##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington D.C.
    20549
      Form 10-Q
   þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarter ended
    September 30, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   Commission File Number 1-14094
  Meadowbrook Insurance Group,
    Inc. (Exact name of
    Registrant as specified in its charter)
   Michigan(State of
    Incorporation)

38-2626206(IRS Employer
    Identification No.)    26255
    American Drive,
 Southfield, Michigan 48034
 (Address, zip code of principal
    executive offices)
   (248) 358-1100
 (Registrants telephone
    number, including area code)
   þ o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ




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##### 



TABLE OF
    CONTENTS
  PagePART I  FINANCIAL
    INFORMATIONITEM 1  FINANCIAL STATEMENTSConsolidated Statements of Income (unaudited)


2-3Consolidated Statements of Comprehensive Income
    (unaudited)


4Consolidated Balance Sheets (unaudited)


5Consolidated Statements of Cash Flows
    (unaudited)


6Notes to Consolidated Financial Statements
    (unaudited)


7-21ITEM 2  MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS


22-40ITEM 3  QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT MARKET RISK


40-41ITEM 4  CONTROLS AND
    PROCEDURES


41-42PART II  OTHER
    INFORMATIONITEM 1  LEGAL PROCEEDINGS


43ITEM 1A  RISK FACTORS


43ITEM 2  UNREGISTERED SALES OF
    EQUITY SECURITIES AND USE OF PROCEEDS


43ITEM 6  EXHIBITS


43SIGNATURES


44Certification of Robert S. Cubbin, Chief Executive Officer pursuant to Rule 13a-14(a)Certification of Karen M. Spaun, Senior Vice President and Chief Financial Offcer pursuant to Rule 13a-14(a)Certification of Robert S. Cubbin, Chief Executive Officer pursuant to Section 906Certification of Karen M. Spaun, Senior Vice President and Chief Financial Offcer pursuant to Section 906   1




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##### Table of Contents



PART 1 
    FINANCIAL INFORMATION
  ITEM 1FINANCIAL
    STATEMENTS
  MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED STATEMENTS OF INCOME
 For the
    Nine Months Ended September 30,
  2007


2006(Unaudited)(In thousands, except share data)RevenuesPremiums earnedGross

$
251,605


$
244,557Ceded


(51,873
)


(53,231
)Net earned premiums


199,732



191,326Net commissions and fees


35,613



31,599Net investment income


19,173



16,203Net realized (losses) gains


(186
)


46Total revenues


254,332



239,174ExpensesLosses and loss adjustment expenses


144,880



160,066Reinsurance recoveries


(31,512
)


(49,748
)Net losses and loss adjustment expenses


113,368



110,318Salaries and employee benefits


42,181



41,397Policy acquisition and other underwriting expenses


39,739



37,663Other administrative expenses


23,882



21,694Amortization expense


1,309



448Interest expense


4,631



4,445Total expenses


225,110



215,965Income before taxes and equity earnings


29,222



23,209Federal and state income tax expense


8,829



7,215Equity earnings of affiliates


271



99Net income

$
20,664


$
16,093Earnings Per ShareBasic

$
0.65


$
0.56Diluted

$
0.65


$
0.55Weighted average number of common sharesBasic


31,666,032



28,894,053Diluted


31,761,244



29,509,892    2




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED STATEMENTS OF INCOME
 For the
    Three Months Ended September 30,
  2007


2006(Unaudited)(In thousands, except share data)RevenuesPremiums earnedGross

$
84,791


$
81,164Ceded


(17,454
)


(17,476
)Net earned premiums


67,337



63,688Net commissions and fees


13,319



9,612Net investment income


6,788



5,584Net realized (losses) gains


(200
)


28Total revenues


87,244



78,912ExpensesLosses and loss adjustment expenses


43,498



52,247Reinsurance recoveries


(6,483
)


(16,118
)Net losses and loss adjustment expenses


37,015



36,129Salaries and employee benefits


15,750



14,183Policy acquisition and other underwriting expenses


12,927



13,059Other administrative expenses


8,890



6,767Amortization expense


622



141Interest expense


1,476



1,558Total expenses


76,680



71,837Income before taxes and equity earnings


10,564



7,075Federal and state income tax expense


3,219



2,056Equity earnings of affiliates


210



74Net income

$
7,555


$
5,093Earnings Per ShareBasic

$
0.21


$
0.18Diluted

$
0.21


$
0.17Weighted average number of common sharesBasic


35,293,796



28,884,578Diluted


35,378,119



29,498,596    3




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MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 For the
    Nine Months Ended September 30,
  2007


2006(Unaudited)(In thousands)Net income

$
20,664


$
16,093Other comprehensive income, net of tax:Unrealized gains on securities


344



379Net deferred derivative (loss) gain  hedging activity


(176
)


109Less: reclassification adjustment for gains included in net
    income


19



19Other comprehensive income, net of tax


187



507Comprehensive income

$
20,851


$
16,600   MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME
 For the
    Three Months Ended September 30,
  2007


2006(Unaudited)(In thousands)Net income

$
7,555


$
5,093Other comprehensive income, net of tax:Unrealized gains on securities


4,520



5,624Net deferred derivative losses  hedging activity


(289
)


(322
)Less: reclassification adjustment for losses included in net
    income


(2
)


Other comprehensive income, net of tax


4,229



5,302Comprehensive income

$
11,784


$
10,395    4




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED BALANCE SHEETS
  September 30,


December 31,2007


2006(Unaudited)(In thousands, except share data)ASSETSInvestmentsDebt securities available for sale, at fair value (amortized
    cost of $564,998 and $486,213)

$
564,070


$
484,724Cash and cash equivalents


49,792



42,876Accrued investment income


6,539



5,884Premiums and agent balances receivable, net


102,590



85,578Reinsurance recoverable on:Paid losses


2,665



4,257Unpaid losses


195,313



198,422Prepaid reinsurance premiums


15,941



20,425Deferred policy acquisition costs


27,787



27,902Deferred federal income taxes


16,688



15,732Goodwill


43,497



31,502Other assets


59,012



51,698Total assets

$
1,083,894


$
969,000LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesLosses and loss adjustment expenses

$
528,985


$
501,077Unearned premiums


151,203



144,575Debt






7,000Debentures


55,930



55,930Accounts payable and accrued expenses


24,810



25,384Reinsurance funds held and balances payable


12,805



15,124Payable to insurance companies


5,832



5,442Other liabilities


14,101



12,775Total liabilities


793,666



767,307Shareholders EquityCommon stock, $0.01 stated value; authorized
    75,000,000 shares; 36,980,070 and 29,107,818 shares
    issued and outstanding


370



291Additional paid-in capital


194,431



126,828Retained earnings


96,947



76,282Note receivable from officer


(870
)


(871
)Accumulated other comprehensive loss


(650
)


(837
)Total shareholders equity


290,228



201,693Total liabilities and shareholders equity

$
1,083,894


$
969,000    5




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the
    Nine Months Ended September 30,
  2007


2006(Unaudited)(In thousands)Cash Flows From Operating ActivitiesNet income

$
20,664


$
16,093Adjustments to reconcile net income to net cash provided by
    operating activities:Amortization of other intangible assets


1,309



448Amortization of deferred debenture issuance costs


236



177Depreciation of furniture, equipment, and building


2,280



1,761Net accretion of discount and premiums on bonds


2,031



1,947Loss on sale of investments, net


30



30Gain on sale of fixed assets


(66
)


(66
)Stock-based employee compensation


2



118Incremental tax benefits from stock options exercised


(656
)


(1,386
)Long-term incentive plan expense


596



704Deferred income tax expense


(1,058
)


540Changes in operating assets and liabilities:Decrease (increase) in:Premiums and agent balances receivable


(13,138
)


(21,753
)Reinsurance recoverable on paid and unpaid losses


4,701



1,160Prepaid reinsurance premiums


4,484



1,623Deferred policy acquisition costs


115



(747
)Other assets


686



(1,532
)Increase (decrease) in:Losses and loss adjustment expenses


27,907



34,963Unearned premiums


6,628



4,541Payable to insurance companies


390



(2,838
)Reinsurance funds held and balances payable


(2,318
)


5,186Other liabilities


(2,599
)


2,008Total adjustments


31,560



26,884Net cash provided by operating activities


52,224



42,977Cash Flows From Investing ActivitiesPurchase of debt securities available for sale


(293,932
)


(156,015
)Proceeds from sales and maturities of debt securities available
    for sale


213,633



80,182Capital expenditures


(2,289
)


(3,790
)Purchase of books of business


(75
)


(133
)Acquisition of U.S Specialty Underwriters, Inc.


(12,644
)


Other investing activities


(110
)


300Net cash used in investing activities


(95,417
)


(79,456
)Cash Flows From Financing ActivitiesProceeds from lines of credit


19,025



12,578Payment of lines of credit


(26,025
)


(9,878
)Book overdraft


218



23Stock options exercised


(315
)


(716
)Cash payment for payroll taxes associated with long-term
    incentive plan net stock issuance


(1,841
)


Incremental tax benefits from stock options exercised


656



1,386Net proceeds received from public equity offering


58,585



Other financing activities


(194
)


(207
)Net cash provided by financing activities


50,109



3,186Net increase (decrease) in cash and cash equivalents


6,916



(33,293
)Cash and cash equivalents, beginning of period


42,876



58,038Cash and cash equivalents, end of period

$
49,792


$
24,745Supplemental Disclosure of Non-Cash Investing and Financing
    Activities:Common stock portion of purchase price for acquisition of U.S.
    Specialty Underwriters, Inc.

$
10,000


$
    6




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MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  NOTE 1
    
    Summary of Significant Accounting Policies  Basis
    of Presentation and Management Representation
        Form 10-K,
    Segment
    Information Segment Information
  Revenue
    Recognition
   7




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MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                  Earnings
    Per Share
     8




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Recent
    Accounting Pronouncements
  Fair Value
    Measurements,
  The Fair Value Option for Financial Assets and
    Financial Liabilities  Including an amendment of FASB
    Statement No. 115. instrument-by-instrument
  NOTE 2 
    Stock
    Options, Long Term Incentive Plan, and Deferred Compensation
    Plan  Stock
    Options
  Share-Based Payment, Accounting for Stock-Based Compensation 
    Transition and Disclosure  an amendment of FASB
    Statement No. 123.
     9




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MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Weighted-AverageExerciseOptions


PriceOutstanding as of December 31, 2006


391,678


$
7.38Exercised


(214,644
)

$
2.71Forfeited


(15,052
)

$
21.68Outstanding as of September 30, 2007


161,982


$
12.23Exercisable as of September 30, 2007


136,112


$
12.11     Options Outstanding


Options ExercisableWeighted-


Weighted-





Weighted-Average


Average





AverageRemaining


Exercise





ExerciseRange of Exercise Prices

Options


Life (Years)


Price


Options


Price$2.173 to $3.507


61,675



0.9


$
2.17



61,675


$
2.17$6.48


1,500



2.7


$
6.48



1,000


$
3.24$10.91 to $24.6875


98,807



1.2


$
18.60



73,437


$
23.47161,982



1.1


$
12.23



136,112


$
12.11     Long
    Term Incentive Plan
   10




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2004-2006 2004-2006
  2007-2009 2007-2009
  2004-2006 2007-2009 2004-2006 2007-2009
  Deferred
    Compensation Plan
    NOTE 3 
    Reinsurance   11




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          rent-a-captive
      September 30, 2007


December 31, 2006Non Risk


Risk





Non Risk


RiskSharing(1)


Sharing(2)


Total


Sharing(1)


Sharing(2)


TotalGross exposure

$
6,722


$
8,998


$
15,720


$
6,863


$
7,952


$
14,815Collateral or other security


(13
)


(4,849
)


(4,862
)


(170
)


(3,453
)


(3,623
)Allowance


(6,636
)


(2,982
)


(9,618
)


(6,693
)


(3,038
)


(9,731
)Net exposure

$
73


$
1,167


$
1,240


$



$
1,461


$
1,461  12




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (1)
    
    Balances related to three unaffiliated insurance companies,
    which are under regulatory liquidation or control, for which
    allowances have been established; all other admitted reinsurers
    have an A.M. Best rating of A− or better.(2)
    
    Balances related to risk-sharing partners, which have either
    captive or
    rent-a-captive
    quota-share reinsurance contracts with the Company.             13




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          NOTE 4
    
    Debt  Lines
    of Credit
          Senior
    Debentures
   14




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Junior
    Subordinated Debentures
               15




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      NOTE 5 
    Derivative
    Instruments    non-amortizing,
  non-amortizing,
     16




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    NOTE 6 
    Shareholders
    Equity        2004-2006 Stock Options, Long Term Incentive Plan, and Deferred
    Compensation Plan
      NOTE 7 
    Regulatory
    Matters and Rating Agencies   17




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            NOTE 8 
    Segment
    Information    Specialty
    Risk Management Operations
   18




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Agency
    Operations
      For the Nine MonthsEnded September 30,2007


2006RevenuesNet earned premiums

$
199,732


$
191,326Management fees


18,663



14,320Claims fees


6,788



6,746Loss control fees


1,632



1,683Reinsurance placement


603



640Investment income


18,514



15,492Net realized (losses) gains


(186
)


46Specialty risk management


245,746



230,253Agency operations


9,074



9,540Miscellaneous income(2)


659



711Intersegment revenue


(1,147
)


(1,330
)Consolidated revenue

$
254,332


$
239,174Pre-tax income:Specialty risk management

$
35,867


$
28,227Agency operations(1)


1,578



2,212Non-allocated expenses


(8,223
)


(7,230
)Consolidated pre-tax income

$
29,222


$
23,209   19




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  For the Three MonthsEnded September 30,2007


2006RevenuesNet earned premiums

$
67,337


$
63,688Management fees


8,376



4,699Claims fees


2,337



2,295Loss control fees


489



552Reinsurance placement


185



79Investment income


6,593



5,322Net realized (losses) gains


(200
)


28Specialty risk management


85,117



76,663Agency operations


2,329



2,401Miscellaneous income(2)


195



262Intersegment revenue


(397
)


(414
)Consolidated revenue

$
87,244


$
78,912Pre-tax income:Specialty risk management

$
13,700


$
9,447Agency operations(1)


(143
)


95Non-allocated expenses


(2,993
)


(2,467
)Consolidated pre-tax income

$
10,564


$
7,075     (1)
    
    The Companys agency operations include an allocation of
    corporate overhead, which includes expenses associated with
    accounting, information services, legal, and other corporate
    services. The corporate overhead allocation excludes those
    expenses specific to the holding company. For the nine months
    ended September 30, 2007 and 2006, the allocation of
    corporate overhead to the agency operations segment was
    $2.3 million and $2.6 million, respectively. For the
    three months ended September 30, 2007 and 2006, the
    allocation of corporate overhead to the agency operations
    segment was $920,000 and $842,000, respectively. These balances
    include an allocation to our Insurance & Benefit
    Consultants agency business that was previously allocated to
    specialty risk management operations. For the nine months ended
    September 30, 2006, pre-tax income for agency operations
    was overstated and specialty risk management operations was
    understated by $250,000. For the three months ended
    September 30, 2006, pre-tax income for agency operations
    was overstated and specialty risk management operations was
    understated by $102,000.(2)
    
    The miscellaneous income included in the revenue relates to
    miscellaneous interest income within the holding company.    For the Nine MonthsEnded September 30,2007


2006Holding company expenses

$
(2,283
)

$
(2,337
)Amortization


(1,309
)


(448
)Interest expense


(4,631
)


(4,445
)$
(8,223
)

$
(7,230
)  20




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  For the Three MonthsEnded September 30,2007


2006Holding company expenses

$
(895
)

$
(768
)Amortization


(622
)


(141
)Interest expense


(1,476
)


(1,558
)$
(2,993
)

$
(2,467
)   NOTE 9 
    Income
    Taxes  Accounting for Uncertainty in Income Taxes 
    an interpretation of FASB Statement No. 109
        NOTE 10 
    Commitments
    and Contingencies  Accounting for
    Contingencies,
 21




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##### Table of Contents



ITEM 2  MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS
  For the
    Periods ended September 30, 2007 and 2006
  Forward-Looking
    Statements
  This quarterly report may provide information including
    certain statements which constitute forward-looking statements
    within the meaning of Section 27A of the Securities Act of
    1933, as amended, and Section 21E of the Securities
    Exchange Act of 1934, as amended. These include statements
    regarding the intent, belief, or current expectations of
    management, including, but not limited to, those statements that
    use the words believes, expects,
    anticipates, estimates, or similar
    expressions. You are cautioned that any such forward-looking
    statements are not guarantees of future performance and involve
    a number of risks and uncertainties, and results could differ
    materially from those indicated by such forward-looking
    statements. Among the important factors that could cause actual
    results to differ materially from those indicated by such
    forward-looking statements are: the frequency and severity of
    claims; uncertainties inherent in reserve estimates;
    catastrophic events; a change in the demand for, pricing of,
    availability or collectibility of reinsurance; increased rate
    pressure on premiums; ability to obtain rate increases in
    current market conditions; investment rate of return; changes in
    and adherence to insurance regulation; actions taken by
    regulators, rating agencies or lenders; attainment of certain
    processing efficiencies; changing rates of inflation; general
    economic conditions and other risks identified in our reports
    and registration statements filed with the Securities and
    Exchange Commission. We are not under any obligation to (and
    expressly disclaim any such obligation to) update or alter our
    forward-looking statements whether as a result of new
    information, future events or otherwise.
  Description
    of Business
    Critical
    Accounting Estimates
  Form 10-K
  RESULTS
    OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND
    2006
  Executive
    Overview
   22




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##### Table of Contents



Results
    of Operations
   23




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##### Table of Contents



Specialty
    Risk Management Operations
    For the Nine Months EndedSeptember 30,2007


2006Revenue:Net earned premiums

$
199,732


$
191,326Management fees


18,663



14,320Claims fees


6,788



6,746Loss control fees


1,632



1,683Reinsurance placement


603



640Investment income


18,514



15,492Net realized (losses) gains


(186
)


46Total revenue

$
245,746


$
230,253Pre-tax incomeSpecialty risk management operations

$
35,867


$
28,227            24




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##### Table of Contents



Agency
    Operations
    For the Nine MonthsEnded September 30,2007

2006Net commission

$
9,074


$
9,540Pre-tax income(1)

$
1,578


$
2,212     (1)
    
    Our agency operations include an allocation of corporate
    overhead, which includes expenses associated with accounting,
    information services, legal, and other corporate services. The
    corporate overhead allocation excludes those expenses specific
    to the holding company. For the nine months ended
    September 30, 2007 and 2006, the allocation of corporate
    overhead to the agency operations segment was $2.3 million
    and $2.6 million, respectively, which includes an
    allocation to our Insurance & Benefit Consultants
    agency business that was 25




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##### Table of Contents



previously allocated to specialty risk management operations.
    For the nine months ended September 30, 2006, pre-tax
    income for agency operations was overstated and specialty risk
    management operations was understated by $250,000.      Other
    Items
  Reserves
    Minimum


MaximumReserve


Reserve


SelectedLine of Business

Range


Range


ReservesWorkers Compensation(1)

$
154,848


$
171,275


$
164,889Commercial Multiple Peril/General Liability


74,742



92,624



83,121Commercial Automobile


62,029



69,683



66,733Other


16,788



21,463



18,929Total Net Reserves

$
308,407


$
355,045


$
333,672     (1)
    
    Includes Residual Markets       26




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##### Table of Contents



Incurred Losses


Paid LossesReserves at




















Reserves atDecember 31,


Current


Prior


Total


Current


Prior


Total


September 30,Line of Business

2006


Year


Years


Incurred


Year


Years


Paid


2007Workers Compensation

$
137,113


$
43,539


$
(7,927
)

$
35,612


$
4,179


$
29,003


$
33,182


$
139,543Residual Markets


26,098



7,501



(2,790
)


4,711



2,590



2,873



5,463



25,346Commercial MultiplePeril/General Liability


63,056



21,450



10,308



31,758



132



11,561



11,693



83,121Commercial Automobile


54,642



33,893



1,243



35,136



6,681



16,364



23,045



66,733Other


21,746



11,367



(5,216
)


6,151



3,673



5,295



8,968



18,929Net Reserves


302,655


$
117,750


$
(4,382
)

$
113,368


$
17,255


$
65,096


$
82,351



333,672Reinsurance Recoverable


198,422



























195,313Consolidated

$
501,077


























$
528,985   Re-estimated


DevelopmentReserves at


as aReserves at


September 30,


Percentage ofDecember 31,


2007 on


Prior YearLine of Business

2006


Prior Years


ReservesWorkers Compensation

$
137,113


$
129,186



(5.8
)%Commercial Multiple Peril/General Liability


63,056



73,364



16.3
%Commercial Automobile


54,642



55,885



2.3
%Other


21,746



16,530



(24.0
)%Sub-total


276,557



274,965



(0.6
)%Residual Markets


26,098



23,308



(10.7
)%Total Net Reserves

$
302,655


$
298,273



(1.4
)%   Workers Compensation Excluding Residual
    Markets 
  Commercial Multiple Peril / General
    Liability 
  Commercial Automobile 
 27




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##### Table of Contents



Other 
  Residual Markets 
  Salary
    and Employee Benefits and Other Administrative
    Expenses
        Amortization
    Expense
    Interest
    Expense
  Liquidity and
    Capital Resources
 28




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##### Table of Contents



Income
    Taxes
    Other
    than Temporary Impairments
        September 30, 2007Less Than 12 Months


Greater Than 12 Months


TotalFair Value of





Fair Value of





Fair Value ofInvestments





Investments





Investmentswith


Gross


with


Gross


with


GrossUnrealized


Unrealized


Unrealized


Unrealized


Unrealized


UnrealizedLosses


Losses


Losses


Losses


Losses


LossesDebt Securities:Debt securities issued by U.S. government and agencies

$



$



$
12,124


$
(145
)

$
12,124


$
(145
)Obligations of states and political subdivisions


58,580



(501
)


80,317



(893
)


138,897



(1,394
)Corporate securities


11,956



(333
)


47,050



(1,020
)


59,006



(1,353
)Mortgage and asset backed securities


46,115



(368
)


60,915



(1,233
)


107,030



(1,601
)Totals

$
116,651


$
(1,202
)

$
200,406


$
(3,291
)

$
317,057


$
(4,493
)   29




---



##### Table of Contents



December 31, 2006Less Than 12 Months


Greater Than 12 Months


TotalFair Value of





Fair Value of





Fair Value ofInvestments





Investments





Investmentswith


Gross


with


Gross


with


GrossUnrealized


Unrealized


Unrealized


Unrealized


Unrealized


UnrealizedLosses


Losses


Losses


Losses


Losses


LossesDebt Securities:Debt securities issued by U.S. government and agencies

$
14,586


$
(61
)

$
27,076


$
(460
)

$
41,662


$
(521
)Obligations of states and political subdivisions


45,726



(210
)


68,958



(1,250
)


114,684



(1,460
)Corporate securities


7,646



(61
)


55,520



(1,454
)


63,166



(1,515
)Mortgage and asset backed securities


20,462



(91
)


67,495



(1,535
)


87,957



(1,626
)Totals

$
88,420


$
(423
)

$
219,049


$
(4,699
)

$
307,469


$
(5,122
)       RESULTS
    OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND
    2006
  Results
    of Operations
     30




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##### Table of Contents



Specialty
    Risk Management Operations
    For the Three MonthsEnded September 30,2007


2006Revenue:Net earned premiums

$
67,337


$
63,688Management fees


8,376



4,699Claims fees


2,337



2,295Loss control fees


489



552Reinsurance placement


185



79Investment income


6,593



5,322Net realized (losses) gains


(200
)


28Total revenue

$
85,117


$
76,663Pre-tax incomeSpecialty risk management operations

$
13,700


$
9,447              31




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##### Table of Contents



Agency
    Operations
    For the ThreeMonths Ended September 30,2007

2006Net commission

$
2,329


$
2,401Pre-tax (loss) income(1)

$
(143
)

$
95     (1)
    
    Our agency operations include an allocation of corporate
    overhead, which includes expenses associated with accounting,
    information services, legal, and other corporate services. The
    corporate overhead allocation excludes those expenses specific
    to the holding company. For the three months ended
    September 30, 2007 and 2006, the allocation of corporate
    overhead to the agency operations segment was $920,000 and
    $842,000, respectively, which includes an allocation to our
    Insurance & Benefit Consultants agency business that
    was previously allocated to specialty risk management
    operations. For the three months ended September 30, 2006,
    pre-tax income for agency operations was overstated and
    specialty risk management operations was understated by $102,000.      Other
    Items
  Reserves
   32




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##### Table of Contents



Salary
    and Employee Benefits and Other Administrative
    Expenses
        Amortization
    Expense
    Interest
    Expense
  Liquidity and Capital Resources
  Income
    Taxes
    LIQUIDITY
    AND CAPITAL RESOURCES
   33




---



##### Table of Contents



For the Nine Months


For the Three MonthsEnded September 30,


Ended September 30,2007


2006


2007


2006Net income

$
20,664


$
16,093


$
7,555


$
5,093Insurance Company Subsidiaries:Net income

$
18,267


$
14,501


$
7,196


$
4,966Adjustments to reconcile net income to net cash provided by
    operating activities


826



2,440



668



1,383Changes in operating assets and liabilities


26,334



26,292



16,602



17,596Total adjustments


27,160



28,732



17,270



18,979Net cash provided by operating activities

$
45,427


$
43,233


$
24,466


$
23,945Fee-based Subsidiaries:Net income

$
2,398


$
1,592


$
360


$
127Depreciation


2,280



1,761



755



640Amortization


1,309



448



622



141Interest


4,631



4,445



1,476



1,558Net income, excluding interest, depreciation, and amortization


10,618



8,246



3,213



2,466Adjustments to reconcile net income to net cash provided by
    operating activities


3,879



1,832



1,427



203Changes in operating assets and liabilities


520



(3,680
)


3,734



1,652Total adjustments


4,399



(1,848
)


5,161



1,855Depreciation


(2,280
)


(1,761
)


(755
)


(640
)Amortization


(1,309
)


(448
)


(622
)


(141
)Interest


(4,631
)


(4,445
)


(1,476
)


(1,558
)Net cash provided by (used in) operating activities

$
6,797


$
(256
)

$
5,521


$
1,982Consolidated total adjustments


31,559



26,884



22,431



20,834Consolidated net cash provided by operating activities

$
52,224


$
42,977


$
29,987


$
25,927        34




---



##### Table of Contents



Other
    Items
  Long-term
    Debt
    InterestYear


Year





Rate at


PrincipalYear of Issuance

Description

Callable


Due


Interest Rate Terms


09/30/07


Amount2003

Junior subordinated debentures


2008



2033



Three-month LIBOR, plus 4.05
%


9.41
%

$
10,3102004

Senior debentures


2009



2034



Three-month LIBOR, plus 4.00
%


9.56
%


13,0002004

Senior debentures


2009



2034



Three-month LIBOR, plus 4.20
%


9.70
%


12,0002005

Junior subordinated debentures


2010



2035



Three-month LIBOR, plus 3.58
%


9.27
%


20,620Total


$
55,930       Interest
    Rate Swaps
  Accounting for
    Derivative Instruments and Hedging Activities,
  non-amortizing,
  non-amortizing,
 35




---



##### Table of Contents



Revolving
    Line of Credit
          Shareholders
    Equity
       36




---



##### Table of Contents



2004-2006 Stock Options, Long Term Incentive Plan,
    and Deferred Compensation Plan
      Recent
    Acquisition
       37




---



##### Table of Contents



Adjusted
    Expense Ratio
    For the Three MonthsFor the Nine Months Ended September 30,


Ended September 30,2007


2006


2007


2006Net earned premiums

$
199,732


$
191,326


$
67,337


$
63,688Less: Consolidated net loss and LAE


113,368



110,318



37,015



36,129Intercompany claim fees


9,945



9,418



3,297



3,145Unconsolidated net loss and LAE


123,313



119,736



40,312



39,274Consolidated policy acquisition and other underwriting expenses


39,739



37,663



12,927



13,059Intercompany administrative and other underwriting fees


28,246



27,930



9,916



9,522Unconsolidated policy acquisition and other underwriting expenses


67,985



65,593



22,843



22,581Underwriting income

$
8,434


$
5,997


$
4,182


$
1,833GAAP combined ratio as reported


95.7
%


96.9
%


93.8
%


97.2
%Specialty risk management operations pre-tax income

$
35,867


$
28,227


$
13,700


$
9,447Less: Underwriting income


8,434



5,997



4,182



1,833Net investment income and capital gains


18,987



16,249



6,588



5,612Fee-based operations pre-tax income


8,446



5,981



2,930



2,002Agency operations pre-tax income


1,578



2,212



(143
)


95Total fee-for-service pre-tax income

$
10,024


$
8,193


$
2,787


$
2,097GAAP expense ratio as reported


34.0
%


34.3
%


33.9
%


35.5
%Adjustment to include pre-tax income from total fee-for-service
    income(1)


5.0
%


4.3
%


4.1
%


3.3
%GAAP expense ratio as adjusted


29.0
%


30.0
%


29.8
%


32.2
%GAAP loss and LAE ratio as reported


61.7
%


62.6
%


59.9
%


61.7
%GAAP combined ratio as adjusted


90.7
%


92.6
%


89.7
%


93.9
%Reconciliation of consolidated pre-tax income:Specialty risk management operations pre-tax income:Fee-based operations pre-tax income

$
8,446


$
5,981


$
2,930


$
2,002Underwriting income


8,434



5,997



4,182



1,833Net investment income and capital gains


18,987



16,249



6,588



5,612Total specialty risk management operations pre-tax income


35,867



28,227



13,700



9,447Agency operations pre-tax income


1,578



2,212



(143
)


95Less: Holding company expenses


2,283



2,337



895



768Interest expense


4,631



4,445



1,476



1,558Amortization expense


1,309



448



622



141Consolidated pre-tax income

$
29,222


$
23,209


$
10,564


$
7,075     (1)
    
    Adjustment to include pre-tax income from total fee-for-service
    income is calculated by dividing total fee-for-service income by
    net earned premiums. 38




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##### Table of Contents



Regulatory
    Contractual
    Obligations and Commitments
    Regulatory
    and Rating Issues
        Reinsurance
   39




---



##### Table of Contents



Convertible
    Note
    Recent
    Accounting Pronouncements
  Fair Value
    Measurements,
  The Fair Value Option for Financial Assets and
    Financial Liabilities  Including an amendment of FASB
    Statement No. 115. instrument-by-instrument
  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK       40




---



##### Table of Contents



Rates Down


Rates


Rates Up100bps


Unchanged


100bpsMarket Value

$
587,614


$
564,070


$
539,111Yield to Maturity or Call


3.51
%


4.51
%


5.51
%Effective Duration


3.87



4.14



4.34       Accounting for Derivative
    Instruments and Hedging Activities,
    ITEM 4.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(e) Form 10-Q,
 41




---



##### Table of Contents



Changes
    in Internal Control over Financial Reporting
   42




---



##### Table of Contents



PART II 
    OTHER INFORMATION
  ITEM 1.
    LEGAL
    PROCEEDINGS  Commitments and Contingencies Form 10-Q
  ITEM 1A.
    RISK
    FACTORS  Form S-3
  ITEM 2.
    UNREGISTERED
    SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  Form 10-K
    ITEM 6.
    EXHIBITS    ExhibitNo.

Description31
.1

Certification of Robert S. Cubbin, Chief Executive Officer of
    the Corporation, pursuant to Securities Exchange Act
    Rule 13a-14(a).31
.2

Certification of Karen M. Spaun, Senior Vice President and Chief
    Financial Officer of the Corporation, pursuant to Securities
    Exchange Act
    Rule 13a-14(a).32
.1

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the
    Sarbanes-Oxley
    Act of 2002, signed by Robert S. Cubbin, Chief Executive Officer
    of the Corporation.32
.2

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the
    Sarbanes-Oxley
    Act of 2002, signed by Karen M. Spaun, Senior Vice President and
    Chief Financial Officer of the Corporation.  43




---



##### Table of Contents



SIGNATURES
    Meadowbrook Insurance Group, Inc.
  By:
    /s/  Karen
    M. Spaun      44




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.

Description31
.1

Certification of Robert S. Cubbin, Chief Executive Officer of
    the Corporation, pursuant to Securities Exchange Act
    Rule 13a-14(a).31
.2

Certification of Karen M. Spaun, Senior Vice President and Chief
    Financial Officer of the Corporation, pursuant to Securities
    Exchange Act
    Rule 13a-14(a).32
.1

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the
    Sarbanes-Oxley
    Act of 2002, signed by Robert S. Cubbin, Chief Executive Officer
    of the Corporation.32
.2

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the
    Sarbanes-Oxley
    Act of 2002, signed by Karen M. Spaun, Senior Vice President and
    Chief Financial Officer of the Corporation.  45