                                                                                                                                                                                  |   |   | 604,133,798 |   |   |   | 483,522,109 |   |
| Less                  treasury stock, at cost (common shares: 4,425,630 in 2007 and 4,426,465                  in                  2006)                                                                              |   |   | (78,283,229 | )      |   |   | (78,294,810 | ) |
| Total                  shareholders' equity (Note 9)                                                                                                                                                                  |   |   | 525,850,569 |   |   |   | 405,227,299 |   |
| Total                  liabilities and shareholders' equity                                                                                                                                                           |   | $      | 676,342,280 |   |   | $      | 549,042,939 |   |

The      accompanying notes are an integral part of the consolidated      financial statements. 

----

|                                                                                     |   | 2007   |       |   | 2006   |   |        | 2005   |   |
|------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|-------------|--------|--------|
| Revenues:                                                                                |   |   |       |   |   |   |        |   |   |
| Sale                    of real estate and water assets                                  |   | $      | 9,496,156  |   |   | $      | 41,509,116  |   |   | $ | 124,984,427 |   |
| Net                    investment income (Note 3)                                        |   |   | 17,039,800 |   |   |   | 13,556,192  |   |   |   | 8,195,173 |   |
| Net                    realized gain on investments (Note 3)                             |   |   | 2,747,958  |   |   |   | 26,053,077  |   |   |   | 7,721,774 |   |
| Other                    (principally gain on non-monetary exchange in 2007, see Note 1) |   |   | 4,644,834  |   |   |   | 1,604,859   |   |   |   | 1,210,320 |   |
| Total                    revenues                                                        |   |   | 33,928,748 |   |   |   | 82,723,244  |   |   |   | 142,111,694 |   |
| Costs                    and expenses:                                                   |   |   |       |   |   |   |        |   |   |   |   |   |
| Operating                    and other costs                                             |   |   | 31,725,964 |   |   |   | 23,581,759  |   |   |   | 56,914,672 |   |
| Cost                    of real estate and water assets sold                             |   |   | 2,684,183  |   |   |   | 10,276,789  |   |   |   | 46,530,763 |   |
| Loss                    and loss adjustment recovery (Note 11)                           |   |   | (3,601,091 | )      |   |   | (3,224,401  | )      |   |   | (3,664,832 | ) |
| Interest                    expense                                                      |   |   |       |   |   |   |        |   |   |   | 661,314 |   |
| Depreciation                    and amortization                                         |   |   | 1,106,027  |   |   |   | 1,222,351   |   |   |   | 1,344,371 |   |
| Total                    costs and expenses                                              |   |   | 31,915,083 |   |   |   | 31,856,498  |   |   |   | 101,786,288 |   |
| Income                    before income taxes and minority interest                      |   |   | 2,013,665  |   |   |   | 50,866,746  |   |   |   | 40,325,406 |   |
| Provision                    for federal, foreign and state income taxes (Note 7)        |   |   | 3,535,699  |   |   |   | 19,390,374  |   |   |   | 18,594,623 |   |
| Income                    (loss) before minority interest                                |   |   | (1,522,034 | )      |   |   | 31,476,372  |   |   |   | 21,730,783 |   |
| Minority                    interest in loss of subsidiaries                             |   |   | 252,307    |   |   |   | 34,252      |   |   |   | 536,120 |   |
| Income                    (loss) from continuing operations                              |   |   | (1,269,727 | )      |   |   | 31,510,624  |   |   |   | 22,266,903 |   |
| Loss                    from discontinued operations, net of tax (Note 2)                |   |   |       |   |   |   | (10,256,984 | )      |   |   | (7,315,964 | ) |
| Minority                    interest in loss of discontinued operations                  |   |   |       |   |   |   |        |   |   |   | 705,702 |   |
| Gain                    on disposal of discontinued operations, net                      |   |   |       |   |   |   | 7,989,315   |   |   |   | 545,000 |   |
| Loss                    from discontinued operations                                     |   |   |       |   |   |   | (2,267,669  | )      |   |   | (6,065,262 | ) |
| Net                    income (loss)                                                     |   | $      | (1,269,727 | )      |   | $      | 29,242,955  |   |   | $ | 16,201,641 |   |
|                                                                                     |   |   |       |   |   |   |        |   |   |   |   |   |
| Net                    income (loss) per common share – basic and diluted:         |   |   |       |   |   |   |        |   |   |   |   |   |
| Income                    (loss) from continuing operations                              |   | $      | (0.07      | )      |   | $      | 2.10        |   |   | $ | 1.72 |   |
| Loss                    from discontinued operations                                     |   |   |       |   |   |   | (0.15       | )      |   |   | (0.47 | ) |
| Net                    income (loss) per common share                                    |   | $      | (0.07      | )      |   | $      | 1.95        |   |   | $ | 1.25 |   |
| Weighted                    average shares outstanding                                   |   |   | 18,321,449 |   |   |   | 14,994,947  |   |   |   | 12,959,029 |   |

The      accompanying notes are an integral part of the consolidated      financial statements. 

----

|                                                                                                                                                                                     |   |   |   |   |       |   |        |     |   |   | Accumulated                    Other    |   |   |        |       |   |     |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|------------|--------|-------------|----------|--------|--------|-----------------------------------------|--------|--------|-------------|------------|--------|----------|--------|
|                                                                                                                                                                                     |   |   |   |   |       |   |        |     |   |   | Comprehensive                    Income |   |   |        |       |   |     |   |
|                                                                                                                                                                                     |   |   |   |   | Additional |   |        |     |   |   | Net                  Unrealized         |   |   | Foreign     |       |   |     |   |   |   |   |
|                                                                                                                                                                                     |   |   |   |   |       |   |        |     |   |   | Appreciation                            |   |   |        |       |   |     |   |   |   |   |
|                                                                                                                                                                                     |   | Common |   |   | Paid-In    |   |        | Retained |   |   | on                                      |   |   | Currency    |       |   | Treasury |   |   |   |   |
|                                                                                                                                                                                     |   | Stock  |   |   | Capital    |   |        | Earnings |   |   | Investments                             |   |   | Translation |       |   | Stock    |   |   | Total |   |
| Balance,                    January 1, 2005                                                                                                                                         |   | $      | 16,802 |   |       | $      | 236,089,222 |     |   | $      | 45,524,219                              |   |   | $           | 41,947,162 |   |     | $      | (5,221,462 | ) |   | $ | (78,426,645 | ) |   | $ | 239,929,298 |   |
|                                                                                                                                                                                     |   |   |   |   |       |   |        |     |   |   |                                    |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive                    Income for 2005                                                                                                                                         |   |   |   |   |       |   |        |     |   |   |                                    |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Net                    income                                                                                                                                                            |   |   |   |   |       |   |        |     |   |   | 16,201,641                              |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Net                    unrealized appreciation on investments net of deferred tax of                    $14.6                    million and reclassification adjustment of $5.2 million |   |   |   |   |       |   |        |     |   |   |                                    |   |   |        | 24,177,250 |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Foreign                    currency translation                                                                                                                                          |   |   |   |   |       |   |        |     |   |   |                                    |   |   |        |       |   |     |   | (810,488 | ) |   |   |   |   |   |   |   |   |
| Total                    Comprehensive Income                                                                                                                                            |   |   |   |   |       |   |        |     |   |   |                                    |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   | 39,568,403 |   |
|                                                                                                                                                                                     |   |   |   |   |       |   |        |     |   |   |                                    |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Acquisition                    of treasury stock for deferred compensation plans                                                                                                         |   |   |   |   |       |   |        |     |   |   |                                    |   |   |        |       |   |     |   |   |   |   |   | (839 | ) |   |   | (839 | ) |
|                                                                                                                                                                                     |   |   |   |   |       |   |        |     |   |   |                                    |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Common                    stock offering, net of expenses of $1.2 million                                                                                                                |   |   | 905    |   |       |   | 21,377,190  |     |   |   |                                    |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   | 21,378,095 |   |
|                                                                                                                                                                                     |   |   |   |   |       |   |        |     |   |   |                                    |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                    December 31, 2005                                                                                                                                            |   | $      | 17,707 |   |       | $      | 257,466,412 |     |   | $      | 61,725,860                              |   |   | $           | 66,124,412 |   |     | $      | (6,031,950 | ) |   | $ | (78,427,484 | ) |   | $ | 300,874,957 |   |

The      accompanying notes are an integral part of the consolidated      financial statements. 

----

|                                                                                                                                                                               |   |   |   |   |       |   |        |     |   |   | Accumulated                Other    |   |   |        |       |   |     |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|------------|--------|-------------|----------|--------|--------|-------------------------------------|--------|--------|-------------|------------|--------|----------|--------|
|                                                                                                                                                                               |   |   |   |   |       |   |        |     |   |   | Comprehensive                Income |   |   |        |       |   |     |   |
|                                                                                                                                                                               |   |   |   |   | Additional |   |        |     |   |   | Net                Unrealized       |   |   | Foreign     |       |   |     |   |   |   |   |
|                                                                                                                                                                               |   | Common |   |   | Paid-In    |   |        | Retained |   |   | Appreciation                        |   |   | Currency    |       |   | Treasury |   |   |   |   |
|                                                                                                                                                                               |   | Stock  |   |   | Capital    |   |        | Earnings |   |   | on                Investments       |   |   | Translation |       |   | Stock    |   |   | Total |   |
|                                                                                                                                                                               |   |   |   |   |       |   |        |     |   |   |                                |   |   |        |       |   |     |   |   |   |   |
| Balance,                  December 31, 2005                                                                                                                                        |   | $      | 17,707 |   |       | $      | 257,466,412 |     |   | $      | 61,725,860                          |   |   | $           | 66,124,412 |   |     | $      | (6,031,950 | ) |   | $ | (78,427,484 | ) |   | $ | 300,874,957 |   |
|                                                                                                                                                                               |   |   |   |   |       |   |        |     |   |   |                                |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive                  Income for 2006                                                                                                                                     |   |   |   |   |       |   |        |     |   |   |                                |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income                                                                                                                                                        |   |   |   |   |       |   |        |     |   |   | 29,242,955                          |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Net                  unrealized appreciation on investments net of deferred tax of $1.5                  million                  and reclassification adjustment of $10.7 million |   |   |   |   |       |   |        |     |   |   |                                |   |   |        | 69,016     |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Foreign                  currency translation                                                                                                                                      |   |   |   |   |       |   |        |     |   |   |                                |   |   |        |       |   |     |   | 789,201 |   |   |   |   |   |   |   |   |   |
| Total                  Comprehensive Income                                                                                                                                        |   |   |   |   |       |   |        |     |   |   |                                |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   | 30,101,172 |   |
|                                                                                                                                                                               |   |   |   |   |       |   |        |     |   |   |                                |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Disposition                  of treasury stock from deferred compensation plans                                                                                                    |   |   |   |   |       |   | 173,352     |     |   |   |                                |   |   |        |       |   |     |   |   |   |   |   | 132,674 |   |   |   | 306,026 |   |
|                                                                                                                                                                               |   |   |   |   |       |   |        |     |   |   |                                |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Common                  stock offering, net of expenses of $4.1 million                                                                                                            |   |   | 2,600  |   |       |   | 73,942,544  |     |   |   |                                |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   | 73,945,144 |   |
|                                                                                                                                                                               |   |   |   |   |       |   |        |     |   |   |                                |   |   |        |       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                  December 31, 2006                                                                                                                                        |   | $      | 20,307 |   |       | $      | 331,582,308 |     |   | $      | 90,968,815                          |   |   | $           | 66,193,428 |   |     | $      | (5,242,749 | ) |   | $ | (78,294,810 | ) |   | $ | 405,227,299 |   |

The      accompanying notes are an integral part of the consolidated      financial statements 

----

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

The      accompanying notes are an integral part of the consolidated      financial statements 

----

|                                                                                                                                                                       |   | 2007   |         |    | 2006   |   |        | 2005   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------|---------|--------|--------|-------------|--------|--------|
| CASH                FLOWS FROM OPERATING ACTIVITIES:                                                                                                                       |   |   |         |    |   |   |        |   |   |
| Net                  income (loss)                                                                                                                                         |   | $      | (1,269,727   | )       |   | $      | 29,242,955  |   |   | $ | 16,201,641 |   |
| Adjustments                  to reconcile net income (loss) to net cash provided by (used in)                  operating                  activities, net of acquisitions: |   |   |         |    |   |   |        |   |   |   |   |   |
| Provision                  (benefit) for deferred taxes                                                                                                                    |   |   | (6,592,013   | )       |   |   | 4,286,402   |   |   |   | (6,682,144 | ) |
| Depreciation                  and amortization                                                                                                                             |   |   | 1,634,698    |    |   |   | 2,303,827   |   |   |   | 2,216,934 |   |
| Stock                  based compensation expense                                                                                                                          |   |   | 4,468,334    |    |   |   |        |   |   |   |   |   |
| Gain                  on sale of investments                                                                                                                               |   |   | (2,747,958   | )       |   |   | (26,053,077 | )      |   |   | (7,721,774 | ) |
| Gain                  on non-monetary exchange                                                                                                                             |   |   | (3,466,402   | )       |   |   |        |   |   |   |   |   |
| Loss                  from discontinued operations, net                                                                                                                    |   |   |         |    |   |   | 2,267,669   |   |   |   | 6,065,662 |   |
| Gain                  on retirement of minority interest in V&B, LLC.                                                                                                  |   |   |         |    |   |   | (322,048    | )      |   |   |   |   |
| Provision                  for uncollectible accounts                                                                                                                      |   |   |         |    |   |   | 278,664     |   |   |   |   |   |
| Minority                  interest                                                                                                                                         |   |   | (252,307     | )       |   |   | (34,252     | )      |   |   | (536,120 | ) |
| Changes                  in assets and liabilities, net of effects of acquisitions:                                                                                        |   |   |         |    |   |   |        |   |   |   |   |   |
| Notes                  and other receivables                                                                                                                               |   |   | 25,633       |    |   |   | (3,045,752  | )      |   |   | (416,856 | ) |
| Other                  liabilities                                                                                                                                         |   |   | (10,881,075  | )       |   |   | 502,669     |   |   |   | 7,525,944 |   |
| Other                  assets                                                                                                                                              |   |   | (1,073,719   | )       |   |   | 816,221     |   |   |   | 3,759,607 |   |
| Real                  estate and water assets                                                                                                                              |   |   | (30,596,350  | )       |   |   | 4,277,939   |   |   |   | 35,659,806 |   |
| Current                  income tax liability                                                                                                                         |   |   | 3,923,893    |    |   |   | 4,636,472   |   |   |   | 824,547 |   |
|                  Excess tax benefits from stock based payment arrangements                                                                                  |   |   | (4,426,789   | )  |   |   |        |   |   |   |   |   |
| Reinsurance                  receivable                                                                                                                                    |   |   | 402,086      |    |   |   | (1,103,934  | )      |   |   | 971,224 |   |
| Reinsurance                  payable                                                                                                                                       |   |   | (317,431     | )       |   |   | (7,650      | )      |   |   | (347,943 | ) |
| SAR                  payable and deferred compensation                                                                                                                     |   |   | 2,770,191    |    |   |   | 7,344,777   |   |   |   | 24,275,483 |   |
| Unpaid                  losses and loss adjustment expenses                                                                                                                |   |   | (8,707,283   | )       |   |   | (5,563,605  | )      |   |   | (9,347,469 | ) |
| All                  other operating activities                                                                                                                            |   |   | 488,319      |    |   |   | (244,983    | )      |   |   | (5,488 | ) |
| Cash                  provided by (used in) operating activities - continuing operations                                                                                   |   |   | (56,617,900  | )       |   |   | 19,582,294  |   |   |   | 72,443,054 |   |
| Cash                  used by operating activities - discontinued operations                                                                                               |   |   |         |    |   |   | (6,992,994  | )      |   |   | (4,398,197 | ) |
| Cash                  provided by (used in) operating activities                                                                                                           |   |   | (56,617,900  | )       |   |   | 12,589,300  |   |   |   | 68,044,857 |   |
|                                                                                                                                                                       |   |   |         |    |   |   |        |   |   |   |   |   |
| CASH                  FLOWS FROM INVESTING ACTIVITIES:                                                                                                                     |   |   |         |    |   |   |        |   |   |   |   |   |
| Proceeds                  from the sale of available for sale investments:                                                                                                 |   |   |         |    |   |   |        |   |   |   |   |   |
| Fixed                  maturities                                                                                                                                          |   |   |         |    |   |   | 2,703,700   |   |   |   | 13,757,855 |   |
| Equity                  securities                                                                                                                                         |   |   | 10,410,021   |    |   |   | 47,339,058  |   |   |   | 11,993,556 |   |
| Proceeds                  from maturity of available for sale investments                                                                                                  |   |   | 83,603,560   |    |   |   | 73,408,060  |   |   |   | 9,822,000 |   |
| Purchases                  of available for sale investments:                                                                                                              |   |   |         |    |   |   |        |   |   |   |   |   |
| Fixed                  maturities                                                                                                                                          |   |   | (130,220,057 | )       |   |   | (47,253,484 | )      |   |   | (78,685,009 | ) |
| Equity                  securities                                                                                                                                         |   |   | (26,628,779  | )       |   |   | (30,633,915 | )      |   |   | (22,552,436 | ) |
| Purchases                  of minority interest in subsidiaries                                                                                                            |   |   |         |    |   |   | (700,000    | )      |   |   |   |   |
| Real                  estate and water asset capital expenditure                                                                                                           |   |   | (48,141,339  | )       |   |   | (27,606,419 | )      |   |   | (1,456,843 | ) |
| All                  other investing activities                                                                                                                            |   |   | (959,092     | )       |   |   | (120,568    | )      |   |   | (73,013 | ) |
| Cash                  provided by (used in) investing activities - continuing operations                                                                                   |   |   | (111,935,686 | )       |   |   | 17,136,432  |   |   |   | (67,193,890 | ) |
| Cash                  used in investing activities - discontinued operations                                                                                               |   |   |         |    |   |   | (1,936,237  | )      |   |   | (1,779,446 | ) |
| Cash                  provided by (used in) investing activities                                                                                                           |   |   | (111,935,686 | )       |   |   | 15,200,195  |   |   |   | (68,973,336 | ) |
|                                                                                                                                                                       |   |   |         |    |   |   |        |   |   |   |   |   |
| CASH                  FLOWS FROM FINANCING ACTIVITIES:                                                                                                                     |   |   |         |    |   |   |        |   |   |   |   |   |
| Proceeds                  from issuance of common stock, net of expenses                                                                                                   |   |   | 100,141,935  |    |   |   | 73,945,144  |   |   |   | 21,378,095 |   |
| Repayment                  of bank and other borrowings                                                                                                                    |   |   |         |    |   |   | (37,930     | )      |   |   | (3,915,176 | ) |
| Excess                  tax benefits from stock based payment arrangements                                                                                                 |   |   | 4,426,789    |    |   |   |        |   |   |   |   |   |
| Sale                  (purchase) of PICO stock (for deferred compensation plans)                                                                                           |   |   | 29,392       |    |   |   |        |   |   |   | (839 | ) |
| Cash                  provided by financing activities - continuing operations                                                                                             |   |   | 104,598,116  |    |   |   | 73,907,214  |   |   |   | 17,462,080 |   |
| Cash                  provided by (used in) financing activities - discontinued operations                                                                                 |   |   |         |    |   |   | (498,272    | )      |   |   | 43,880 |   |
| Cash                  provided by financing activities                                                                                                                     |   |   | 104,598,116  |    |   |   | 73,408,942  |   |   |   | 17,505,960 |   |
| Effect                  of exchange rate changes on cash                                                                                                                   |   |   | (1,875,083   | )       |   |   | (2,371,275  | )      |   |   | 3,809,797 |   |
| Net                  increase (decrease) in cash and cash equivalents                                                                                                      |   |   | (65,830,553  | )       |   |   | 98,827,162  |   |   |   | 20,387,278 |   |
| Cash                  and cash equivalents, beginning of year                                                                                                              |   |   | 136,621,578  |    |   |   | 37,794,416  |   |   |   | 17,407,138 |   |
| Cash                  and cash equivalents, end of year                                                                                                                    |   |   | 70,791,025   |    |   |   | 136,621,578 |   |   |   | 37,794,416 |   |
| Less                  cash and cash equivalents of discontinued operations at end of                  year                                                                 |   |   |         |    |   |   |        |   |   |   | 302,171 |   |
| Cash                  and cash equivalents of continuing operations end of year                                                                                            |   |   | 70,791,025   |    |   |   | 136,621,578 |   |   |   | 37,492,245 |   |
|                                                                                                                                                                       |   |   |         |    |   |   |        |   |   |   |   |   |
| Supplemental                  disclosure of cash flow information:                                                                                                         |   |   |         |    |   |   |        |   |   |   |   |   |
| Cash                  paid during the year for:                                                                                                                            |   |   |         |    |   |   |        |   |   |   |   |   |
| Interest                  expense, net of amounts capitalized                                                                                                              |   |   |         |    |   |   |        |   |   | $ | 692,615 |   |
| Federal,                  state and foreign income taxes, net of refunds                                                                                                   |   | $      | 6,229,674    |    |   | $      | 10,515,540  |   |   | $ | 25,487,931 |   |
| Non-cash                  investing and financing activities:                                                                                                              |   |   |         |    |   |   |        |   |   |   |   |   |
| Distribution                  of treasury stock to settle deferred compensation                  liability                                                                 |   |   |         |    |   | $      | 306,027     |   |   |   |   |   |
| Change                  in capitalized costs included in other liabilities                                                                                                 |   | $      | 11,661,006   |    |   | $      | 2,944,637   |   |   |   |   |   |
| Mortgage                  incurred to purchase real estate                                                                                                                 |   | $      | 5,180,000    |    |   |   |        |   |   |   |   |   |
| Accrued                  withholding taxes recorded on additional paid in capital related                  to stock                  appreciation rights exercised         |   | $      | 5,398,767    |    |   |   |        |   |   |   |   |   |

The      accompanying notes are an integral part of the consolidated      financial statements 

----

NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS 

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

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

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

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

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

----

----

----

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

----

|                                              |   | SARs   |      |   | Weighted                  Average Exercise Price |   |   | Weighted                  Average Contractual Term (In years) |
|---------------------------------------------------|--------|--------|-----------|--------|--------------------------------------------------|--------|--------|---------------------------------------------------------------|
| Outstanding                  at January 1, 2007   |   |   | 2,185,965 |   |                                             | $      | 33.76  |                                                          |   |   |
| Granted                                           |   |   | 659,409   |   |                                             | $      | 43.23  |                                                          |   |   |
| Exercised                                         |   |   | (838,356  | )      |                                             | $      | 33.76  |                                                          |   |   |
| Outstanding                  at December 31, 2007 |   |   | 2,007,018 |   |                                             | $      | 36.87  |                                                          |   |   | 8.5 |
|                                              |   |   |      |   |                                             |   |   |                                                          |   |   |   |
| Exercisable                  at December 31, 2007 |   |   | 1,509,766 |   |                                             | $      | 34.72  |                                                          |   |   | 8.1 |

|                                                                                                     |   | SARs   |     |   | Weighted                Average Gant Date Fair Value |   |
|----------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|------------------------------------------------------|--------|
| Unvested                at January 1, 2007                                                               |   |   |     |   |                                                 |   |   |
| Granted                                                                                                  |   |   | 659,409  |   |                                                 | $      | 18.15 |   |
| Vested                                                                                                   |   |   | (162,157 | )      |                                                 | $      | 17.87 |   |
|                                                                                                     |   |   |     |   |                                                 |   |   |   |
| Unvested                at December 31, 2007 (expected to vest over the next three                years) |   |   | 497,252  |   |                                                 | $      | 18.24 |   |

----

|                                                                                                                                                                           |   | 2005   |         |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------|
| Reported                  net income (loss)                                                                                                                                    |   | $      | 16,201,641   |   |
| Add:                  Stock-based compensation recorded, net of tax                                                                                                            |   |   |         |   |
| Deduct:                  Total stock-based employee compensation expense determined under                  fair                  value based method for all awards, net of tax |   |   | (19,623,058) |   |
| Pro                  forma net loss                                                                                                                                            |   | $      | (3,421,417)  |   |
| Reported                  net income (loss) per share: basic and diluted                                                                                                       |   | $      | 1.25         |   |
| Pro                  forma net loss per share: basic and diluted                                                                                                               |   | $      | (0.26)       |   |

----

|                                                    | December                31, |   |
|---------------------------------------------------------|-----------------------------|--------|
|                                                    | 2007                        |   | 2006 |   |
|                                                    |                        |   |   |   |
| Net                  unrealized gain on securities      |                        | $      | 82,456,499 |   |   | $ | 66,193,428 |   |
| Foreign                  currency translation           |                        |   | (2,987,061) |   |   |   | (5,242,749) |   |
| Accumulated                  other comprehensive income |                        | $      | 79,469,438 |   |   | $ | 60,950,679 |   |

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

----

| 2. | DISCONTINUED                OPERATIONS: |
|----|-----------------------------------------|

----

|                                                                                  |   | 2006   |        |   | 2005   |   |
|---------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Revenues:                                                                             |   |   |        |   |   |   |
| Service                  revenue                                                      |   | $      | 2,907,268   |   |   | $      | 4,269,618 |   |
| Investment                  income                                                    |   |   | 3,892       |   |   |   | 1,297 |   |
| Total                  revenues                                                       |   |   | 2,911,160   |   |   |   | 4,270,915 |   |
| Expenses:                                                                             |   |   |        |   |   |   |   |   |
| Cost                  of service revenue                                              |   |   | 1,326,162   |   |   |   | 1,443,084 |   |
| Depreciation                  and amortization                                        |   |   | 446,922     |   |   |   | 756,881 |   |
| Other                  costs and expenses                                             |   |   | 9,243,085   |   |   |   | 9,480,624 |   |
| Total                  expenses                                                       |   |   | 11,016,169  |   |   |   | 11,680,589 |   |
| Loss                  before income taxes                                             |   |   | (8,105,009  | )      |   |   | (7,409,674 | ) |
| Benefit                  for income taxes                                             |   |   | 2,771,672   |   |   |   | 601,458 |   |
| Loss                  from continuing operations                                      |   |   | (5,333,337  | )      |   |   | (6,808,216 | ) |
| Loss                  on write down of assets to fair value                           |   |   | (4,923,647  | )      |   |   |   |   |
| Loss                  from HyperFeed's discontinued operations                        |   |   |        |   |   |   | (507,748 | ) |
| Net                  loss before minority interest                                    |   |   | (10,256,984 | )      |   |   | (7,315,964 | ) |
| Minority                  interest in net loss                                        |   |   |        |   |   |   | 705,702 |   |
|                                                                                  |   |   | (10,256,984 | )      |   |   | (6,610,262 | ) |
| Gain                  on disposal before tax                                          |   |   | 3,002,003   |   |   |   |   |   |
| Income                  tax benefit                                                   |   |   | 4,657,283   |   |   |   |   |   |
| Total                  gain on disposal, net of tax                                   |   |   | 7,659,286   |   |   |   |   |   |
| Previously                  reported gain on discontinued operations within HyperFeed |   |   | 330,029     |   |   |   | 545,000 |   |
| Reported                  gain on disposal of discontinued operations                 |   |   | 7,989,315   |   |   |   | 545,000 |   |
|                                                                                  |   | $      | (2,267,669  | )      |   | $      | (6,065,262 | ) |

----

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

|                                                                                                                  |   |   | Gross       |   | Gross      |   |        |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|------------|--------|-------------|--------|
|                                                                                                                  |   |   | Unrealized  |   | Unrealized |   | Carrying    |   |
| 2007:                                                                                                                 | Cost   |   | Gains       |   | Losses     |   | Value       |   |
| Fixed                maturities:                                                                                      |   |   |        |   |       |   |        |   |
| U.S.                  Treasury securities and obligations of U.S. government - sponsored                  enterprises |   | $      | 1,114,725   |   |       | $      | 54,046      |   |   |   |   |   | $ | 1,168,771 |   |
| Corporate                  bonds                                                                                      |   |   | 106,798,508 |   |       |   | 383,872     |   |   |   | (2,570,652 | )  |   |   | 104,611,728 |   |
|                                                                                                                  |   |   |        |   |       |   |        |   |   |   |   |   |   |   |   |   |
|                                                                                                                  |   |   | 107,913,233 |   |       |   | 437,918     |   |   |   | (2,570,652 | )  |   |   | 105,780,499 |   |
| Marketable                  equity securities                                                                         |   |   | 134,224,760 |   |       |   | 128,072,028 |   |   |   | (2,553,643 | )  |   |   | 259,743,145 |   |
| Total                                                                                                                 |   | $      | 242,137,993 |   |       | $      | 128,509,946 |   |   | $ | (5,124,295 | )  |   | $ | 365,523,644 |   |

|                                                                                                                  |   |   | Gross       |   | Gross      |    |        |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|------------|---------|-------------|--------|
|                                                                                                                  |   |   | Unrealized  |   | Unrealized |    | Carrying    |   |
| 2006:                                                                                                                 | Cost   |   | Gains       |   | Losses     |    | Value       |   |
| Fixed                maturities:                                                                                      |   |   |        |   |       |    |        |   |
| U.S.                  Treasury securities and obligations of U.S. government - sponsored                  enterprises |   | $      | 1,110,278   |   |       |    |        |   | $ | (3,731 | ) |   | $ | 1,106,547 |   |
| Corporate                  bonds                                                                                      |   |   | 62,320,043  |   |       |  $ | 483,947     |   |   |   | (427,266 | ) |   |   | 62,376,724 |   |
|                                                                                                                  |   |   |        |   |       |    |        |   |   |   |   |   |   |   |   |   |
|                                                                                                                  |   |   | 63,430,321  |   |       |    | 483,947     |   |   |   | (430,997 | ) |   |   | 63,483,271 |   |
| Marketable                  equity securities                                                                         |   |   | 108,866,121 |   |       |    | 100,313,455 |   |   |   | (700,906 | ) |   |   | 208,478,670 |   |
| Total                                                                                                                 |   | $      | 172,296,442 |   |       | $       | 100,797,402 |   |   | $ | (1,131,903 | ) |   | $ | 271,961,941 |   |

----

|                                                   | Amortized |   | Carrying    |   |
|--------------------------------------------------------|-----------|--------|-------------|--------|
|                                                   | Cost      |   | Value       |   |
|                                                   |      |   |        |   |
| Due                  in one year or less               |      | $      | 56,008,927  |   |   | $ | 55,861,954 |   |
| Due                  after one year through five years |      |   | 18,049,168  |   |   |   | 17,798,719 |   |
| Due                  after five years                  |      |   | 33,855,138  |   |   |   | 32,119,826 |   |
|                                                   |      | $      | 107,913,233 |   |   | $ | 105,780,499 |   |

|                                            |   | 2007   |       |   | 2006   |   |       | 2005   |   |
|-------------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
| Investment                income:               |   |   |       |   |   |   |       |   |   |
| Fixed                  maturities               |   | $      | 3,952,102  |   |   | $      | 2,084,072  |   |   | $ | 2,468,733 |   |
| Equity                  securities              |   |   | 4,202,648  |   |   |   | 3,333,526  |   |   |   | 3,074,692 |   |
| Other,                  primarily cash balances |   |   | 9,034,590  |   |   |   | 8,171,777  |   |   |   | 2,694,778 |   |
| Total                  investment income        |   |   | 17,189,340 |   |   |   | 13,589,375 |   |   |   | 8,238,203 |   |
| Investment                  expenses:           |   |   | (149,540   | )      |   |   | (33,183    | )      |   |   | (43,030 | ) |
| Net                  investment income          |   | $      | 17,039,800 |   |   | $      | 13,556,192 |   |   | $ | 8,195,173 |   |

|                                                     |   | 2007   |       |   | 2006   |   |       | 2005   |   |
|----------------------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
| Gross                realized gains:                     |   |   |       |   |   |   |       |   |   |
| Fixed                  maturities                        |   | $      | 561        |   |   | $      | 138,624    |   |   | $ | 27,303 |   |
| Equity                  securities and other investments |   |   | 4,726,158  |   |   |   | 26,391,570 |   |   |   | 7,843,098 |   |
| Total                  gain                              |   |   | 4,726,719  |   |   |   | 26,530,194 |   |   |   | 7,870,401 |   |
| Gross                  realized losses:                  |   |   |       |   |   |   |       |   |   |   |   |   |
| Fixed                  maturities                        |   |   | (1,603,852 | )      |   |   | (14,324    | )      |   |   | (6,899 | )  |
| Equity                  securities and other investments |   |   | (374,909   | )      |   |   | (462,793   | )      |   |   | (141,728 | )  |
| Total                  loss                              |   |   | (1,978,761 | )      |   |   | (477,117   | )      |   |   | (148,627 | )  |
| Net                  realized gain                       |   | $      | 2,747,958  |   |   | $      | 26,053,077 |   |   | $ | 7,721,774 |   |

----

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

|                                                           |   | 2007   |       |   | 2006   |   |
|----------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| 4.19%                  fixed due in 2009 (3.32% fixed in 2006) |   | $      | 2,647,371  |   |   | $      | 2,462,043 |   |
| 3.98%                  fixed due in 2009                       |   |   | 11,030,709 |   |   |   | 10,258,515 |   |
| 6.5%                  fixed payment due in 2009 and 2010       |   |   | 5,180,000  |   |   |   |   |   |
| 6%                  fixed due in 2008                          |   |   | 20,000     |   |   |   |   |   |
|                                                           |   | $      | 18,878,080 |   |   | $      | 12,720,558 |   |

| Year  |                                                                                                                                                                                                                                                                                                                                                                                  |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2008  | $                                                                                                         20,000  |
| 2009  | 16,268,080                                                                                                                                                                                                                                                                                                                                                                            |
| 2010  | 2,590,000                                                                                                                                                                                                                                                                                                                                                                             |
| Total | $                                                                                                   18,878,080                                       |

----

| 5. | REALESTATEANDWATER                ASSETS: |
|----|-------------------------------------------|

|                                                                                                                                                          |   | 2007   |             |   | 2006   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------|--------|--------|--------|
|                                                                                                                                                          |   |   |             |   |   |   |
| Real                  estate                                                                                                                                  |   | $      | 53,869,524       |   |   | $      | 32,942,146 |   |
| Real                estate improvements, net of accumulated amortization of $4.8 million                in                2007 and $3.9 million in 2006  |   |   |  10,434,867 |   |   |   |  10,951,964 |   |
| Water                  and water rights (net of accumulated amortization of $931,000 in                  2007 and                  $829,000 in 2006)          |   |   | 48,523,815       |   |   |   | 29,934,827 |   |
| Pipeline                  project costs                                                                                                                       |   |   | 87,777,586       |   |   |   | 28,709,922 |   |
|                                                                                                                                                          |   | $      | 200,605,792      |   |   | $      | 102,538,859 |   |

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

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

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

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

----

| 6. | NOTESANDOTHER                RECEIVABLES: |
|----|-------------------------------------------|

|                                             |   | 2007   |       |   | 2006   |   |
|--------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Notes                  receivable                |   | $      | 15,356,897 |   |   | $      | 15,308,054 |   |
| Interest                  receivable             |   |   | 1,530,993  |   |   |   | 1,485,536 |   |
| Other                  receivables               |   |   | 263,175    |   |   |   | 662,901 |   |
|                                             |   |   | 17,151,065 |   |   |   | 17,456,491 |   |
| Allowance                  for doubtful accounts |   |   |       |   |   |   | (278,664 | ) |
|                                             |   | $      | 17,151,065 |   |   | $      | 17,177,827 |   |

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

|                                                                          |   | 2007   |       |   | 2006   |    |
|-------------------------------------------------------------------------------|--------|--------|------------|--------|--------|---------|
| Deferred                tax assets:                                           |   |   |       |   |   |    |
| Deferred                  compensation                                        |   | $      | 16,163,570 |   |   | $  | 15,268,524 |   |
| Basis                  difference on securities                               |   |   | 4,977,947  |   |   |    | 5,186,609 |   |
| Impairment                  charges                                           |   |   | 5,342,519  |   |   |    | 4,673,146 |   |
| Loss                  on partnership operations                               |   |   | 2,505,795  |   |   |    |   |   |
| Employee                  benefits, including stock-based compensation   |   |   | 2,619,085  |   |   |    | 2,083,723 |   |
| Other                                                                         |   |   | 8,627,357  |   |   |    | 6,250,772 |   |
| Total                  deferred tax assets                                    |   |   | 40,236,273 |   |   |    | 33,462,774 |   |
| Deferred                  tax liabilities:                                    |   |   |       |   |   |    |   |   |
| Unrealized                  appreciation on securities                        |   |   | 43,960,820 |   |   |    | 36,281,111 |   |
| Revaluation                  of real estate and water assets                  |   |   | 4,872,032  |   |   |    | 4,902,089 |   |
| Foreign                  receivables                                          |   |   | 2,392,991  |   |   |    | 1,694,970 |   |
| Installment                  land sales                                       |   |   | 4,415,828  |   |   |    | 7,347,213 |   |
| Other                                                                         |   |   | 2,269,763  |   |   |    | 1,190,307 |   |
| Total                  deferred tax liabilities      |   |   | 57,911,435 |   |   |    | 51,415,690 |   |
| Net                  deferred income tax liability                            |   | $      | 17,675,162 |   |   | $       | 17,952,916 |   |

|                           |   | 2007   |      |   | 2006   |   |       | 2005   |   |
|--------------------------------|--------|--------|-----------|--------|--------|--------|------------|--------|--------|
| United                  States |   | $      | 2,110,723 |   |   | $      | 40,711,997 |   |   | $ | 39,528,714 |   |
| Foreign                        |   |   | (97,058   | )      |   |   | 10,154,749 |   |   |   | 796,692 |   |
| Total                          |   | $      | 2,013,665 |   |   | $      | 50,866,746 |   |   | $ | 40,325,406 |   |

----

|                                             |   | 2007   |       |   | 2006   |   |       | 2005   |   |
|--------------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
| Current                tax expense (benefit):    |   |   |       |   |   |   |       |   |   |
| United                  States Federal and state |   | $      | 10,407,829 |   |   | $      | 14,397,082 |   |   | $ | 25,203,660 |   |
| Foreign                                          |   |   | (280,117   | )      |   |   | 706,890    |   |   |   | 73,107 |   |
|                                             |   |   | 10,127,712 |   |   |   | 15,103,972 |   |   |   | 25,276,767 |   |
| Deferred                  tax expense (benefit): |   |   |       |   |   |   |       |   |   |   |   |   |
| United                  States Federal and state |   |   | (6,591,909 | )      |   |   | 4,168,822  |   |   |   | (6,715,681 | )  |
| Foreign                                          |   |   | (104       | )      |   |   | 117,580    |   |   |   | 33,537 |   |
|                                             |   |   | (6,592,013 | )      |   |   | 4,286,402  |   |   |   | (6,682,144 | )  |
| Total                  income tax provision      |   | $      | 3,535,699  |   |   | $      | 19,390,374 |   |   | $ | 18,594,623 |   |

|                                                                      |   | 2007   |          |   | 2006   |   |       | 2005   |   |
|---------------------------------------------------------------------------|--------|--------|---------------|--------|--------|--------|------------|--------|--------|
| Federal                  income tax provision (benefit) at statutory rate |   | $      | 704,783       |   |   | $      | 17,803,361 |   |   | $ | 14,113,892 |   |
| Change                  in valuation allowance                            |   |   |          |   |   |   | (1,281,273 | )      |   |   | 698,195 |   |
| State                  taxes, net of federal benefit                      |   |   | 383,379       |   |   |   | (23,658    | )      |   |   | 3,318,795 |   |
| Management                  compensation                                  |   |   | 790,125       |   |   |   | 1,533,445  |   |   |   | 2,149,534 |   |
| Interest                  expense                                         |   |   | 350,526       |   |   |   | (157,660   | )      |   |   |   |   |
| Losses              from entities not included in return                  |   |   | 455,426  |   |   |   |       |   |   |   |   |   |
| Write                  off of deferred tax assets                         |   |   | 616,224       |   |   |   | 504,389    |   |   |   |   |   |
| Foreign                  rate differences                                 |   |   | 314,299       |   |   |   |       |   |   |   | (216,626 | ) |
| Rate                  changes                                             |   |   |          |   |   |   | (212,935   | )      |   |   | (470,424 | ) |
| Permanent                  differences                                    |   |   | (79,063       | )      |   |   | 1,224,705  |   |   |   | (998,743 | ) |
| Total                  income tax provision                               |   | $      | 3,535,699     |   |   | $      | 19,390,374 |   |   | $ | 18,594,623 |   |

| Balance                at January 1, 2007   |   | $      | 3,277,654 |   |
|---------------------------------------------|--------|--------|-----------|--------|
| Other                increases or decreases |   |   | -         |   |
| Balance                at December 31, 2007 |   | $      | 3,277,654 |   |

----

| 8. | PROPERTY                AND EQUIPMENT: |
|----|----------------------------------------|

|                                                      |   | 2007   |       |   | 2006   |   |
|-----------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Office                  furniture, fixtures and equipment |   | $      | 3,748,193  |   |   | $      | 2,725,386 |   |
| Building                  and leasehold improvements      |   |   | 254,131    |   |   |   | 437,132 |   |
|                                                      |   |   | 4,002,324  |   |   |   | 3,162,518 |   |
| Accumulated                  depreciation                 |   |   | (2,789,930 | )      |   |   | (2,643,954 | ) |
| Property                  and equipment, net              |   | $      | 1,212,394  |   |   | $      | 518,564 |   |

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

----

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

|                                                                      | 2007   |   | 2006       |   |
|---------------------------------------------------------------------------|--------|--------|------------|--------|
| Estimated                reinsurance recoverable on:                      |   |   |       |   |
| Unpaid                  losses and loss adjustment expense                |   | $      | 16,653,254 |   |   | $ | 16,972,280 |   |
| Reinsurance                  recoverable on paid losses and loss expenses |   |   | 234,699    |   |   |   | 317,759 |   |
| Reinsurance                  receivables                                  |   | $      | 16,887,953 |   |   | $ | 17,290,039 |   |

|                                                 |   | Reported |      |   | Unreported |   |      | Reinsurer |   |
|------------------------------------------------------|--------|----------|-----------|--------|------------|--------|-----------|-----------|--------|
|                                                 |   | Claims   |      |   | Claims     |   |      | Balances  |   |
| General                  Reinsurance (A++)           |   | $        | 7,000,751 |   |       | $      | 9,229,680 |      |   | $ | 16,230,431 |   |
| Odessey                  Reinsurance (A)             |   |     |      |   |       |   | 32,683    |      |   |   | 32,683 |   |
| National                  Reinsurance Company (NR-3) |   |     | 61,712    |   |       |   |      |      |   |   | 61,712 |   |
| Medical                  Reinsurance (A-)            |   |     |      |   |       |   | 50,000    |      |   |   | 50,000 |   |
| Swiss                  Reinsurance America Corp (A+) |   |     | 48,351    |   |       |   | 161,559   |      |   |   | 209,910 |   |
| All                  others                          |   |     | 101,810   |   |       |   | 201,407   |      |   |   | 303,217 |   |
|                                                 |   | $        | 7,212,624 |   |       | $      | 9,675,329 |      |   | $ | 16,887,953 |   |

|    |   | 2007   |       |   | 2006   |   |       | 2005 |   |
|---------|--------|--------|------------|--------|--------|--------|------------|------|--------|
| Direct  |   | $      | (2,323,098 | )      |   | $      | (700,818   | )    |   | $ | (2,092,123 | ) |
| Assumed |   |   |       |   |   |   | (2,927     | )    |   |   | 176,880 |   |
| Ceded   |   |   | (1,277,993 | )      |   |   | (2,520,656 | )    |   |   | (1,749,589 | ) |
|    |   | $      | (3,601,091 | )      |   | $      | (3,224,401 | )    |   | $ | (3,664,832 | ) |

----

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

|                                                                                       |   | 2007   |        |   | 2006   |   |        | 2005   |   |
|--------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|-------------|--------|--------|
| Balance                  at January 1                                                      |   | $      | 41,083,301  |   |   | $      | 46,646,906  |   |   | $ | 55,994,375 |   |
| Less                  reinsurance recoverable                                              |   |   | (16,972,280 | )      |   |   | (15,858,000 | )      |   |   | (17,302,699 | ) |
| Net                  balance at January 1                                                  |   |   | 24,111,021  |   |   |   | 30,788,906  |   |   |   | 38,691,676 |   |
| Incurred                  loss and loss adjustment recovery for prior accident year claims |   |   | (3,601,091  | )      |   |   | (3,224,401  | )      |   |   | (3,664,832 | ) |
| Payments                  for claims occurring during                                      |   |   |        |   |   |   |        |   |   |   |   |   |
| prior                  accident years                                                      |   |   | (4,787,166  | )      |   |   | (3,453,484  | )      |   |   | (4,237,938 | ) |
| Net                  change for the year                                                   |   |   | (8,388,257  | )      |   |   | (6,677,885  | )      |   |   | (7,902,770 | ) |
| Net                  balance at December 31                                                |   |   | 15,722,764  |   |   |   | 24,111,021  |   |   |   | 30,788,906 |   |
| Plus                  reinsurance recoverable                                              |   |   | 16,653,254  |   |   |   | 16,972,280  |   |   |   | 15,858,000 |   |
| Balance                  at December 31                                                    |   | $      | 32,376,018  |   |   | $      | 41,083,301  |   |   | $ | 46,646,906 |   |

| 12. | EMPLOYEE                BENEFITS, COMPENSATION                AND INCENTIVE                PLAN: |
|-----|--------------------------------------------------------------------------------------------------|

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

----

| 14. | COMMITMENTSANDCONTINGENCIES: |
|-----|------------------------------|

| Year       |                                                |
|------------|-----------------------------------------------------|
| 2008       |  $                      750,415 |
| 2009       | 487,179                                             |
| 2010       | 395,195                                             |
| 2011       | 211,121                                             |
| 2012       | 216,821                                             |
| Thereafter | 2,784,962                                           |
| Total      | $                   4,845,693                  |

----

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

----

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

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

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

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

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

|                                                  |   | 2007        |       |   | 2006   |   |       | 2005   |   |
|-------------------------------------------------------|--------|-------------|------------|--------|--------|--------|------------|--------|--------|
| Physicians                Insurance Company of Ohio : |   | (Unaudited) |       |   |   |   |       |   |   |
| Policyholders'                  surplus               |   | $           | 80,257,090 |   |   | $      | 68,929,902 |   |   | $ | 57,409,969 |   |
| Statutory                  net income                 |   | $           | 3,795,340  |   |   | $      | 7,173,897  |   |   | $ | 6,514,608 |   |
| Citation                  Insurance Company:          |   |        |       |   |   |   |       |   |   |   |   |   |
| Policyholders'                  surplus               |   | $           | 25,143,218 |   |   | $      | 26,383,195 |   |   | $ | 25,401,061 |   |
| Statutory                  net income                 |   | $           | 2,858,624  |   |   | $      | 3,502,998  |   |   | $ | 1,655,790 |   |

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

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

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

----

|                                                                     |   |                       |       | Water                Resources          |   | Insurance                    |   | Business                        |        |         |   |         |   |
|--------------------------------------------------------------------------|--------|----------------------------|------------|-----------------------------------------|--------|------------------------------|--------|---------------------------------|-------------|--------------|--------|--------------|--------|
|                                                                     |   | Real                Estate |       | and                Water                |   | Operations                in |   | Acquisitions                and |        | Discontinued |   |         |   |
|                                                                     |   | Operations                 |       | Storage                Operations  |   | Run                Off       |   | Finance                         |        | Operations   |   | Consolidated |   |
| 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 |   |
| Interest                  expense                                        |   |                       |       |                                    |   |                         |   |                            |        |         |   |         |   |   |   |   |   |   |   |
| Depreciation                  and amortization                           |   |                       | 18,364     |                                    |   | 1,042,388                    |   |                            | 1,598       |         |   | 43,677       |   |   |   |   |   | 1,106,027 |   |
| Income                  (loss) before income taxes and minority interest |   |                       | 8,108,724  |                                    |   | (5,283,264                   | )      |                            | 9,779,300   |         |   | (10,591,095) |   |   |   |   |   | 2,013,665 |   |
| Total                  assets                                            |   |                       | 83,750,531 |                                    |   | 231,863,512                  |   |                            | 221,348,861 |         |   | 139,379,376  |   |   |   |   |   | 676,342,280 |   |
| Capital                  expenditure                                     |   |                       | 10,370     |                                    |   | 59,654,440                   |   |                            |        |         |   | 301,481      |   |   |   |   |   | 59,966,291 |   |
|                                                                     |   |                       |       |                                    |   |                         |   |                            |        |         |   |         |   |   |   |   |   |   |   |
| 2006                                                                     |   |                       |       |                                    |   |                         |   |                            |        |         |   |         |   |   |   |   |   |   |   |
| Total                  revenues                                          |   | $                          | 41,405,577 |                                    | $      | 6,181,616                    |   | $                               | 13,277,532  |         | $      | 21,858,519   |   |   |   |   | $ | 82,723,244 |   |
| Net                  investment income                                   |   |                       | 1,981,172  |                                    |   | 2,805,107                    |   |                            | 3,158,955   |         |   | 5,610,958    |   |   |   |   |   | 13,556,192 |   |
| Interest                  expense                                        |   |                       |       |                                    |   |                         |   |                            |        |         |   |         |   |   |   |   |   |   |   |
| Depreciation                  and amortization                           |   |                       | 54,223     |                                    |   | 1,084,404                    |   |                            | 7,467       |         |   | 76,257       |   |   |   |   |   | 1,222,351 |   |
| Income                  (loss) before income taxes and minority interest |   |                       | 30,499,188 |                                    |   | (2,451,422)                  |   |                            | 15,980,096  |         |   | 6,838,884    |   |   |   |   |   | 50,866,746 |   |
| Total                  assets                                            |   |                       | 73,266,068 |                                    |   | 146,115,727                  |   |                            | 202,356,668 |         |   | 127,304,476  |   |   |   |   |   | 549,042,939 |   |
| Capital                  expenditure                                     |   |                       | 79,938     |                                    |   | 30,117,492                   |   |                            |        |         |   | 27,337       |   |   |   |   |   | 30,224,767 |   |
|                                                                     |   |                       |       |                                    |   |                         |   |                            |        |         |   |         |   |   |   |   |   |   |   |
| 2005                                                                     |   |                       |       |                                    |   |                         |   |                            |        |         |   |         |   |   |   |   |   |   |   |
| Total                  revenues                                          |   | $                          | 21,811,469 |                                    | $      | 106,448,584                  |   | $                               | 8,108,639   |         | $      | 5,743,002    |   |   |   |   | $ | 142,111,694 |   |
| Net                  investment income                                   |   |                       | 1,010,194  |                                    |   | 1,177,078                    |   |                            | 3,051,278   |         |   | 2,956,623    |   |   |   |   |   | 8,195,173 |   |
| Interest                  expense                                        |   |                       |       |                                    |   | 269,954                      |   |                            |        |         |   | 391,360      |   |   |   |   |   | 661,314 |   |
| Depreciation                  and amortization                           |   |                       | 81,228     |                                    |   | 1,172,974                    |   |                            | 11,276      |         |   | 78,893       |   |   |   |   |   | 1,344,371 |   |
| Income                  (loss) before income taxes and minority interest |   |                       | 12,038,040 |                                    |   | 56,211,819                   |   |                            | 10,539,533  |         |   | (38,463,986  | )      |   |   |   |   | 40,325,406 |   |
| Total                  assets                                            |   |                       | 66,513,641 |                                    |   | 86,353,051                   |   |                            | 187,112,896 |         |   | 97,234,516   |   | $ | 4,615,518 |   |   | 441,829,622 |   |
| Capital                  expenditure                                     |   |                       | 5,947      |                                    |   | 4,658,969                    |   |                            |        |         |   | 122,753      |   |   |   |   |   | 4,787,669 |   |

----

|                                                              |   | United |        |   |   |   |        |         |   |
|-------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|-------------|--------------|--------|
|                                                              |   | States |        |   | Europe |   |        | Consolidated |   |
| 2007                                                              |   |   |        |   |   |   |        |         |   |
| Total                  revenues                                   |   | $      | 32,341,826  |   |   | $      | 1,586,922   |         |   | $ | 33,928,748 |   |
| Net                  investment income                            |   |   | 15,493,618  |   |   |   | 1,546,182   |         |   |   | 17,039,800 |   |
| Interest                  expense                                 |   |   |        |   |   |   |        |         |   |   |  - |   |
| Depreciation                  and amortization                    |   |   | 1,106,027   |   |   |   |        |         |   |   | 1,106,027 |   |
| Income                  before income taxes and minority interest |   |   | 1,876,937   |   |   |   | 136,728     |         |   |   | 2,013,665 |   |
| Total                  assets                                     |   |   | 602,778,894 |   |   |   | 73,563,386  |         |   |   | 676,342,280 |   |
| Capital                  expenditure                              |   |   | 59,966,291  |   |   |   |        |         |   |   | 59,966,291 |   |
|                                                              |   |   |        |   |   |   |        |         |   |   |   |   |
| 2006                                                              |   |   |        |   |   |   |        |         |   |   |   |   |
| Total                  revenues                                   |   | $      | 69,553,292  |   |   | $      | 13,169,952  |         |   | $ | 82,723,244 |   |
| Net                  investment income                            |   |   | 11,858,886  |   |   |   | 1,697,306   |         |   |   | 13,556,192 |   |
| Interest                  expense                                 |   |   |        |   |   |   |        |         |   |   | - |   |
| Depreciation                  and amortization                    |   |   | 1,222,351   |   |   |   |        |         |   |   | 1,222,351 |   |
| Income                  before income taxes and minority interest |   |   | 40,573,284  |   |   |   | 10,293,462  |         |   |   | 50,866,746 |   |
| Total                  assets                                     |   |   | 442,694,654 |   |   |   | 106,348,285 |         |   |   | 549,042,939 |   |
| Capital                  expenditure                              |   |   | 30,224,767  |   |   |   |        |         |   |   | 30,224,767 |   |
|                                                              |   |   |        |   |   |   |        |         |   |   |   |   |
| 2005                                                              |   |   |        |   |   |   |        |         |   |   |   |   |
| Total                  revenues                                   |   | $      | 138,895,359 |   |   | $      | 3,216,335   |         |   | $ | 142,111,694 |   |
| Net                  investment income                            |   |   | 6,762,721   |   |   |   | 1,432,452   |         |   |   | 8,195,173 |   |
| Interest                  expense                                 |   |   | 269,954     |   |   |   | 391,360     |         |   |   | 661,314 |   |
| Depreciation                  and amortization                    |   |   | 1,344,371   |   |   |   |        |         |   |   | 1,344,371 |   |
| Income                  before income taxes and minority interest |   |   | 39,529,439  |   |   |   | 795,967     |         |   |   | 40,325,406 |   |
| Total                  assets                                     |   |   | 356,663,916 |   |   |   | 85,165,706  |         |   |   | 441,829,622 |   |
| Capital                  expenditure                              |   |   | 4,787,669   |   |   |   |        |         |   |   | 4,787,669 |   |

| 18. | DISCLOSURES                ABOUT FAIR VALUE                OF FINANCIAL                INSTRUMENTS: |
|-----|-----------------------------------------------------------------------------------------------------|

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

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

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

|                                            | December                31, 2007 |   | December                31, 2006 |   |
|--------------------------------------------|----------------------------------|--------|----------------------------------|--------|
|                                       | Carrying                         |   | Estimated                        |   | Carrying |   | Estimated |   |
|                                       | Amount                           |   | Fair                Value        |   | Amount |   | Fair                Value |   |
| Financial                assets:           |                             |   |                             |   |   |   |   |   |
| Fixed                  maturities          |                             | $      | 105,780,499                      |   |   | $ | 105,780,499 |   |   | $ | 63,483,271 |   |   | $ | 63,483,271 |   |
| Equity                  securities         |                             |   | 259,743,145                      |   |   |   | 259,743,145 |   |   |   | 208,478,670 |   |   |   | 208,478,670 |   |
| Cash                  and cash equivalents |                             |   | 70,791,025                       |   |   |   | 70,791,025 |   |   |   | 136,621,578 |   |   |   | 136,621,578 |   |
| Financial                  liabilities:    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowings                                 |                             |   | 18,878,080                       |   |   |   | 18,878,080 |   |   |   | 12,720,558 |   |   |   | 12,720,558 |   |

----

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

| ITEM                9A. | CONTROLSANDPROCEDURES |
|-------------------------|-----------------------|

----

----

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

| ITEM                10. | DIRECTORS,                EXECUTIVE OFFICERS                AND CORPORATE                GOVERNANCE |
|-------------------------|-----------------------------------------------------------------------------------------------------|

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

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

| ITEM                13. | CERTAIN                RELATIONSHIPS                AND RELATED                TRANSACTIONS,                AND DIRECTORINDEPENDENCE |
|-------------------------|--------------------------------------------------------------------------------------------------------------------------------------|

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

----

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

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

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

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

| Exhibit                Number |   | Description                                                                                                                                                                                            |
|-------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3(i)                          |   | Amended                  and Restated Articles of Incorporation of PICO.(1)                                                                                                                            |
| 3(ii)                         |   | Amended                  and Restated By-laws of PICO. (2)                                                                                                                                             |
| 4.1                           |   | Form                  of Securities Purchase Agreement between PICO Holdings, Inc. and                  the                  Purchasers. (3)                                                           |
| 4.3                           |   | Form                  S-3 Registration Statement under the Securities Act of 1933. (4)                                                                                                                 |
|  10.1                    |   | PICO                  Holdings, Inc. Long-Term Incentive Plan. (5)                                                                                                                                     |
|  10.4                    |   | Bonus                  Plan of Dorothy A. Timian-Palmer. (6) (12)                                                                                                                                      |
|  10.5                    |   | Bonus                  Plan of Stephen D. Hartman. (6) (12)                                                                                                                                            |
| 10.7                          |   | Employment                  Agreement of Ronald Langley. (7) (12)                                                                                                                                      |
|  10.15                   |   | Employment                  Agreement of John R. Hart. (8) (12)                                                                                                                                        |
|  10.17                   |   | Pyramid                    Lake Paiute Tribe Settlement Agreement with Fish Springs Ranch,                  LLC. (9)                                                                              |
|  10.18                   |   | Infrastructure                  Dediction Agreement between Fish Springs Ranch, LLC and Washoe                  County,                  Nevada.                  (10)                                 |
| 21.1                          |   | Subsidiaries                  of PICO. (11)                                                                                                                                                            |
| 23.1                          |   | Consent                  of Independent Registered Public Accounting Firm - Deloitte & Touche                  LLP.                                                                                |
| 31.1                          |   | Certification                  of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)                  as adopted                  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2                          |   | Certification                  of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)                  as adopted                  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1                          |   | Certification                  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Section                  906                  of the Sarbanes-Oxley Act of 2002).                        |
| 32.2                          |   | Certification                  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section                  906                  of the Sarbanes-Oxley Act of 2002).                        |

|   | (1) | Incorporated                by reference to                exhibit of same number filed with Form 10-Q dated November 7,                2007. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Incorporated                by reference to Form 8-K filed with the SEC on November 5, 2007. |
|--------|-----|----------------------------------------------------------------------------------------------|

|   | (3) | Incorporated                by reference to Form 8-K filed with the SEC on March 2, 2007. |
|--------|-----|-------------------------------------------------------------------------------------------|

|   | (4) | Incorporated                by reference to Form                S-3 filed with SEC on November 20,                2007. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Incorporated                by reference to                Proxy Statement for Special Meeting of Shareholders on December 8,                2005, dated November                8, 2005 and filed                with the SEC on                November 8,                2005. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | Incorporated                by reference to Form                8-K filed with the SEC on February 25,                2005. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------|

|   | (7) | Incorporated                by reference to                exhibit of same number filed with Form 10-Q for the quarterly period                ended                September                30,                2005. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (8) | Incorporated                by reference to Form                8-K filed with the SEC on May 9, 2007. |
|--------|-----|--------------------------------------------------------------------------------------------------------|

|   | (9) | Incorporated                by reference to Form                8-K filed with the SEC on June 5, 2007. |
|--------|-----|---------------------------------------------------------------------------------------------------------|

|   | (10) | Incorporated                by reference to exhibit of same number filed with Form 10-Q for the                quarterly period ended September 30, 2007. |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|        | (11)       | Incorporated                  by reference to exhibit of same number filed with Form 10-K for                  the year                  ended December 31, 2007. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (12)  | Indicates                arrangement or compensatory plan or arrangement required to be identified                pursuant to Item 15(a).                    |

----

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

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

----