##### 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 June 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




---



##### 



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 Statement of Cash Flows
    (unaudited)

7Notes to Consolidated Financial Statements
    (unaudited)

8-32ITEM 2



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

33-50ITEM 3



QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK

51-52ITEM 4



CONTROLS AND PROCEDURES

52PART II  OTHER
    INFORMATIONITEM 1



LEGAL PROCEEDINGS

53ITEM 1A  RISK FACTORS

53ITEM 2



UNREGISTERED SALES OF EQUITY SECURITIES AND USE
    OF PROCEEDS

53ITEM 4



SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS

53-54ITEM 6



EXHIBITS

54SIGNATURES

55EX-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 Six Months Ended June 30,  2009


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

$
308,077


$
179,515Ceded


(51,899
)


(36,462
)Net earned premiums


256,178



143,053Net commissions and fees


18,633



21,663Net investment income


24,739



14,065Realized losses:Total
    other-than-temporary
    impairment losses on securities


(4,827
)


(168
)Portion of loss recognized in other comprehensive income


1,734



Net
    other-than-temporary
    impairment losses on securities recognized in earnings


(3,093
)


(168
)Net realized gains (losses) excluding
    other-than-temporary
    impairment losses on securities


143



(9
)Net realized losses


(2,950
)


(177
)Total revenues


296,600



178,604ExpensesLosses and loss adjustment expenses


175,874



108,158Reinsurance recoveries


(35,623
)


(26,955
)Net losses and loss adjustment expenses


140,251



81,203Salaries and employee benefits


39,772



26,898Policy acquisition and other underwriting expenses


51,108



25,863Other administrative expenses


20,310



16,793Amortization expense


2,928



3,114Interest expense


5,441



2,565Total expenses


259,810



156,436Income before taxes and equity earnings


36,790



22,168Federal and state income tax expense


11,701



6,790Equity earnings of affiliates


96



117Net income

$
25,185


$
15,495Earnings Per ShareBasic

$
0.44


$
0.42Diluted

$
0.44


$
0.42Weighted average number of common sharesBasic


57,420,255



37,016,568Diluted


57,481,241



37,126,782Dividends paid per common share

$
0.04


$
0.04    2




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##### Table of Contents



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


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

$
153,063


$
95,544Ceded


(25,923
)


(18,513
)Net earned premiums


127,140



77,031Net commissions and fees


8,396



9,632Net investment income


12,397



6,917Realized losses:Total
    other-than-temporary
    impairment losses on securities


(2,776
)


(168
)Portion of loss recognized in other comprehensive income


1,734



Net
    other-than-temporary
    impairment losses on securities recognized in earnings


(1,042
)


(168
)Net realized gains excluding
    other-than-temporary
    impairment losses on securities


84



22Net realized losses


(958
)


(146
)Total revenues


146,975



93,434ExpensesLosses and loss adjustment expenses


87,176



59,419Reinsurance recoveries


(16,712
)


(15,877
)Net losses and loss adjustment expenses


70,464



43,542Salaries and employee benefits


19,945



14,143Policy acquisition and other underwriting expenses


27,139



12,716Other administrative expenses


9,917



7,961Amortization expense


1,420



1,563Interest expense


2,659



1,254Total expenses


131,544



81,179Income before taxes and equity earnings


15,431



12,255Federal and state income tax expense


3,827



3,879Equity earnings of affiliates


41



61Net income

$
11,645


$
8,437Earnings Per ShareBasic

$
0.20


$
0.23Diluted

$
0.20


$
0.23Weighted average number of common sharesBasic


57,447,707



37,021,032Diluted


57,516,750



37,126,911Dividends 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
    Six Months Ended June 30,
  2009


2008(Unaudited)(In thousands)Net income

$
25,185


$
15,495Other comprehensive income, net of tax:Unrealized gains (losses) on securities


12,406



(4,446
)Non-credit impairment losses on securities


(1,734
)


Net deferred derivative gains (losses)  hedging
    activity


1,746



(115
)Less: reclassification adjustment for losses included in net
    income


2,994



174Other comprehensive gains (losses), net of tax


15,412



(4,387
)Comprehensive income

$
40,597


$
11,108   MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME
 For the
    Three Months Ended June 30,
  2009


2008(Unaudited)(In thousands)Net income

$
11,645


$
8,437Other comprehensive income, net of tax:Unrealized gains (losses) on securities


6,371



(6,235
)Non-credit impairment losses on securities


(1,734
)


Net deferred derivative gains  hedging activity


1,417



334Less: reclassification adjustment for losses included in net
    income


980



109Other comprehensive gains (losses), net of tax


7,034



(5,792
)Comprehensive income

$
18,679


$
2,645    4




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##### Table of Contents



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


December 31,2009


2008(Unaudited)(In thousands, except share data)ASSETSInvestmentsDebt securities available for sale, at fair value (amortized
    cost of $1,014,019 and $977,613)

$
1,041,043


$
986,483Equity securities available for sale, at fair value (amortized
    cost of $27,304 and $27,660)


25,091



22,577Cash and cash equivalents


76,377



76,588Accrued investment income


11,105



10,441Premiums and agent balances receivable, net


136,213



117,675Reinsurance recoverable on:Paid losses


8,999



8,337Unpaid losses


258,890



260,366Prepaid reinsurance premiums


28,829



31,885Deferred policy acquisition costs


59,027



56,454Deferred federal income taxes


14,532



22,718Goodwill


119,092



119,028Other intangible assets


44,123



46,951Other assets


54,768



54,413Total assets

$
1,878,089


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

$
902,406


$
885,697Unearned premiums


290,891



282,086Debt


55,500



60,250Debentures


80,930



80,930Accounts payable and accrued expenses


32,042



27,839Funds held and reinsurance balances payable


24,172



27,793Payable to insurance companies


808



3,221Other liabilities


13,898



7,930Total liabilities


1,400,647



1,375,746Shareholders EquityCommon stock, $0.01 stated value; authorized
    75,000,000 shares; 57,447,707 and 57,341,989 shares
    issued and outstanding


574



573Additional paid-in capital


314,081



314,641Retained earnings


151,563



127,157Note receivable from officer


(839
)


(852
)Accumulated other comprehensive income (loss)


12,063



(3,349
)Total shareholders equity


477,442



438,170Total liabilities and shareholders equity

$
1,878,089


$
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










25,185











25,185Dividends declared and paid at $0.04 per share










(2,299
)










(2,299
)Net unrealized appreciation on available for sale securities


















15,186



15,186Net deferred derivative gain  hedging activity


















1,746



1,746Cumulative effect adjustment of adoption of FSP
    FAS 115-2










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






407















407Long term incentive plan tax adjustment






(637
)














(637
)Note receivable from officer














13







13Balances June 30, 2009

$
574


$
314,081


$
151,563


$
(839
)

$
12,063


$
477,442    6




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##### Table of Contents



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


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

$
25,185


$
15,495Adjustments to reconcile net income to net cash provided by
    operating activities:Amortization of other intangible assets


2,928



3,114Amortization of deferred debenture issuance costs


215



236Depreciation of furniture, equipment, and building


2,543



1,505Net accretion of discount and premiums on bonds


1,578



1,400Loss on investments, net


2,994



268Gain on sale of fixed assets


(44
)


(44
)Incremental tax benefits from stock options exercised






(80
)Long-term incentive plan expense


407



405Deferred income tax expense


20



275Changes in operating assets and liabilities:Decrease (increase) in:Premiums and agent balances receivable


(18,538
)


(6,901
)Reinsurance recoverable on paid and unpaid losses


814



(1,390
)Prepaid reinsurance premiums


3,056



(906
)Deferred policy acquisition costs


(2,573
)


(2,071
)Other assets


2,419



(623
)Increase (decrease) in:Losses and loss adjustment expenses


16,709



18,862Unearned premiums


8,805



5,323Payable to insurance companies


(2,413
)


(2,659
)Funds held and reinsurance balances payable


(3,621
)


(373
)Other liabilities


1,176



(5,689
)Total adjustments


16,475



10,652Net cash provided by operating activities


41,660



26,147Cash Flows From Investing ActivitiesPurchase of equity securities available for sale


(234
)


Purchase of debt securities available for sale


(105,185
)


(23,832
)Proceeds from sales and maturities of debt securities available
    for sale


69,102



62,227Capital expenditures


(2,321
)


(1,112
)Acquisition of U.S. Specialty Underwriters, Inc.(1)






(20,971
)Other investing activities


3,312



(652
)Net cash (used in) provided by investing activities


(35,326
)


15,660Cash Flows From Financing ActivitiesPayment of lines of credit


(4,750
)


Book overdrafts


896



(1,167
)Dividend paid on common stock


(2,299
)


(1,481
)Cash payment for payroll taxes associated with long-term
    incentive plan net stock issuance


(330
)


Incremental tax benefits from stock options exercised






80Other financing activities


(62
)


(46
)Net cash used in financing activities


(6,545
)


(2,614
)Net (decrease) increase in cash and cash equivalents


(211
)


39,193Cash and cash equivalents, beginning of period


76,588



40,845Cash and cash equivalents, end of period

$
76,377


$
80,038Supplemental 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.   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,
     8




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Revenue
    Recognition
        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
  Earnings
    Per Share
        Income
    Taxes
        Recent
    Accounting Standards
  No. FAS 115-2 FAS 124-2, Recognition and Presentation of
    Other-Than-Temporary-Impairments FAS 115-2). FAS 115-2 other-than-temporary
 10




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  other-than-temporarily FAS 115-2 other-than-temporary-impairment other-than-temporary-impairment FAS 115-2 FAS 115-2 FAS 115-2 FAS 115-2
  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 FAS 157-4). FAS 157-4 FAS 157-3, Determining the Fair Value of a Financial Asset When
    the Market for that Asset is Not Active. FAS 157-4 Fair Value
    Measurements FAS 157-4 FAS 157-4 FAS 157-4
  FAS 107-1 28-1, Interim Disclosures about Fair Value of Financial
    Instruments FAS 107-1). FAS 107-1 Disclosures about Fair
    Value of Financial Instruments FAS 107-1 FAS 107-1 FAS 107-1,
  Accounting for Assets Acquired and Liabilities Assumed
    in a Business Combination that Arise from Contingencies Business Combinations,
  Subsequent Events
  Amendments to FASB Interpretation No. 46(R),
 11




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    The FASB Accounting Standards Codification and the
    Hierarchy of Generally Accepted Accounting
    Principles  a replacement of FASB Statement
    No. 162
  NOTE 2 
    Investments    June 30, 2009Cost or


Gross UnrealizedAmortized








Non-Credit


EstimatedCost


Gains


Losses


OTTI(1)


Fair ValueDebt Securities:U.S. Government and agencies

$
50,346


$
2,898


$
(22
)

$



$
53,222Obligations of states and political subs


470,552



13,855



(1,631
)






482,776Corporate securities


207,901



6,695



(1,046
)


(401
)


213,149Redeemable preferred stocks


2,689



1,159



(163
)






3,685Mortgage-backed securities


232,635



10,821



(806
)


(1,233
)


241,417Commercial mortgage-backed securities


26,971



161



(1,842
)






25,290Asset-backed securities


22,925



625



(426
)


(1,620
)


21,504Total Debt Securities available for sale


1,014,019



36,214



(5,936
)


(3,254
)


1,041,043Equity Securities:Perpetual preferred stock


12,516



408



(1,432
)






11,492Common stock


14,788



91



(1,280
)






13,599Total Equity Securities available for sale


27,304



499



(2,712
)






25,091Total Securities available for sale

$
1,041,323


$
36,713


$
(8,648
)

$
(3,254
)

$
1,066,134   12




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##### Table of Contents



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






15Mortgage-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     (1)
    
    This amount reflects $1.5 million for the non-credit
    related portion of OTTI recognized in prior earnings that was
    reclassified as a cumulative effect adjustment increasing
    retained earnings and decreasing accumulated other comprehensive
    income, in accordance with FSP
    FAS 115-2,
    as well as the $1.7 million adjustment reflected in the
    Consolidated Statements of Comprehensive Income for the three
    months and six months ended June 30, 2009.    June 30,


December 31,2009


2008Unrealized appreciation

$
36,713


$
25,846Unrealized depreciation


(8,648
)


(22,059
)Non-credit OTTI


(3,254
)


Net unrealized appreciation


24,811



3,787Deferred federal income tax expense


(8,684
)


(1,325
)Net unrealized appreciation on investments, net of deferred
    federal income taxes

$
16,127


$
2,462  13




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    For the Three MonthsFor the Six Months Ended June 30,


Ended June 30,2009


2008


2009


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

$
419


$
9


$
286


$
Gross realized losses


(2,824
)


(277
)


(994
)


(168
)Total debt securities


(2,405
)


(268
)


(708
)


(168
)Equity Securities:Gross realized gains














Gross realized losses


(589
)






(272
)


Total equity securities


(589
)






(272
)


Net realized losses

$
(2,994
)

$
(268
)

$
(980
)

$
(168
)OTTI included in realized losses on securities above

$
3,093


$
168


$
1,042


$
168       Available for SaleEstimated FairAmortized Cost


ValueDue in one year or less

$
96,438


$
99,791Due after one year through five years


228,307



236,398Due after five years through ten years


388,646



398,812Due after ten years


18,097



17,831Mortgage-backed securities, collateralized obligations and
    asset-backed
    securities


282,531



288,211$
1,014,019


$
1,041,043   Other
    Than Temporary Impairments of Securities and Unrealized Losses
    on Investments
    other-than-temporary.
 14




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  FAS 115-2
      
    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, 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.      pre-tax
 15




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  mortgage-backed
    June 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

$
3,486


$
(22
)

$



$



$
3,486


$
(22
)Obligations of states and political subs


63,959



(948
)


15,615



(683
)


79,574



(1,631
)Corporate securities


21,874



(843
)


9,413



(604
)


31,287



(1,447
)Redeemable preferred stocks


1,393



(163
)










1,393



(163
)Mortgage-backed securities


8,427



(871
)


2,692



(1,168
)


11,119



(2,039
)Commercial mortgage-backed securities


4,694



(400
)


13,301



(1,442
)


17,995



(1,842
)Asset-backed securities


4,541



(1,700
)


351



(346
)


4,892



(2,046
)Total Debt Securities


108,374



(4,947
)


41,372



(4,243
)


149,746



(9,190
)Equity Securities:Perpetual preferred stock


8,593



(1,432
)










8,593



(1,432
)Common stock


13,137



(1,280
)










13,137



(1,280
)Total Equity Securities


21,730



(2,712
)










21,730



(2,712
)Total Securities

$
130,104


$
(7,659
)

$
41,372


$
(4,243
)

$
171,476


$
(11,902
)   16




---



##### Table of Contents



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

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


Securities for which an impairment was not previously recognized


(298
)Reductions


Balance as of June 30, 2009

$
(344
)   NOTE 3 
    Fair
    Value Measurements  , Accounting for
    Certain Investments in Debt and Equity Securities. Accounting for Derivative Instruments and Hedging
    Activities.
   17




---



##### Table of Contents



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

UnobservableJune 30, 2009

Assets

Inputs

InputsTotal

(Level 1)

(Level 2)

(Level 3)Available-for-Sale
    Securities

$
1,066,134


$
27,215


$
1,030,482


$
8,437Derivatives  interest rate swaps

$
(6,253
)

$



$
(6,253
)

$
  18




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##### Table of Contents



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

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


(41
)Included in other comprehensive income


(475
)Purchases, issuances and settlements


2,095Transfers in and out of Level 3


(5,133
)Balance as of June 30, 2009

$
8,437Total 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

$
(156
)   Fair ValueMeasurementUsing SignificantUnobservableInputs - Level 3Balance as of April 1, 2009

$
10,914Total gains or losses (realized/unrealized):Included in earnings


(94
)Included in other comprehensive income


(749
)Purchases, issuances and settlements


2,769Transfers in and out of Level 3


(4,403
)Balance as of June 30, 2009

$
8,437Total 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

$
(156
)   Items Measured
    at Fair Value on a Nonrecurring Basis
    NOTE 4 
    ProCentury
    Merger  volume-weighted 30-day
 19




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##### Table of Contents



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


Subsequent


As AdjustedThrough


Purchase


ThroughDecember 31,


Accounting


June 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    20




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##### Table of Contents



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


Subsequent


As AdjustedThrough


Purchase


ThroughDecember 31,


Accounting


June 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



64



59,554Other intangible assets


26,000







26,000Other assets(1)


27,164



(248
)


26,916Total 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. 21




---



##### Table of Contents



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


For the Six MonthsEnded June 30, 2008


Ended June 30, 2008Revenues

$
145,132


$
283,603Expenses


130,663



251,670Income before taxes and equity earnings


14,469



31,933Income tax expense


4,663



9,901Equity earnings of affiliates


61



117Net income

$
9,867


$
22,149Net income per diluted share

$
0.17


$
0.38Weighted average number of common shares:Diluted


58,247,868



58,247,739   NOTE 5 
    Stock
    Options, Long Term Incentive Plan, and Deferred Compensation
    Plan  Stock
    Options
    Long
    Term Incentive Plan
    2007-2009 2009-2011
 22




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  three-year
  2007-2008 2007-2008 2009-2011 2009-2011
  2007-2008
  Deferred
    Compensation Plan
    NOTE 6 
    Reinsurance  excess-of-loss Accounting and Reporting for
    Reinsurance for Short-Duration and Long-Duration
    Contracts.
   23




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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
  NOTE 7 
    Debt  Credit
    Facilities
   24




---



##### Table of Contents



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


Year




June 30,


PrincipalDescription

Callable


Due


Interest Rate Terms

2009(1)


AmountJunior subordinated debentures


2008



2033


Three-month LIBOR, plus 4.05%


4.65
%

$
10,310Senior debentures


2009



2034


Three-month LIBOR, plus 4.00%


4.88
%


13,000Senior debentures


2009



2034


Three-month LIBOR, plus 4.20%


4.86
%


12,000Junior subordinated debentures


2010



2035


Three-month LIBOR, plus 3.58%


4.21
%


20,620Junior subordinated debentures(2)


2007



2032


Three-month LIBOR, plus 4.00%


4.65
%


15,000Junior subordinated debentures(2)


2008



2033


Three-month LIBOR, plus 4.10%


4.98
%


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.     25




---



##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
          NOTE 8 
    Derivative
    Instruments  Accounting for
    Derivative Instruments and Hedging Activities,
    FixedAmount atExpiration





Fixed


June 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
%


55,50008/15/2008

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     (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 June 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. 26




---



##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
       Debt
    NOTE 9 
    Shareholders
    Equity      2007-2008  Stock Options, Long Term Incentive
    Plan, and Deferred Compensation Plan
     27




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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
   28




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##### Table of Contents



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


2008RevenuesNet earned premiums

$
256,178


$
143,053Management fees


9,099



10,206Claims fees


3,972



4,485Loss control fees


1,009



1,135Reinsurance placement


155



394Investment income


24,492



13,722Net realized losses


(2,950
)


(177
)Specialty insurance operations


291,955



172,818Agency operations


4,965



6,009Holding Company interest income earned


247



343Intersegment revenue


(567
)


(566
)Consolidated revenue

$
296,600


$
178,604Pre-tax income:Specialty insurance operations

$
48,286


$
28,529Agency operations(1)


(135
)


937Non-allocated expenses


(11,361
)


(7,298
)Consolidated pre-tax income

$
36,790


$
22,168   29




---



##### Table of Contents



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


2008RevenuesNet earned premiums

$
127,140


$
77,031Management fees


3,821



4,174Claims fees


2,006



2,305Loss control fees


520



625Reinsurance placement


90



98Investment income


12,280



6,752Net realized (losses) gains


(958
)


(146
)Specialty insurance operations


144,899



90,839Agency operations


2,171



2,681Holding Company interest income earned


117



165Intersegment revenue


(212
)


(251
)Consolidated revenue

$
146,975


$
93,434Pre-tax income:Specialty insurance operations

$
20,875


$
15,617Agency operations(1)


(473
)


174Non-allocated expenses


(4,971
)


(3,536
)Consolidated pre-tax income

$
15,431


$
12,255     (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 six months
    ended June 30, 2009 and 2008, the allocation of corporate
    overhead to the agency operations segment was $1.6 million
    and $1.7 million, respectively. For the three months ended
    June 30, 2009 and 2008, the allocation of corporate
    overhead to the agency operations segment was $760,000 and
    $900,000, respectively.    For the Six MonthsEnded June 30,2009


2008Holding company expenses

$
(2,992
)

$
(1,619
)Amortization


(2,928
)


(3,114
)Interest expense


(5,441
)


(2,565
)$
(11,361
)

$
(7,298
)   For the Three MonthsEnded June 30,2009


2008Holding company expenses

$
(892
)

$
(719
)Amortization


(1,420
)


(1,563
)Interest expense


(2,659
)


(1,254
)$
(4,971
)

$
(3,536
)  30




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   NOTE 11 
    Commitments
    and Contingencies  Accounting for
    Contingencies,
  NOTE 12 
    Earnings
    Per Share   31




---



##### Table of Contents



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


For the Three MonthsEnded June 30,


Ended June 30,2009


2008


2009


2008Net income, as reported

$
25,185


$
15,495


$
11,645


$
8,437Common shares:BasicWeighted average shares outstanding


57,420,255



37,016,568



57,447,707



37,021,032DilutedWeighted average shares outstanding


57,420,255



37,016,568



57,447,707



37,021,032Dilutive effect of:Stock options






172



23



96Share awards under long term incentive plan


60,986



110,042



69,020



105,783Total


57,481,241



37,126,782



57,516,750



37,126,911Net income per common shareBasic

$
0.44


$
0.42


$
0.20


$
0.23Diluted

$
0.44


$
0.42


$
0.20


$
0.23  32




---



##### Table of Contents



ITEM 2  MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS



For the
    Periods ended June 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



We are a publicly traded specialty insurance underwriter and
    insurance administration services company, which serves the
    needs of underserved market segments that value service and
    specialized knowledge. We market and underwrite specialty
    property and casualty insurance products on both an admitted and
    non-admitted basis through a broad and diverse network of
    independent retail, wholesale program administrators and general
    agents. We primarily focus on niche or specialty program
    business and risk management solutions for agents, professional
    and trade associations, pools, trusts, and small to medium-sized
    insureds. These solutions include specialty program
    underwriting; excess and surplus lines insurance products;
    alternative risk transfer solutions; agency operations; and
    insurance administration services. Program business refers to an
    aggregation of individually underwritten risks that have some
    unique characteristic and are distributed through a select group
    of general agencies, retail agencies and program administrators.
    We define our business segments as specialty insurance
    operations and agency operations.



Our programs are diversified geographically, by class and line
    of business, type of insured and distribution. Within the
    workers compensation line of business, we have a regional
    focus in New England, Florida, and Nevada. Within the commercial
    auto and commercial multiple peril line of business, we have a
    regional focus in the Southeast and California. Within the
    general liability line of business we have a focus in Texas. Our
    fee-for-service
    business is managed on a regional basis with an emphasis in the
    Midwest, New England, and southeastern regions, as well as the
    self-insured market in Nevada. Our corporate strategy emphasizes
    a regional focus and diverse sources of revenue between
    underwritten premiums, service fee revenue, and commissions.
    This allows us to leverage fixed costs over a larger revenue
    base and take advantage of new opportunities.



On July 31, 2008, the merger of Meadowbrook Insurance
    Group, Inc. and ProCentury Corporation (ProCentury)
    was completed (Merger). Under the terms of the
    merger agreement, ProCentury shareholders were entitled to
    receive, for each ProCentury common share, either $20.00 in cash
    or Meadowbrook common stock based on a 2.5000 exchange ratio,
    subject to adjustment as described within the merger agreement.
    In accordance with the merger agreement, the stock price used in
    determining the final cash and share consideration portion of
    the purchase price was based on the volume-weighted average
    sales price of a share of Meadowbrook common stock for the
    30-day
    trading period ending on the sixth trading day before the
    completion of the Merger, or $5.7326. Based upon the final
    proration, the total purchase price was $227.2 million, of
    which $99.1 million consisted of cash,

33




---



##### Table of Contents



hard-to-place
  Critical
    Accounting Policies
  Form 10-K
  RESULTS
    OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND
    2008
         34




---



##### Table of Contents



Results
    of Operations
           35




---



##### Table of Contents



Specialty
    Insurance Operations
    For the Six MonthsEnded June 30,2009


2008Revenue:Net earned premiums

$
256,178


$
143,053Management fees


9,099



10,206Claims fees


3,972



4,485Loss control fees


1,009



1,135Reinsurance placement


155



394Investment income


24,492



13,722Net realized losses


(2,950
)


(177
)Total revenue

$
291,955


$
172,818Pre-tax incomeSpecialty insurance operations

$
48,286


$
28,529              36




---



##### Table of Contents



Other
    Items  Reserves
    Agency
    Operations
    For the Six MonthsEndedJune 30,2009


2008Net commission

$
4,965


$
6,009Pre-tax (loss) income(1)

$
(135
)

$
937     (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 six months ended June 30,
    2009 and 2008, the allocation of corporate overhead to the
    agency operations segment was $1.6 million and
    $1.7 million, respectively.      Other
    Items
  Reserves
   37




---



##### Table of Contents



Minimum


MaximumReserve


Reserve


SelectedLine of Business

Range


Range


ReservesWorkers Compensation(1)

$
170,517


$
188,801


$
181,866Commercial Multiple Peril/General Liability


286,842



348,747



323,643Commercial Automobile


92,729



104,127



99,458Other


35,779



40,632



38,549Total Net Reserves

$
585,867


$
682,307


$
643,516     (1)
    
    Includes Residual Markets        Reserves at


Incurred Losses


Paid Losses


Reserves atDecember 31,


Current


Prior


Total


Current


Prior


Total


June 30,Line of Business

2008


Year


Years


Incurred


Year


Years


Paid


2009Workers Compensation

$
147,813


$
44,148


$
(4,709
)

$
39,439


$
3,930


$
23,800


$
27,730


$
159,522Residual Markets


23,984



3,036



(2,337
)


699



1,484



855



2,339



22,344Commercial Multiple Peril/General Liability


317,188



50,582



(5,672
)


44,910



(697
)


39,152



38,455



323,643Commercial Automobile


92,788



31,184



(345
)


30,839



5,074



19,095



24,169



99,458Other


43,558



25,990



(1,626
)


24,364



8,975



20,398



29,373



38,549Net Reserves


625,331


$
154,940


$
(14,689
)

$
140,251


$
18,766


$
103,300


$
122,066



643,516Reinsurance Recoverable


260,366



























258,890Consolidated

$
885,697


























$
902,406   38




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##### Table of Contents



Re-estimated


DevelopmentReserves at


as aReserves at


June 30,


Percentage ofDecember 31,


2009 on


Prior YearLine of Business

2008


Prior Years


ReservesWorkers Compensation

$
147,813


$
143,104



−3.2
%Commercial Multiple Peril/General Liability


317,188



311,516



−1.8
%Commercial Automobile


92,788



92,443



−0.4
%Other


43,558



41,932



−3.7
%Sub-total


601,347



588,995



−2.1
%Residual Markets


23,984



21,647



−9.7
%Total Net Reserves

$
625,331


$
610,642



−2.3
%   Workers Compensation Excluding Residual
    Markets
  Commercial Multiple Peril and General
    Liability
  Commercial Automobile
  Other
  Residual Markets
 39




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##### Table of Contents



Salaries
    and Employee Benefits and Other Administrative
    Expenses
        Amortization
    Expense
    Interest
    Expense
    Income
    Taxes
    RESULTS
    OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2009 AND
    2008
  Results
    of Operations
   40




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##### Table of Contents



Specialty
    Insurance Operations
    For the Three MonthsEnded June 30,2009


2008Revenue:Net earned premiums

$
127,140


$
77,031Management fees


3,821



4,174Claims fees


2,006



2,305Loss control fees


520



625Reinsurance placement


90



98Investment income


12,280



6,752Net realized losses


(958
)


(146
)Total revenue

$
144,899


$
90,839Pre-tax incomeSpecialty insurance operations

$
20,875


$
15,617        41




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##### Table of Contents



Other
    Items  Reserves
      Agency
    Operations
    For the Three MonthsEnded June 30,2009

2008Net commission

$
2,171


$
2,681Pre-tax (loss) income(1)

$
(473
)

$
174  42




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##### Table of Contents



(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 June 30,
    2009 and 2008, the allocation of corporate overhead to the
    agency operations segment was $760,000 and $900,000,
    respectively.      Other
    Items
  Reserves
    Salaries
    and Employee Benefits and Other Administrative
    Expenses
        Amortization
    Expense
    Interest
    Expense
  Liquidity and Capital
    Resources
 43




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##### Table of Contents



Income
    Taxes
    LIQUIDITY
    AND CAPITAL RESOURCES
           44




---



##### Table of Contents



Other
    Items
  Debentures
    InterestRate atYear


Year





June 30,


PrincipalDescription

Callable


Due


Interest Rate Terms


2009(1)


AmountJunior subordinated debentures


2008



2033



Three-month LIBOR, plus 4.05
%


4.65
%

$
10,310Senior debentures


2009



2034



Three-month LIBOR, plus 4.00
%


4.88
%


13,000Senior debentures


2009



2034



Three-month LIBOR, plus 4.20
%


4.86
%


12,000Junior subordinated debentures


2010



2035



Three-month LIBOR, plus 3.58
%


4.21
%


20,620Junior subordinated debentures(2)


2007



2032



Three-month LIBOR, plus 4.00
%


4.65
%


15,000Junior subordinated debentures(2)


2008



2033



Three-month LIBOR, plus 4.10
%


4.98
%


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.          Interest
    Rate Swaps
  Accounting for Derivative
    Instruments and Hedging Activities,
 45




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##### Table of Contents



FixedAmount atExpiration






Fixed


June 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
%


55,50008/15/2008


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     (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 June 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.
    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
     46




---



##### Table of Contents



Investment
    Portfolio
      Shareholders
    Equity
      2007-2008  Stock Options,
    Long Term Incentive Plan, and Deferred Compensation Plan
      Procentury
    Merger
  30-day
 47




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##### Table of Contents



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


For the Three MonthsEnded June 30,


Ended June 30,2009


2008


2009


2008Net earned premiums

$
256,178


$
143,053


$
127,140


$
77,031Less: Consolidated net loss and LAE


140,251



81,203



70,464



43,542Intercompany claim fees


10,103



6,735



4,995



3,629Unconsolidated net loss and LAE


150,354



87,938



75,459



47,171Consolidated policy acquisition and other underwriting expenses


51,108



25,863



27,139



12,716Intercompany administrative and other underwriting fees


29,567



17,920



15,201



9,832Unconsolidated policy acquisition and other underwriting expenses


80,675



43,783



42,340



22,548Underwriting income

$
25,149


$
11,332


$
9,341


$
7,312GAAP combined ratio as reported


90.2
%


92.1
%


92.7
%


90.5
%Specialty insurance operations pre-tax income

$
48,286


$
28,529


$
20,875


$
15,617Less: Underwriting income


25,149



11,332



9,341



7,312Net investment income and realized losses


21,789



13,888



11,439



6,771Fee-based operations pre-tax income


1,348



3,309



95



1,534Agency operations pre-tax income


(135
)


937



(473
)


174Total
    fee-for-service
    pre-tax income

$
1,213


$
4,246


$
(378
)

$
1,708GAAP expense ratio as reported


31.5
%


30.6
%


33.3
%


29.3
%Adjustment to include pre-tax income from total
    fee-for-service
    income(1)


0.5
%


3.0
%


−0.3
%


2.2
%GAAP expense ratio as adjusted


31.0
%


27.6
%


33.6
%


27.1
%GAAP loss and LAE ratio as reported


58.7
%


61.5
%


59.4
%


61.2
%GAAP combined ratio as adjusted


89.7
%


89.1
%


93.0
%


88.3
% 48




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##### Table of Contents



For the Six Months


For the Three MonthsEnded June 30,


Ended June 30,2009


2008


2009


2008Reconciliation of consolidated pre-tax income:Specialty insurance operations pre-tax income:Fee-based operations pre-tax income

$
1,348


$
3,309


$
95


$
1,534Underwriting income


25,149



11,332



9,341



7,312Net investment income and realized losses


21,789



13,888



11,439



6,771Total specialty insurance operations pre-tax income


48,286



28,529



20,875



15,617Agency operations pre-tax income


(135
)


937



(473
)


174Less: Holding company expenses


2,992



1,619



892



719Interest expense


5,441



2,565



2,659



1,254Amortization expense


2,928



3,114



1,420



1,563Consolidated pre-tax income

$
36,790


$
22,168


$
15,431


$
12,255     (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
    Recent
    Accounting Standards
  No. FAS 115-2 FAS 124-2, Recognition and Presentation of
    Other-Than-Temporary-Impairments FAS 115-2). FAS 115-2 other-than-temporary other-than-temporarily FAS 115-2 other-than-temporary-impairment other-than-temporary-impairment FAS 115-2 FAS 115-2 FAS 115-2 FAS 115-2
 49




---



##### Table of Contents



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 FAS 157-4). FAS 157-4 FAS 157-3, Determining the Fair Value of a Financial Asset When
    the Market for that Asset is Not Active. FAS 157-4 Fair Value
    Measurements FAS 157-4 FAS 157-4 FAS 157-4
  FAS 107-1 28-1, Interim Disclosures about Fair Value of Financial
    Instruments FAS 107-1). FAS 107-1 Disclosures about Fair
    Value of Financial Instruments FAS 107-1 FAS 107-1 FAS 107-1,
  Accounting for Assets Acquired and Liabilities Assumed
    in a Business Combination that Arise from Contingencies Business Combinations,
  Subsequent Events
  Amendments to FASB Interpretation No. 46(R),
  The FASB Accounting Standards Codification and the
    Hierarchy of Generally Accepted Accounting
    Principles  a replacement of FASB Statement
    No. 162
 50




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##### Table of Contents



ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK            Rates Down


Rates


Rates Up100bps


Unchanged


100bpsFair Value

$
1,087,246


$
1,041,043


$
993,315Yield to Maturity or Call


3.36
%


4.38
%


5.34
%Effective Duration


4.40



4.81



5.03         Accounting for Derivative
 51




---



##### Table of Contents



Instruments and Hedging Activities, Derivative Instrument
    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
   52




---



##### 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 ProgramsApril 1  April 30, 2009





$








2,200,000May 1  May 31, 2009





$








2,200,000June 1  June 30, 2009





$








2,200,000Total





$




   ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS             53




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##### Table of Contents



ITEM 6.
    EXHIBITS    ExhibitNo.

Description10
.1

2009 Equity Compensation Plan (incorporated by reference from
    Schedule 14A filed on April 8, 2009).31
.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.  54




---



##### Table of Contents



SIGNATURES    Meadowbrook Insurance Group, Inc.
  By:
    /s/  Karen
    M. Spaun      55




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.

Description10
.1

2009 Equity Compensation Plan (incorporated by reference from
    Schedule 14A file on April 8, 2009).31
.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.  56