##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington 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, 2009oro

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

38-2626206(State of
    Incorporation)

(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
  Regulation S-T o o
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o

Smaller reporting
    company o    Rule 12b-2 o þ




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##### Table of Contents



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 Statement of Shareholders Equity
    (unaudited)

6Consolidated Statements of Cash Flows (unaudited)

7Notes to Consolidated Financial Statements (unaudited)

8-33ITEM 2



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

34-52ITEM 3



QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK

52-53ITEM 4



CONTROLS AND PROCEDURES

54PART II  OTHER
    INFORMATIONITEM 1



LEGAL PROCEEDINGS

55ITEM 1A  RISK FACTORS

55ITEM 2



UNREGISTERED SALES OF EQUITY SECURITIES AND USE
    OF PROCEEDS

55ITEM 6



EXHIBITS

55SIGNATURES

56EX-31.1EX-31.2EX-32.1EX-32.2  1




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##### Table of Contents



PART 1 
    FINANCIAL INFORMATION ITEM 1  FINANCIAL
    STATEMENTS  MEADOWBROOK
    INSURANCE GROUP, INC.
 CONSOLIDATED
    STATEMENTS OF INCOME
    For the Nine Months Ended September 30,  2009


2008(Unaudited)(In thousands, except share data)RevenuesPremiums earnedGross

$
471,176


$
306,205Ceded


(77,599
)


(58,909
)Net earned premiums


393,577



247,296Net commissions and fees


29,386



33,972Net investment income


37,503



24,687Realized losses:Total
    other-than-temporary
    impairments on securities


(5,035
)


(7,554
)Portion of loss recognized in other comprehensive income


1,734



Net
    other-than-temporary
    impairments on securities recognized in earnings


(3,301
)


(7,554
)Net realized (losses) gains excluding
    other-than-temporary
    impairments on securities


(391
)


87Net realized losses


(3,692
)


(7,467
)Total revenues


456,774



298,488ExpensesLosses and loss adjustment expenses


278,431



193,805Reinsurance recoveries


(54,628
)


(48,670
)Net losses and loss adjustment expenses


223,803



145,135Salaries and employee benefits


59,402



43,954Policy acquisition and other underwriting expenses


79,932



45,333Other administrative expenses


29,323



24,847Amortization expense


4,350



4,645Interest expense


8,061



4,898Total expenses


404,871



268,812Income before taxes and equity earnings


51,903



29,676Federal and state income tax expense


15,868



10,128Equity earnings of affiliates


169



143Net income

$
36,204


$
19,691Earnings Per ShareBasic

$
0.63


$
0.49Diluted

$
0.63


$
0.48Weighted average number of common sharesBasic


57,428,416



40,524,956Diluted


57,531,391



40,657,894Dividends paid per common share

$
0.06


$
0.06    2




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME
    For the Three Months Ended September 30,
  2009


2008(Unaudited)(In thousands, except share data)RevenuesPremiums earnedGross

$
163,099


$
126,690Ceded


(25,700
)


(22,447
)Net earned premiums


137,399



104,243Net commissions and fees


10,753



12,309Net investment income


12,764



10,622Realized losses:Total
    other-than-temporary
    impairments on securities


(208
)


(7,386
)Portion of loss recognized in other comprehensive income






Net
    other-than-temporary
    impairments on securities recognized in earnings


(208
)


(7,386
)Net realized (losses) gains excluding
    other-than-temporary
    impairments on securities


(534
)


96Net realized losses


(742
)


(7,290
)Total revenues


160,174



119,884ExpensesLosses and loss adjustment expenses


102,557



85,647Reinsurance recoveries


(19,005
)


(21,715
)Net losses and loss adjustment expenses


83,552



63,932Salaries and employee benefits


19,630



17,056Policy acquisition and other underwriting expenses


28,824



19,470Other administrative expenses


9,013



8,055Amortization expense


1,422



1,531Interest expense


2,620



2,333Total expenses


145,061



112,377Income before taxes and equity earnings


15,113



7,507Federal and state income tax expense


4,167



3,338Equity earnings of affiliates


73



26Net income

$
11,019


$
4,195Earnings Per ShareBasic

$
0.19


$
0.09Diluted

$
0.19


$
0.09Weighted average number of common sharesBasic


57,444,471



47,465,462Diluted


57,563,263



47,595,572Dividends paid per common share

$
0.02


$
0.02    3




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME
 For the
    Nine Months Ended September 30,
  2009


2008(Unaudited)(In thousands)Net income

$
36,204


$
19,691Other comprehensive income, net of tax:Unrealized gains (losses) on securities


34,564



(21,894
)Depreciation on non-credit
    other-than-temporary
    impairments on securities


(661
)


Net deferred derivative gains (losses)  hedging
    activity


1,338



(170
)Less: reclassification adjustment for losses included in net
    income


3,843



4,933Other comprehensive gains (losses), net of tax


39,084



(17,131
)Comprehensive income

$
75,288


$
2,560   MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 For the
    Three Months Ended September 30,
  2009


2008(Unaudited)(In thousands)Net income

$
11,019


$
4,195Other comprehensive income, net of tax:Unrealized gains (losses) on securities


22,158



(17,218
)Appreciation on non-credit
    other-than-temporary
    impairments on securities


1,073



Net deferred derivative losses  hedging activity


(408
)


(285
)Less: reclassification adjustment for losses included in net
    income


849



4,759Other comprehensive gains (losses), net of tax


23,672



(12,744
)Comprehensive income (loss)

$
34,691


$
(8,549
)    4




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##### Table of Contents



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


December 31,2009


2008(Unaudited)(In thousands, except share data)ASSETSInvestmentsDebt securities available for sale, at fair value (amortized
    cost of $1,027,552 and $977,613)

$
1,087,349


$
986,483Equity securities available for sale, at fair value (amortized
    cost of $26,976 and $27,660)


27,814



22,577Cash and cash equivalents


71,423



76,588Accrued investment income


11,710



10,441Premiums and agent balances receivable, net


146,083



117,675Reinsurance recoverable on:Paid losses


9,375



8,337Unpaid losses


263,690



260,366Prepaid reinsurance premiums


33,408



31,885Deferred policy acquisition costs


65,879



56,454Deferred federal income taxes


1,276



22,718Goodwill


118,842



119,028Other intangible assets, net


42,713



46,951Other assets


74,452



54,413Total assets

$
1,954,014


$
1,813,916LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesLosses and loss adjustment expenses

$
924,227


$
885,697Unearned premiums


316,777



282,086Debt


52,688



60,250Debentures


80,930



80,930Accounts payable and accrued expenses


30,296



27,839Funds held and reinsurance balances payable


23,660



27,793Payable to insurance companies


798



3,221Other liabilities


15,354



7,930Total liabilities


1,444,730



1,375,746Shareholders EquityCommon stock, $0.01 stated value; authorized
    75,000,000 shares; 57,147,872 and 57,341,989 shares
    issued and outstanding


571



573Additional paid-in capital


313,120



314,641Retained earnings


160,690



127,157Note receivable from officer


(832
)


(852
)Accumulated other comprehensive income (loss)


35,735



(3,349
)Total shareholders equity


509,284



438,170Total liabilities and shareholders equity

$
1,954,014


$
1,813,916    5




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENT OF SHAREHOLDERS EQUITY
  AccumulatedAdditional





Note


Other


TotalCommon


Paid-In


Retained


Receivable


Comprehensive


ShareholdersStock


Capital


Earnings


from Officer


(Loss) Income


Equity(In thousands)Balances December 31, 2008

$
573


$
314,641


$
127,157


$
(852
)

$
(3,349
)

$
438,170Net income










36,204











36,204Dividends declared and paid










(3,447
)










(3,447
)Net unrealized appreciation on available for sale securities


















39,266



39,266Net deferred derivative gain  hedging activity


















1,338



1,338Cumulative effect adjustment for non-credit related portion of
    OTTI recognized in prior earnings










1,520







(1,520
)


Issuance of 105,718 shares of common stock for long term
    incentive plan stock award for
    2007-2008
    plan years


1



(330
)














(329
)Long term incentive plan; stock award for
    2009-2011
    plan years






613















613Long term incentive plan tax adjustment






(224
)














(224
)Repurchase of 300,000 shares of common stock


(3
)


(1,580
)


(744
)










(2,327
)Note receivable from officer














20







20Balances September 30, 2009

$
571


$
313,120


$
160,690


$
(832
)

$
35,735


$
509,284    6




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 For the
    Nine Months Ended September 30,
  2009


2008(Unaudited)(In thousands)Cash Flows From Operating ActivitiesNet income

$
36,204


$
19,691Adjustments to reconcile net income to net cash provided by
    operating activities:Amortization of other intangible assets


4,350



4,645Amortization of deferred debenture issuance costs


281



375Depreciation of furniture, equipment, and building


3,859



2,590Net accretion of discount and premiums on bonds


2,311



2,211Loss on investments, net


3,843



7,589Gain on sale of fixed assets


(66
)


(66
)Incremental tax benefits from stock options exercised






(80
)Long-term incentive plan expense


613



594Deferred income tax expense


3,257



867Changes in operating assets and liabilities:Decrease (increase) in:Premiums and agent balances receivable


(28,408
)


(6,699
)Reinsurance recoverable on paid and unpaid losses


(4,362
)


(12,713
)Prepaid reinsurance premiums


(1,522
)


(412
)Deferred policy acquisition costs


(9,425
)


(3,671
)Other assets


(163
)


(389
)Increase (decrease) in:Losses and loss adjustment expenses


38,529



50,178Unearned premiums


34,691



13,050Payable to insurance companies


(2,423
)


(2,991
)Funds held and reinsurance balances payable


(950
)


(3,886
)Other liabilities


(3,093
)


(269
)Total adjustments


41,322



50,924Net cash provided by operating activities


77,526



70,615Cash Flows From Investing ActivitiesPurchase of equity securities available for sale


(234
)


(146
)Purchase of debt securities available for sale


(159,828
)


(44,643
)Proceeds from sales and maturities of debt securities available
    for sale


106,398



79,592Proceeds from sales of equity securities available for sale


60



Capital expenditures


(2,958
)


(2,185
)Purchase of books of business






(304
)Acquisition of ProCentury, net of cash acquired






(74,347
)Equity investment in unaffiliated insurance holding limited
    liability company


(14,782
)


Acquisition of U.S. Specialty Underwriters, Inc.(1)






(20,971
)Other investing activities


314



(2,415
)Net cash used in investing activities


(71,030
)


(65,419
)Cash Flows From Financing ActivitiesProceeds from lines of credit






73,000Payment of lines of credit


(7,563
)


(10,375
)Book overdrafts


(227
)


(293
)Dividends paid on common stock


(3,447
)


(2,644
)Cash payment for payroll taxes associated with long-term
    incentive plan net stock issuance


(330
)


Incremental tax benefits from stock options exercised






80Share repurchases(2)






(3,523
)Other financing activities


(94
)


(79
)Net cash (used in) provided by financing activities


(11,661
)


56,166Net (decrease) increase in cash and cash equivalents


(5,165
)


61,362Cash and cash equivalents, beginning of period


76,588



40,845Cash and cash equivalents, end of period

$
71,423


$
102,207Supplemental Disclosure of Non-Cash Investing and Financing
    Activities:     (1)
    
    Effective January 31, 2008, the Company exercised its
    option to purchase the remainder of the economics related to the
    acquisition of the USSU business.(2)
    
    The Company repurchased 300,000 shares at the end of third
    quarter. The cash settlement related to this share repurchase
    did not occur until October 2009, therefore there was no cash
    outflow as of September 30, 2009.   7




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  NOTE 1
    
    Summary of Significant Accounting Policies  Basis
    of Presentation and Management Representation
    Note 4  ProCentury Merger
      Form 10-K,
    Revenue
    Recognition
   8




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      sub-producer
    Investments
  other-than-temporary
    other-than-temporary.
   9




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     Investments
  Equity
    Investment
    Earnings
    Per Share
        Income
    Taxes
        Update
    on SEC Investigation
  follow-up
 10




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Revisions
    to Previously Reported Statements of Cash Flows
    
    Cash flows used in investing activities for the purchase of
    securities and cash flows provided by investing activities from
    the proceeds from the sales and maturities of securities had
    revisions. The previously reported cash flow information in
    investing activities included non-cash transfers between
    investment portfolios within an entity or between affiliated
    entities. These non-cash transfers did not constitute actual
    purchases and sales and, therefore, resulted in an overstatement
    of cash used for the purchase of securities and cash provided by
    proceeds from the sales and maturities of securities.
    Cash flows pertaining to operating activities and investing
    activities also had revisions as a result of the classification
    related to opening balance sheet information and purchase
    accounting items, specifically related to the Companys
    merger with ProCentury in the third quarter of 2008.  Form 10-Qs Form 10-K
    September 30, 2008As Previously


TotalReported


Revisions


As RevisedOperating ActivitiesOther assets

$
10,628


$
(11,017
)

$
(389
)Other liabilities


(4,108
)


3,839



(269
)Total adjustments


58,102



(7,178
)


50,924Net cash provided by operating activities


77,793



(7,178
)


70,615Investing ActivitiesPurchase of equity securities available for sale






(146
)


(146
)Purchase of debt securities available for sale


(291,299
)


246,656



(44,643
)Proceeds from sales and maturities of debt securities available
    for sale


326,063



(246,471
)


79,592Capital expenditures


(2,331
)


146



(2,185
)Purchase of books of business


(544
)


240



(304
)Merger with ProCentury, net of cash acquired


(81,467
)


7,120



(74,347
)Other investing activities


(2,048
)


(367
)


(2,415
)Net cash used in investing activities


(72,597
)


7,178



(65,419
)   11




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  December 31, 2008As Previously


TotalReported


Revisions


As RevisedOperating ActivitiesLoss on sale of investments

$
11,569


$
(3
)

$
11,566Other assets


6,848



(11,398
)


(4,550
)Other liabilities


1,376



4,406



5,782Total adjustments


73,520



(6,995
)


66,525Net cash provided by operating activities


100,917



(6,995
)


93,922Investing ActivitiesPurchase of equity securities available for sale






(446
)


(446
)Purchase of debt securities available for sale


(171,750
)


63,851



(107,899
)Proceeds from sales and maturities of equity securities
    available for sale


79



(10
)


69Proceeds from sales and maturities of debt securities available
    for sale


168,582



(63,156
)


105,426Merger with ProCentury, net of cash acquired


(82,039
)


7,126



(74,913
)Other investing activities






(370
)


(370
)Net cash used in investing activities


(116,271
)


6,995



(109,276
)   March 31, 2009As Previously


TotalReported


Revisions


As RevisedOperating ActivitiesOther liabilities

$
756


$
(71
)

$
685Funds held and reinsurance balances payable


(2,659
)


3,184



525Total adjustments


6,688



3,113



9,801Net cash provided by operating activities


20,228



3,113



23,341Investing ActivitiesPurchase of equity securities available for sale


(27,522
)


27,324



(198
)Purchase of debt securities available for sale


(159,136
)


99,396



(59,740
)Proceeds from sales and maturities of equity securities
    available for sale


27,324



(27,324
)


Proceeds from sales and maturities of debt securities available
    for sale


135,081



(99,396
)


35,685Other investing activities


4,178



(3,113
)


1,065Net cash used in investing activities


(20,435
)


(3,113
)


(23,548
)   12




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  June 30, 2009As Previously


TotalReported


Revisions


As RevisedOperating ActivitiesOther assets

$
2,419


$
(732
)

$
1,687Other liabilities


1,176



(119
)


1,057Funds held and reinsurance balances payable


(3,621
)


3,184



(437
)Total adjustments


16,475



2,333



18,808Net cash provided by operating activities


41,660



2,333



43,993Investing ActivitiesCapital expenditures


(2,321
)


732



(1,589
)Other investing activities


3,312



(3,065
)


247Net cash used in investing activities


(35,326
)


(2,333
)


(37,659
)   Accounting
    Standards Codification
  The FASB
    Accounting Standards Codification and the Hierarchy of Generally
    Accepted Accounting Principles  a replacement of FASB
    Statement No. 162,
  Recent
    Accounting Standards
  320-10-65, Debt and Equity Securities  Transition and
    Open Effective Date Information No. FAS 115-2 FAS 124-2, Recognition and Presentation of
    Other-Than-Temporary-Impairments 320-10-65 other-than-temporary other-than-temporarily 320-10-65 other-than-temporary-impairment other-than-temporary-impairment 320-10-65 320-10-65 320-10-65 320-10-65
 13




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  820-10-65-4, Fair Value Measurements and Disclosures 
    Transition and Open Effective Date Information No. FAS 157-4, Determining Fair Value When the Volume and Level of
    Activity for the Asset or Liability Have Significantly Decreased
    and Identifying Transactions that are Not Orderly) 820-10-65-4 Fair Value Measurements and
    Disclosures 820-10-65-4 820-10-65-4 820-10-65-4
  825-10-65-1, Financial Instruments  Transition and Open
    Effective Date Information FAS 107-1 28-1, Interim Disclosures about Fair Value of Financial
    Instruments) 825-10-65-1 825-10-65-1 825-10-65-1
  805-20 Business Combinations  Identifiable Assets
    and Liabilities, and Any Noncontrolling Interest Accounting for
    Assets Acquired and Liabilities Assumed in a Business
    Combination that Arise from Contingencies. 805-20 805-20 805-20
  Subsequent
    Events Subsequent Events
  Amendments to FASB
    Interpretation No. 46(R).
 14




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   NOTE 2 
    Investments    September 30, 2009Cost or


Gross UnrealizedAmortized








Non-Credit


EstimatedCost


Gains


Losses


OTTI


Fair ValueDebt Securities:U.S. Government and agencies

$
47,741


$
3,275


$
(4
)

$



$
51,012Obligations of states and political subs


460,683



29,694



(134
)






490,243Corporate securities


246,272



14,294



(117
)


(82
)


260,367Redeemable preferred stocks


2,689



1,507



(50
)






4,146Residential mortgage-backed securities


222,421



13,310



(58
)


(1,055
)


234,618Commercial mortgage-backed securities


25,947



432



(757
)






25,622Asset-backed securities


21,799



1,013



(427
)


(1,044
)


21,341Total Debt Securities available for sale


1,027,552



63,525



(1,547
)


(2,181
)


1,087,349Equity Securities:Perpetual preferred stock


12,188



1,267



(312
)






13,143Common stock


14,788



306



(423
)






14,671Total Equity Securities available for sale


26,976



1,573



(735
)






27,814Total Securities available for sale

$
1,054,528


$
65,098


$
(2,282
)

$
(2,181
)

$
1,115,163   December 31, 2008Cost or


Gross UnrealizedAmortized








Non-Credit


EstimatedCost


Gains


Losses


OTTI


Fair ValueDebt Securities:U.S. Government and agencies

$
51,248


$
5,015


$



$



$
56,263Obligations of states and political subs


475,369



8,429



(3,876
)






479,922Corporate securities


146,146



1,840



(4,505
)






143,481Redeemable preferred stocks


459







(444
)






15Residential mortgage-backed securities


247,949



10,090



(2,562
)






255,477Commercial mortgage-backed securities


26,164



22



(3,554
)






22,632Asset-backed securities


30,278



392



(1,977
)






28,693Total Debt Securities available for sale


977,613



25,788



(16,918
)






986,483Equity Securities:Perpetual preferred stock


12,945



58



(2,524
)






10,479Common stock


14,715







(2,617
)






12,098Total Equity Securities available for sale


27,660



58



(5,141
)






22,577Total Securities available for sale

$
1,005,273


$
25,846


$
(22,059
)

$



$
1,009,060  15




---



##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    September 30,


December 31,2009


2008Unrealized appreciation

$
65,098


$
25,846Unrealized depreciation


(2,282
)


(22,059
)Non-credit OTTI


(2,181
)


Net unrealized appreciation


60,635



3,787Deferred federal income tax expense


(21,222
)


(1,325
)Valuation allowance adjustment on deferred income taxes


795



Net unrealized appreciation on investments, net of deferred
    federal income taxes

$
40,208


$
2,462     For the Nine Months


For the Three MonthsEnded September 30,


Ended September 30,2009


2008


2009


2008Realized (losses) gains:Debt securities:Gross realized gains

$
406


$
71


$
118


$
68Gross realized losses


(3,391
)


(1,576
)


(698
)


(1,301
)Total debt securities


(2,985
)


(1,505
)


(580
)


(1,233
)Equity Securities:Gross realized gains














Gross realized losses


(858
)


(6,088
)


(269
)


(6,088
)Total equity securities


(858
)


(6,088
)


(269
)


(6,088
)Net realized losses

$
(3,843
)

$
(7,593
)

$
(849
)

$
(7,321
)OTTI included in realized losses on securities above

$
(3,301
)

$
(7,554
)

$
(208
)

$
(7,386
)      16




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Available for SaleEstimated FairAmortized Cost


ValueDue in one year or less

$
36,435


$
36,977Due after one year through five years


180,351



191,545Due after five years through ten years


401,193



429,269Due after ten years


139,406



147,977Mortgage-backed securities, collateralized obligations and
    asset-backed securities


270,167



281,581$
1,027,552


$
1,087,349   Other
    Than Temporary Impairments of Securities and Unrealized Losses
    on Investments
    other-than-temporary.
   17




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    
    Historical and implied volatility of the security;
    Length of time and extent to which the fair value has been less
    than amortized cost;
    Conditions specifically related to the security such as default
    rates, loss severities, loan to value ratios, current levels of
    subordination, third party guarantees, and vintage;
    Specific conditions in an industry or geographic area;
    Any changes to the rating of the security by a rating agency;
    Failure, if any, of the issuer of the security to make scheduled
    payments; and
    Recoveries or additional declines in fair value subsequent to
    the balance sheet date.       18




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    September 30, 2009Less Than 12 months


Greater Than 12 months


TotalFair Value of


Gross


Fair Value of


Gross


Fair Value of


GrossInvestments


Unrealized


Investments


Unrealized


Investments


Unrealizedwith


Losses and


with


Losses and


with


Losses andUnrealized


Non-Credit


Unrealized


Non-Credit


Unrealized


Non-CreditLosses


OTTI


Losses


OTTI


Losses


OTTIDebt Securities:U.S. Government and agencies

$
486


$
(4
)

$



$



$
486


$
(4
)Obligations of states and political subs


3,352



(62
)


6,627



(72
)


9,979



(134
)Corporate securities


5,658



(106
)


4,361



(93
)


10,019



(199
)Redeemable preferred stocks










991



(50
)


991



(50
)Residential mortgage-backed securities


449



(27
)


4,300



(1,086
)


4,749



(1,113
)Commercial mortgage-backed securities










12,295



(757
)


12,295



(757
)Asset-backed securities


3,168



(1,121
)


1,524



(350
)


4,692



(1,471
)Total Debt Securities


13,113



(1,320
)


30,098



(2,408
)


43,211



(3,728
)Equity Securities:Perpetual preferred stock


1,525



(111
)


2,547



(201
)


4,072



(312
)Common stock










5,383



(423
)


5,383



(423
)Total Equity Securities


1,525



(111
)


7,930



(624
)


9,455



(735
)Total Securities

$
14,638


$
(1,431
)

$
38,028


$
(3,032
)

$
52,666


$
(4,463
)   December 31, 2008Less Than 12 months


Greater Than 12 months


TotalFair Value of


Gross


Fair Value of


Gross


Fair Value of


GrossInvestments


Unrealized


Investments


Unrealized


Investments


Unrealizedwith


Losses and


with


Losses and


with


Losses andUnrealized


Non-Credit


Unrealized


Non-Credit


Unrealized


Non-CreditLosses


OTTI


Losses


OTTI


Losses


OTTIDebt Securities:U.S. Government and agencies

$



$



$



$



$



$
Obligations of states and political subs


130,948



(3,516
)


4,778



(360
)


135,726



(3,876
)Corporate securities


71,600



(3,577
)


8,141



(928
)


79,741



(4,505
)Redeemable preferred stocks


1,362



(444
)










1,362



(444
)Residential mortgage-backed securities


9,739



(2,562
)










9,739



(2,562
)Commercial mortgage-backed securities


12,345



(2,140
)


10,136



(1,414
)


22,481



(3,554
)Asset-backed securities


21,807



(999
)


1,464



(978
)


23,271



(1,977
)Total Debt Securities


247,801



(13,238
)


24,519



(3,680
)


272,320



(16,918
)Equity Securities:Perpetual preferred stock


9,360



(2,524
)










9,360



(2,524
)Common stock


11,806



(2,617
)










11,806



(2,617
)Total Equity Securities


21,166



(5,141
)










21,166



(5,141
)Total Securities

$
268,967


$
(18,379
)

$
24,519


$
(3,680
)

$
293,486


$
(22,059
)  19




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Balance as of April 1, 2009

$
(46
)Additional credit impairments on:Previously impaired securities


(414
)Securities for which an impairment was not previously recognized


Reductions


Balance as of September 30, 2009

$
(460
)Balance as of July 1, 2009

$
(344
)Additional credit impairments on:Previously impaired securities


(116
)Securities for which an impairment was not previously recognized


Reductions


Balance as of September 30, 2009

$
(460
)   NOTE 3 
    Fair
    Value Measurements      
    Level 1  Observable unadjusted quoted prices in
    active markets for identical securities.      
    Level 2  Observable inputs other than quoted
    prices in active markets for identical securities, including:
    quoted prices in active markets for similar securities; quoted
    prices for identical or similar securities in markets that are
    not active; inputs other than quoted prices that are observable
    for the security (e.g., interest rates, yield curves observable
    at commonly quoted intervals, volatilities, prepayment speeds,
    credit risks, default rates); and inputs derived from or
    corroborated by observable market data by correlation or other
    means. 20




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
       
    Level 3  Unobservable inputs, including the
    reporting entitys own data (e.g., cash flow estimates), as
    long as there are no contrary data indicating market
    participants would use different assumptions.        Fair Value Measurements UsingQuoted Pricesin Active


SignificantMarkets for


Other


SignificantIdentical


Observable


UnobservableSeptember 30, 2009


Assets


Inputs


InputsTotal


(Level 1)


(Level 2)


(Level 3)Available-for-Sale
    Securities

$
1,115,163


$
31,960


$
1,078,767


$
4,436Derivatives  interest rate swaps

$
(6,881
)

$



$
(6,881
)

$
   available-for-sale
  Fair ValueMeasurementUsing SignificantUnobservableInputs - Level 3Balance as of January 1, 2009

$
11,991Total gains or losses (realized/unrealized):Included in earnings


(28
)Included in other comprehensive income


(193
)Purchases, issuances and settlements


2,034Transfers in and out of Level 3


(9,368
)Balance as of September 30, 2009

$
4,436Total gains or losses for the period included in earnings
    attributable to the change in unrealized gains or losses
    relating to assets still held at the reporting date

$
   21




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Fair ValueMeasurementUsing SignificantUnobservableInputs - Level 3Balance as of July 1, 2009

$
8,437Total gains or losses (realized/unrealized):Included in earnings


13Included in other comprehensive income


282Purchases, issuances and settlements


(60
)Transfers in and out of Level 3


(4,236
)Balance as of September 30, 2009

$
4,436Total gains or losses for the period included in earnings
    attributable to the change in unrealized gains or losses
    relating to assets still held at the reporting date

$
   Items Measured
    at Fair Value on a Nonrecurring Basis
    NOTE 4 
    ProCentury
    Merger  30-day
      hard-to-place
   22




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Business Combinations
  As Adjusted


Subsequent


As AdjustedThrough


Purchase


ThroughDecember 31,


Accounting


September 30,2008


Adjustments


2009Cash consideration portion of purchase price

$
99,073


$



$
99,073Value of equity issued for stock consideration portion of
    purchase price


122,725







122,725Transaction related costs of Meadowbrook


5,949



(184
)


5,765Purchase price

$
227,747


$
(184
)

$
227,563       As Adjusted


Subsequent


As AdjustedThrough


Purchase


ThroughDecember 31,


Accounting


September 30,2008


Adjustments


2009(In thousands)ASSETSCash

$
23,248


$



$
23,248Investments


412,542







412,542Agent balances


36,497







36,497Deferred policy acquisition costs


27,435







27,435Federal income taxes recoverable


7,386







7,386Deferred taxes


7,451







7,451Reinsurance recoverables


45,522







45,522Prepaid insurance premiums


17,695







17,695Goodwill


59,490



(186
)


59,304Other intangible assets


26,000







26,000Other assets(1)


27,164



2



27,166Total Assets

$
690,430


$
(184
)

$
690,246LIABILITIESLosses and loss adjustment expenses

$
289,533


$



$
289,533Unearned premiums


126,259







126,259Reinsurance funds held and balances payable


13,911







13,911Debentures


25,000







25,000Other liabilities(1)


7,980







7,980Total Liabilities


462,683







462,683Purchase price

$
227,747


$
(184
)

$
227,563     (1)
    
    Other assets include a receivable of $11.6 million and
    other liabilities include a payable of $4.7 million, both
    of which represent a pre-merger transaction with the Company.
    The pre-merger receivable and payable with the Company were
    eliminated upon consolidation of the combined company. 23




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     For the Three Months


For the Nine MonthsEnded September 30, 2008


Ended September 30, 2008Revenues

$
138,108


$
421,710Expenses


143,323



394,991(Loss) income before taxes and equity earnings


(5,215
)


26,719Income tax (benefit) expense


(844
)


9,057Equity earnings of affiliates


26



143Net (loss) income

$
(4,345
)

$
17,805Net (loss) income per diluted share

$
(0.07
)

$
0.31Weighted average number of common shares:Diluted


58,152,534



58,231,816   NOTE 5 
    Stock
    Options, Long Term Incentive Plan, and Deferred Compensation
    Plan  Stock
    Options
    Long
    Term Incentive Plan
    2007-2009 2009-2011
 24




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    2007-2008 2007-2008 2009-2011 2009-2011
  2007-2008
  Deferred
    Compensation Plan
    NOTE 6 
    Reinsurance  excess-of-loss
   25




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      excess-of-loss
  rent-a-captive
      excess-of-loss excess-of-loss excess-of-loss
  Form 10-K
  and/or
 26




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   NOTE 7 
    Debt
  Credit
    Facilities
    Derivative Instruments
    Debentures
    InterestRate atYear


Year




September 30,


PrincipalDescription

Callable


Due


Interest Rate Terms

2009(1)


AmountJunior subordinated debentures


2008



2033


Three-month LIBOR, plus 4.05%


4.33
%

$
10,310Senior debentures


2009



2034


Three-month LIBOR, plus 4.00%


4.44
%


13,000Senior debentures


2009



2034


Three-month LIBOR, plus 4.20%


4.61
%


12,000Junior subordinated debentures


2010



2035


Three-month LIBOR, plus 3.58%


3.88
%


20,620Junior subordinated debentures(2)


2007



2032


Three-month LIBOR, plus 4.00%


4.33
%


15,000Junior subordinated debentures(2)


2008



2033


Three-month LIBOR, plus 4.10%


4.54
%


10,000Total


$
80,930     (1)
    
    The underlying three-month LIBOR rate varies as a result of the
    interest rate reset dates used in determining the three-month
    LIBOR rate, which varies for each long-term debt item each
    quarter.(2)
    
    Represents the junior subordinated debentures acquired in
    conjunction with the Merger. 27




---



##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
               NOTE 8 
    Derivative
    Instruments      FixedAmount atExpiration





Fixed


September 30,Effective Date

Date

Debt Instrument

Counterparty Interest Rate Terms

Rate


200910/06/2005

09/16/2010

Junior subordinated debentures

Three-month LIBOR, plus 3.58%


8.340
%

$
20,00004/23/2008

05/24/2011

Senior debentures

Three-month LIBOR, plus 4.20%


7.720
%


7,00004/23/2008

06/30/2013

Junior subordinated debentures

Three-month LIBOR, plus 4.05%


8.020
%


10,00004/29/2008

04/29/2013

Senior debentures

Three-month LIBOR, plus 4.00%


7.940
%


13,00007/31/2008

07/31/2013

Term loan(1)

Three-month LIBOR


3.950
%


52,68708/15/2008

08/15/2013

Junior subordinated debentures(2)

Three-month LIBOR


3.780
%


10,00009/04/2008

09/04/2013

Junior subordinated debentures(2)

Three-month LIBOR


3.790
%


15,000  28




---



##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    (1)
    
    Relates to the Companys term loan, which has an effective
    date of July 31, 2008 and an expiration date of
    July 31, 2013. The Company is required to make fixed rate
    interest payments on the current balance of the term loan,
    amortizing in accordance with the term loan amortization
    schedule. The Company fixed only the variable interest portion
    of the loan. As of September 30, 2009, the actual interest
    payments associated with the term loan also include an
    additional rate of 2.00% in accordance with the credit agreement.(2)
    
    Relates to the debentures acquired from the ProCentury merger.
    The Company fixed only the variable interest portion of the
    debt. The actual interest payments associated with the
    debentures also include an additional rate of 4.10% and 4.00% on
    the $10.0 million and $15.0 million debentures,
    respectively.      Debt
    NOTE 9 
    Shareholders
    Equity      2007-2008  Stock Options, Long Term Incentive Plan, and
    Deferred Compensation Plan
 29




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
        NOTE 10 
    Segment
    Information    Specialty
    Insurance Operations
  fee-for-service
    Agency
    Operations
   30




---



##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    For the Nine MonthsEnded September 30,2009


2008RevenuesNet earned premiums

$
393,577


$
247,296Management fees


15,241



17,178Claims fees


5,774



6,789Loss control fees


1,502



1,602Reinsurance placement


488



571Investment income


37,124



24,177Net realized losses


(3,692
)


(7,467
)Specialty insurance operations


450,014



290,146Agency operations


6,996



8,640Holding Company interest income earned


379



510Intersegment revenue


(615
)


(808
)Consolidated revenue

$
456,774


$
298,488Pre-tax income:Specialty insurance operations

$
68,787


$
40,386Agency operations(1)


(563
)


1,328Non-allocated expenses


(16,321
)


(12,038
)Consolidated pre-tax income

$
51,903


$
29,676   31




---



##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  For the Three MonthsEnded September 30,2009


2008RevenuesNet earned premiums

$
137,399


$
104,243Management fees


6,142



6,972Claims fees


1,802



2,304Loss control fees


493



467Reinsurance placement


333



177Investment income


12,632



10,455Net realized losses


(742
)


(7,290
)Specialty insurance operations


158,059



117,328Agency operations


2,031



2,631Holding Company interest income earned


132



166Intersegment revenue


(48
)


(241
)Consolidated revenue

$
160,174


$
119,884Pre-tax income:Specialty insurance operations

$
20,501


$
11,857Agency operations(1)


(428
)


391Non-allocated expenses


(4,960
)


(4,741
)Consolidated pre-tax income

$
15,113


$
7,507     (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, 2009 and 2008, the allocation of
    corporate overhead to the agency operations segment was
    $2.4 million and $2.1 million, respectively. For the
    three months ended September 30, 2009 and 2008, the
    allocation of corporate overhead to the agency operations
    segment was $796,000 and $401,000, respectively.    For the Nine MonthsEnded September 30,2009


2008Holding company expenses

$
(3,910
)

$
(2,495
)Amortization


(4,350
)


(4,645
)Interest expense


(8,061
)


(4,898
)$
(16,321
)

$
(12,038
)   For the Three MonthsEnded September 30,2009


2008Holding company expenses

$
(918
)

$
(877
)Amortization


(1,422
)


(1,531
)Interest expense


(2,620
)


(2,333
)$
(4,960
)

$
(4,741
)  32




---



##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   NOTE 11 
    Commitments
    and Contingencies    NOTE 12 
    Earnings
    Per Share      For the Nine Months


For the Three MonthsEnded September 30,


Ended September 30,2009


2008


2009


2008Net income, as reported

$
36,204


$
19,691


$
11,019


$
4,195Common shares:BasicWeighted average shares outstanding


57,428,416



40,524,956



57,444,471



47,465,462DilutedWeighted average shares outstanding


57,428,416



40,524,956



57,444,471



47,465,462Dilutive effect of:Stock options






127







22Share awards under long term incentive plan


102,975



132,811



118,792



130,088Total


57,531,391



40,657,894



57,563,263



47,595,572Net income per common shareBasic

$
0.63


$
0.49


$
0.19


$
0.09Diluted

$
0.63


$
0.48


$
0.19


$
0.09  33




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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, 2009 and 2008
  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 collectability 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.
  Business
    Overview
    fee-for-service
  30-day
 34




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##### Table of Contents



hard-to-place
  Critical
    Accounting Policies
  Form 10-K
  RESULTS
    OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND
    2008
       35




---



##### Table of Contents



Results
    of Operations
         36




---



##### Table of Contents



Specialty
    Insurance Operations
    For the Nine MonthsEnded September 30,2009


2008Revenue:Net earned premiums

$
393,577


$
247,296Management fees


15,241



17,178Claims fees


5,774



6,789Loss control fees


1,502



1,602Reinsurance placement


488



571Investment income


37,124



24,177Net realized losses


(3,692
)


(7,467
)Total revenue

$
450,014


$
290,146Pre-tax incomeSpecialty insurance operations

$
68,787


$
40,386              37




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##### Table of Contents



Other
    Items  Reserves
    Agency
    Operations
    For the Nine Months EndedSeptember 30,2009

2008Net commission

$
6,996


$
8,640Pre-tax (loss) income(1)

$
(563
)

$
1,328     (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, 2009 and 2008, the allocation of corporate
    overhead to the agency operations segment was $2.4 million
    and $2.1 million, respectively.     38




---



##### Table of Contents



Other
    Items
  Reserves
    Minimum


MaximumReserve


Reserve


SelectedLine of Business

Range


Range


ReservesWorkers Compensation(1)

$
180,680


$
200,054


$
192,704Commercial Multiple Peril/General Liability


292,867



350,878



327,380Commercial Automobile


96,656



106,938



102,860Other


35,790



38,943



37,593Total Net Reserves

$
605,993


$
696,813


$
660,537     (1)
    
    Includes Residual Markets       39




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##### Table of Contents



Reserves at


Incurred Losses


Paid Losses


Reserves atDecember 31,


Current


Prior


Total


Current


Prior


Total


September 30,Line of Business

2008


Year


Years


Incurred


Year


Years


Paid


2009Workers Compensation

$
147,813


$
71,535


$
(6,347
)

$
65,188


$
9,924


$
32,557


$
42,481


$
170,520Residual Markets


23,984



4,632



(2,596
)


2,036



1,972



1,864



3,836



22,184Commercial Multiple Peril/General Liability


317,188



75,143



(7,059
)


68,084



658



57,234



57,892



327,380Commercial Automobile


92,788



48,850



(1,876
)


46,974



10,555



26,347



36,902



102,860Other


43,558



44,532



(3,011
)


41,521



23,857



23,629



47,488



37,593Net Reserves


625,331


$
244,692


$
(20,889
)

$
223,803


$
46,966


$
141,631


$
188,599



660,537Reinsurance Recoverable


260,366



























263,690Consolidated

$
885,697


























$
924,227   Re-estimated


DevelopmentReserves at


as aReserves at


September 30,


Percentage ofDecember 31,


2009 on


Prior YearLine of Business

2008


Prior Years


ReservesWorkers Compensation

$
147,813


$
141,466



−4.3
%Commercial Multiple Peril/General Liability


317,188



310,129



−2.2
%Commercial Automobile


92,788



90,912



−2.0
%Other


43,558



40,547



−6.9
%Sub-total


601,347



583,054



−3.0
%Residual Markets


23,984



21,388



−10.8
%Total Net Reserves

$
625,331


$
604,442



−3.3
%   Workers Compensation Excluding Residual
    Markets
  Commercial Multiple Peril and General
    Liability
  Commercial Automobile
 40




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##### Table of Contents



Other
  Residual Markets
  Salaries
    and Employee Benefits and Other Administrative
    Expenses
        Amortization
    Expense
    Interest
    Expense
   41




---



##### Table of Contents



Income
    Taxes
    RESULTS
    OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND
    2008
  Results
    of Operations
           42




---



##### Table of Contents



Specialty
    Insurance Operations
    For the Three Months Ended September 30,2009


2008Revenue:Net earned premiums

$
137,399


$
104,243Management fees


6,142



6,972Claims fees


1,802



2,304Loss control fees


493



467Reinsurance placement


333



177Investment income


12,632



10,455Net realized losses


(742
)


(7,290
)Total revenue

$
158,059


$
117,328Pre-tax incomeSpecialty insurance operations

$
20,501


$
11,857              43




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##### Table of Contents



Agency
    Operations
    For the Three MonthsEnded September 30,2009

2008Net commission

$
2,031


$
2,631Pre-tax (loss) income(1)

$
(428
)

$
391     (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, 2009 and 2008, the allocation of corporate
    overhead to the agency operations segment was $796,000 and
    $401,000, respectively.     44




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##### Table of Contents



Other
    Items
  Reserves
    Salaries
    and Employee Benefits and Other Administrative
    Expenses
        Amortization
    Expense
    Interest
    Expense
  Liquidity and Capital Resources
  Income
    Taxes
   45




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##### Table of Contents



LIQUIDITY
    AND CAPITAL RESOURCES
            Other
    Items
  Debentures
    InterestRate atYear


Year





September 30,


PrincipalDescription

Callable


Due


Interest Rate Terms


2009(1)


AmountJunior subordinated debentures


2008



2033



Three-month LIBOR, plus 4.05
%


4.33
%

$
10,310Senior debentures


2009



2034



Three-month LIBOR, plus 4.00
%


4.44
%


13,000Senior debentures


2009



2034



Three-month LIBOR, plus 4.20
%


4.61
%


12,000Junior subordinated debentures


2010



2035



Three-month LIBOR, plus 3.58
%


3.88
%


20,620Junior subordinated debentures(2)


2007



2032



Three-month LIBOR, plus 4.00
%


4.33
%


15,000Junior subordinated debentures(2)


2008



2033



Three-month LIBOR, plus 4.10
%


4.54
%


10,000Total


$
80,930  46




---



##### Table of Contents



(1)
    
    The underlying three-month LIBOR rate varies as a result of the
    interest rate reset dates used in determining the three-month
    LIBOR rate, which varies for each long-term debt item each
    quarter.(2)
    
    Represents the junior subordinated debentures acquired in
    conjunction with the Merger.          Interest
    Rate Swaps
      FixedAmount atExpiration






Fixed


September 30,Effective Date

Date


Debt Instrument

Counterparty Interest Rate Terms

Rate


200910/06/2005


09/16/2010


Junior subordinated debentures

Three-month LIBOR, plus 3.58%


8.340
%

$
20,00004/23/2008


05/24/2011


Senior debentures

Three-month LIBOR, plus 4.20%


7.720
%


7,00004/23/2008


06/30/2013


Junior subordinated debentures

Three-month LIBOR, plus 4.05%


8.020
%


10,00004/29/2008


04/29/2013


Senior debentures

Three-month LIBOR, plus 4.00%


7.940
%


13,00007/31/2008


07/31/2013


Term loan(1)

Three-month LIBOR


3.950
%


52,68708/15/2008


80/15/2013


Junior subordinated debentures(2)

Three-month LIBOR


3.780
%


10,00009/04/2008


09/04/2013


Junior subordinated debentures(2)

Three-month LIBOR


3.790
%


15,000     (1)
    
    Relates to our term loan, which has an effective date of
    July 31, 2008 and an expiration date of July 31, 2013.
    We are required to make fixed rate interest payments on the
    current balance of the term loan, amortizing in accordance with
    the term loan amortization schedule. We fixed only the variable
    interest portion of the loan. As of September 30, 2009, the
    actual interest payments associated with the term loan also
    include an additional rate of 2.00% in accordance with the
    credit agreement. 47




---



##### Table of Contents



(2)
    
    Relates to the debentures acquired from the ProCentury merger.
    We fixed only the variable interest portion of the debt. The
    actual interest payments associated with the debentures also
    include an additional rate of 4.10% and 4.00% on the
    $10.0 million and $15.0 million debentures,
    respectively.        Credit
    Facilities
        Investment
    Portfolio
     48




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##### Table of Contents



Shareholders
    Equity
      2007-2008  Stock Options,
    Long Term Incentive Plan, and Deferred Compensation Plan
      Procentury
    Merger
  30-day
      Equity
    Investment
   49




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##### Table of Contents



Adjusted
    Expense Ratio
  fee-for-service fee-for-service
  For the Nine Months


For the Three MonthsEnded September 30,


Ended September 30,2009


2008


2009


2008Net earned premiums

$
393,577


$
247,296


$
137,399


$
104,243Less: Consolidated net loss and LAE


223,804



145,135



83,553



63,932Intercompany claim fees


15,152



11,243



5,049



4,508Unconsolidated net loss and LAE


238,956



156,378



88,602



68,440Consolidated policy acquisition and other underwriting expenses


79,932



45,400



28,824



19,537Intercompany administrative and other underwriting fees


42,995



30,741



13,428



12,821Unconsolidated policy acquisition and other underwriting expenses


122,927



76,141



42,252



32,358Underwriting income

$
31,694


$
14,777


$
6,545


$
3,445GAAP combined ratio as reported


91.9
%


94.0
%


95.3
%


96.7
%Specialty insurance operations pre-tax income

$
68,787


$
40,386


$
20,501


$
11,857Less: Underwriting income


31,694



14,777



6,545



3,445Net investment income and realized losses


33,811



17,220



12,022



3,332Fee-based operations pre-tax income


3,282



8,389



1,934



5,080Agency operations pre-tax income


(563
)


1,328



(428
)


391Total
    fee-for-service
    pre-tax income

$
2,719


$
9,717


$
1,506


$
5,471GAAP expense ratio as reported


31.2
%


30.8
%


30.8
%


31.0
%Adjustment to include pre-tax income from total
    fee-for-service
    income(1)


0.7
%


3.9
%


1.1
%


5.2
%GAAP expense ratio as adjusted


30.5
%


26.9
%


29.7
%


25.8
%GAAP loss and LAE ratio as reported


60.7
%


63.2
%


64.5
%


65.7
%GAAP combined ratio as adjusted


91.2
%


90.1
%


94.2
%


91.5
%Reconciliation of consolidated pre-tax income:Specialty insurance operations pre-tax income:Fee-based operations pre-tax income

$
3,282


$
8,389


$
1,934


$
5,080Underwriting income


31,694



14,777



6,545



3,445Net investment income and realized losses


33,811



17,220



12,022



3,332Total specialty insurance operations pre-tax income


68,787



40,386



20,501



11,857Agency operations pre-tax income


(563
)


1,328



(428
)


391Less: Holding company expenses


3,910



2,495



918



877Interest expense


8,061



4,898



2,620



2,333Amortization expense


4,350



4,645



1,422



1,531Consolidated pre-tax income

$
51,903


$
29,676


$
15,113


$
7,507  50




---



##### Table of Contents



(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.  Contractual
    Obligations and Commitments
    Convertible
    Note
    Accounting
    Standards Codification
  The FASB
    Accounting Standards Codification and the Hierarchy of Generally
    Accepted Accounting Principles  a replacement of FASB
    Statement No. 162,
  Recent
    Accounting Standards
  320-10-65, Debt and Equity Securities  Transition and
    Open Effective Date Information No. FAS 115-2 FAS 124-2, Recognition and Presentation of
    Other-Than-Temporary-Impairments 320-10-65 other-than-temporary other-than-temporarily 320-10-65 other-than-temporary-impairment other-than-temporary-impairment 320-10-65 320-10-65 320-10-65 320-10-65
 51




---



##### Table of Contents



820-10-65-4, Fair Value Measurements and Disclosures 
    Transition and Open Effective Date Information No. FAS 157-4, Determining Fair Value When the Volume and Level of
    Activity for the Asset or Liability Have Significantly Decreased
    and Identifying Transactions that are Not Orderly) 820-10-65-4 Fair Value Measurements and
    Disclosures 820-10-65-4 820-10-65-4 820-10-65-4
  825-10-65-1, Financial Instruments  Transition and Open
    Effective Date Information FAS 107-1 28-1, Interim Disclosures about Fair Value of Financial
    Instruments) 825-10-65-1 825-10-65-1 825-10-65-1
  805-20 Business Combinations  Identifiable Assets
    and Liabilities, and Any Noncontrolling Interest Accounting for
    Assets Acquired and Liabilities Assumed in a Business
    Combination that Arise from Contingencies. 805-20 805-20 805-20
  Subsequent
    Events Subsequent Events
  Consolidation Amendments to FASB
    Interpretation No. 46(R).
  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK     52




---



##### Table of Contents



Rates Down


Rates


Rates Up100bps


Unchanged


100bpsFair Value

$
1,136,651


$
1,087,349


$
1,035,312Yield to Maturity or Call


2.21
%


3.28
%


4.30
%Effective Duration


4.32



4.66



4.99         Derivative Instrument
   53




---



##### Table of Contents



ITEM 4.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures.
  Rule 13a-15(e) Form 10-Q,
    Changes
    in Internal Control over Financial Reporting
   54




---



##### Table of Contents



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


Maximumof Shares


Number ofPurchased as


Shares that mayPart of Publicly


yet beTotal


Average


Announced


RepurchasedNumber of


Price Paid


Plans or


Under the PlansPeriod

Shares


Per Share


Programs


or ProgramsJuly 1  July 31, 2009





$








2,200,000August 1  August 31, 2009





$








2,200,000September 1  September 30, 2009


300,000


$
7.72



300,000



1,900,000Total


300,000


$
7.72



300,000   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.  55




---



##### Table of Contents



SIGNATURES



Pursuant to the requirements of the Securities and Exchange Act
    of 1934, the Registrant has duly caused this Report to be signed
    on its behalf by the undersigned, thereunto duly authorized.



Meadowbrook Insurance Group, Inc. By:
    /s/  Karen
    M. Spaun      56




---



##### 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.  57