##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington D.C. 20549




---

FORM 10-Q

|  |  |                                                                                           
|- |  | ------------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF
	THE SECURITIES EXCHANGE ACT OF 1934 
|  |  | For the quarter ended June 30, 2001                                                       
|  |  | OR                                                                                        
|o |  | 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.



|                         |  |                                  
|------------------------ |  | ---------------------------------
|                        
|                        
|                        
|                        
|Michigan                 |  | 38-2626206                       
|(State of Incorporation) |  | (IRS Employer Identification No.)

26600 Telegraph Road, Southfield, Michigan 48034



Registrants telephone number, including area code:
(248) 358-1100



---

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past
90 days.  Yes x     No 
o

The aggregate number of shares of
the Registrants Common Stock, $.01 par value, outstanding
on August 13, 2001 was 8,512,194.



---






---

TABLE OF CONTENTS



|                                                                                             |  |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART 1 -- FINANCIAL INFORMATION                                                             
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME                                                 
|PART 1 -- FINANCIAL INFORMATION                                                             
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME                                                 
|CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME                                              
|CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                                             
|CONDENSED CONSOLIDATED BALANCE SHEETS                                                       
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                             
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                  
|PART I -- FINANCIAL INFORMATION                                                             
|ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000                       
|RESULTS OF OPERATIONS FOR THE QUARTERS ENDED JUNE 30, 2001 AND 2000                         
|PART II -- OTHER INFORMATION                                                                
|SIGNATURES                                                                                  
|EXHIBIT INDEX                                                                               
|Employment Agreement B/W Robert S. Cubbin                                                   
|Agreement From Sale of Villari                                                              
|Employment Contract b/w Merton J. Segal                                                     
|Employment Contract b/w Michael G. Costello                                                 
|Statement Re: Computation on Per Share Earnings                                             
|Awareness Letter                                                                            



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##### Table of Contents



TABLE OF CONTENTS

|                                                                                                |                                                              |      |       |       | 
|----------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ---- | ----- | ----- | 
|                                                                                                |                                                              | Page
|                                                                                                |                                                              |     
|PART I  FINANCIAL
	INFORMATION                                                                 |                                                              |      |       |      
|ITEM 1  FINANCIAL STATEMENTS                                                                   |                                                              |      |       |      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Report of Independent Accountants                            |      |       | 3     | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Condensed Consolidated Statements of Income
	(unaudited)     |      |       | 4     | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Consolidated Statement of Comprehensive Income
	(unaudited)  |      |       | 6-7   | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Condensed Consolidated Balance Sheets (unaudited)            |      |       | 8     | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Condensed Consolidated Statements of Cash Flows
	(unaudited) |      |       | 9     | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Notes to Consolidated Financial Statements
	(unaudited)      |      |       | 10-16 | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|ITEM 2  MANAGEMENTS DISCUSSION
	AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |                                                              |      | 18-23 |      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|ITEM 3  QUANTITATIVE AND QUALITATIVE
	DISCLOSURES ABOUT MARKET RISK                            |                                                              |      | 23    |      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|PART II  OTHER
	INFORMATION                                                                    |                                                              |      |       |      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|ITEM 1  LEGAL PROCEEDINGS                                                                      |                                                              |      | 24    |      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|ITEM 4  SUBMISSION OF MATTERS TO A
	VOTE OF SECURITY HOLDERS                                   |                                                              |      | 24    |      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|ITEM 6  EXHIBITS AND REPORTS ON FORM
	8-K                                                      |                                                              |      | 24    |      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|SIGNATURES                                                                                      |                                                              |      | 25    |      

2



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##### Table of Contents






Report of Independent Accountants

To the Board of Directors and Shareholders



We have reviewed the accompanying condensed consolidated balance
sheets of Meadowbrook Insurance Group, Inc. and its subsidiaries
as of June 30, 2001, and the related condensed consolidated
statements of income and comprehensive income for each of the
three-month and six-month periods ended June 30, 2001 and
2000 and the condensed consolidate statement of cash flows for
the six-month periods ended June 30, 2001 and 2000. These
financial statements are the responsibility of the
Companys management.

We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the
United States of America.

We previously audited in accordance with auditing standards
generally accepted in the United States of America, the
consolidated balance sheet as of December 31, 2000, and the
related consolidated statements of income, comprehensive income,
shareholders equity, and of cash flows for the year then
ended (not presented herein), and in our report dated
February 15, 2001 we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 2000, is fairly stated in
all material respects in relation to the consolidated balance
sheet from which it has been derived.

-s- PricewaterhouseCoopers LLP







3



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##### Table of Contents








PART 1  FINANCIAL INFORMATION


ITEM 1


FINANCIAL STATEMENTS


MEADOWBROOK INSURANCE GROUP, INC.






CONDENSED CONSOLIDATED STATEMENTS OF INCOME


For the Six Months Ended June 30,


(Unaudited)


|                                                       |                                       |                                   |        |           |         |   |      |           |        | 
|------------------------------------------------------ | ------------------------------------- | --------------------------------- | ------ | --------- | ------- | - | ---- | --------- | ------ | 
|                                                       |                                       | 2001                              |        | 2000     
|                                                       |                                       |                                   |        |          
|                                                       |                                       |                                  
|                                                       |                                       | (in thousands)                   
|                                                      
|                                                      
|                                                      
|                                                      
|Revenues:                                              |                                       |                                   |        |           |         |   |      |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net premium earned                    |                                   | $      | 80,817    |         |   | $    | 71,097    |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net commissions and fees              |                                   |        | 22,745    |         |   |      | 20,702    |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net investment income                 |                                   |        | 6,980     |         |   |      | 6,362     |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net realized losses on investments    |                                   |        | (2,171    | )       |   |      | (183      | )     
|                                                       |                                       |                                   |        |           |         |   |      |          
|                                                       |                                       | Total revenues                    |        |           | 108,371 |   |      |           | 97,978 | 
|                                                       |                                       |                                   |        |           |         |   |      |          
|Expenses:                                              |                                       |                                   |        |           |         |   |      |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net loss and loss adjustment expenses |                                   |        | 64,613    |         |   |      | 51,112    |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Salaries and employee benefits        |                                   |        | 23,286    |         |   |      | 20,998    |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Other operating expenses              |                                   |        | 29,184    |         |   |      | 22,518    |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Interest on notes payable             |                                   |        | 2,482     |         |   |      | 2,618     |       
|                                                       |                                       |                                   |        |           |         |   |      |          
|                                                       |                                       | Total expenses                    |        |           | 119,565 |   |      |           | 97,246 | 
|                                                       |                                       |                                   |        |           |         |   |      |          
|                                                       |                                       | (Loss) income before income taxes |        |           | (11,194 | ) |      |           | 732    | 
|                                                      
|                                                      
|                                                      
|                                                      
|Federal income tax benefit                             |                                       |                                   | (3,865 | )         |         |   | (287 | )        
|                                                       |                                       |                                   |        |           |         |   |      |          
|                                                       |                                       | Net (loss) income                 |        | $         | (7,329  | ) |      | $         | 1,019  | 
|                                                       |                                       |                                   |        |           |         |   |      |          
|Earnings per share:                                    |                                       |                                   |        |           |         |   |      |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Basic                                 |                                   | $      | (0.86     | )       |   | $    | 0.12      |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Diluted                               |                                   | $      | (0.86     | )       |   | $    | 0.12      |       
|                                                      
|                                                      
|                                                      
|                                                      
|Weighted average number of common shares
	outstanding: |                                       |                                   |        |           |         |   |      |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Basic                                 |                                   |        | 8,512,178 |         |   |      | 8,511,659 |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Diluted                               |                                   |        | 8,512,838 |         |   |      | 8,511,659 |       

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

4



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##### Table of Contents








PART 1  FINANCIAL INFORMATION


ITEM 1


FINANCIAL STATEMENTS


MEADOWBROOK INSURANCE GROUP, INC.






CONDENSED CONSOLIDATED STATEMENTS OF INCOME


For the Quarter Ended June 30,


(Unaudited)


|                                                       |                                       |                                   |        |           |         |   |     |           |        | 
|------------------------------------------------------ | ------------------------------------- | --------------------------------- | ------ | --------- | ------- | - | --- | --------- | ------ | 
|                                                       |                                       | 2001                              |        | 2000     
|                                                       |                                       |                                   |        |          
|                                                       |                                       |                                  
|                                                       |                                       | (in thousands)                   
|                                                      
|                                                      
|                                                      
|                                                      
|Revenues:                                              |                                       |                                   |        |           |         |   |     |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net premium earned                    |                                   | $      | 39,644    |         |   | $   | 37,829    |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net commissions and fees              |                                   |        | 10,336    |         |   |     | 10,520    |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net investment income                 |                                   |        | 3,472     |         |   |     | 3,564     |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net realized losses on investments    |                                   |        | (2,317    | )       |   |     | (172      | )     
|                                                       |                                       |                                   |        |           |         |   |     |          
|                                                       |                                       | Total revenues                    |        |           | 51,135  |   |     |           | 51,741 | 
|                                                       |                                       |                                   |        |           |         |   |     |          
|Expenses:                                              |                                       |                                   |        |           |         |   |     |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net loss and loss adjustment expenses |                                   |        | 34,577    |         |   |     | 27,810    |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Salaries and employee benefits        |                                   |        | 11,910    |         |   |     | 10,273    |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Other operating expenses              |                                   |        | 14,860    |         |   |     | 11,409    |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Interest on notes payable             |                                   |        | 1,163     |         |   |     | 1,378     |       
|                                                       |                                       |                                   |        |           |         |   |     |          
|                                                       |                                       | Total expenses                    |        |           | 62,510  |   |     |           | 50,870 | 
|                                                       |                                       |                                   |        |           |         |   |     |          
|                                                       |                                       | (Loss) income before income taxes |        |           | (11,375 | ) |     |           | 871    | 
|                                                      
|                                                      
|                                                      
|                                                      
|Federal income tax benefit                             |                                       |                                   | (3,893 | )         |         |   | (43 | )        
|                                                       |                                       |                                   |        |           |         |   |     |          
|                                                       |                                       | Net (loss) income                 |        | $         | (7,482  | ) |     | $         | 914    | 
|                                                       |                                       |                                   |        |           |         |   |     |          
|Earnings per share:                                    |                                       |                                   |        |           |         |   |     |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Basic                                 |                                   | $      | (0.88     | )       |   | $   | 0.11      |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Diluted                               |                                   | $      | (0.88     | )       |   | $   | 0.11      |       
|                                                      
|                                                      
|                                                      
|                                                      
|Weighted average number of common shares
	outstanding: |                                       |                                   |        |           |         |   |     |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Basic                                 |                                   |        | 8,512,194 |         |   |     | 8,511,633 |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Diluted                               |                                   |        | 8,512,194 |         |   |     | 8,511,633 |       

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

5



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##### Table of Contents



MEADOWBROOK INSURANCE GROUP, INC.






CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME


For the Six Months Ended June 30,


(Unaudited)


|                  |                                                |                                                                      |                                               |      |     |        |       |  |      |      |  
|----------------- | ---------------------------------------------- | -------------------------------------------------------------------- | --------------------------------------------- | ---- | --- | ------ | ----- |  | ---- | ---- | -
|                  |                                                | 2001                                                                 |                                               | 2000
|                  |                                                |                                                                      |                                               |     
|                  |                                                |                                                                     
|                  |                                                | (in thousands)                                                      
|                 
|                 
|                 
|                 
|Net (loss) income |                                                | $                                                                    | (7,329                                        | )    |     | $      | 1,019 | 
|                 
|                 
|                 
|                 
|                  | Other comprehensive income (loss), net of tax: |                                                                      |                                               |      |     |        |       |  |     
|                 
|                 
|                 
|                 
|                  |                                                | Unrealized gains (losses) on securities                              |                                               |      | 633 |        |       |  | (256 | )   
|                 
|                 
|                 
|                 
|                  |                                                | Less: reclassification adjustment for losses
	included in net income |                                               |      | 27  |        |       |  | 121  |     
|                  |                                                |                                                                      |                                               |      |     |        |       | 
|                  |                                                |                                                                      | Other comprehensive income (loss), net of tax |      |     | 660    |       |  |      | (135 | )
|                  |                                                |                                                                      |                                               |      |     |        |       | 
|                  |                                                |                                                                      | Comprehensive (loss) income                   |      | $   | (6,669 | )     |  | $    | 884  |  
|                  |                                                |                                                                      |                                               |      |     |        |       | 

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

6



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##### Table of Contents



MEADOWBROOK INSURANCE GROUP, INC.






CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


For the Quarter Ended June 30,


(Unaudited)


|                  |                                                 |                                                                      |                                               |      |      |        |     |  |     |       | 
|----------------- | ----------------------------------------------- | -------------------------------------------------------------------- | --------------------------------------------- | ---- | ---- | ------ | --- |  | --- | ----- | 
|                  |                                                 | 2001                                                                 |                                               | 2000
|                  |                                                 |                                                                      |                                               |     
|                  |                                                 |                                                                     
|                  |                                                 | (in thousands)                                                      
|                 
|                 
|                 
|                 
|Net (loss) income |                                                 | $                                                                    | (7,482                                        | )    |      | $      | 914 | 
|                 
|                 
|                 
|                 
|                  | Other comprehensive (loss) income, net of
	tax: |                                                                      |                                               |      |      |        |     |  |    
|                 
|                 
|                 
|                 
|                  |                                                 | Unrealized (losses) gains on securities                              |                                               |      | (913 | )      |     |  | 161 |      
|                 
|                 
|                 
|                 
|                  |                                                 | Less: reclassification adjustment for losses
	included in net income |                                               |      | 123  |        |     |  | 114 |      
|                  |                                                 |                                                                      |                                               |      |      |        |     | 
|                  |                                                 |                                                                      | Other comprehensive (loss) income, net of tax |      |      | (790   | )   |  |     | 275   | 
|                  |                                                 |                                                                      |                                               |      |      |        |     | 
|                  |                                                 |                                                                      | Comprehensive (loss) income                   |      | $    | (8,272 | )   |  | $   | 1,189 | 
|                  |                                                 |                                                                      |                                               |      |      |        |     | 

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

7



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##### Table of Contents



MEADOWBROOK INSURANCE GROUP, INC.






CONDENSED CONSOLIDATED BALANCE SHEETS


|                                                             |                                                                                    |                                            |         |              |         |   |         |         |         | 
|------------------------------------------------------------ | ---------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- | - | ------- | ------- | ------- | 
|                                                             |                                                                                    | June 30,                                   |         |             
|                                                             |                                                                                    | 2001                                       |         | December 31,
|                                                             |                                                                                    | (Unaudited)                                |         | 2000        
|                                                             |                                                                                    |                                            |         |             
|                                                             |                                                                                    |                                           
|                                                             |                                                                                    | (in thousands,                            
|                                                             |                                                                                    | except share data)                        
|                                                            
|                                                            
|                                                            
|                                                            
|ASSETS                                                      
|                                                            
|                                                            
|                                                            
|                                                            
|Cash and invested assets:                                    |                                                                                    |                                            |         |              |         |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Debt securities available for sale, at fair value
	(cost of $196,353 and $164,685) |                                            | $       | 199,095      |         |   | $       | 166,790 |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Equity securities available for sale, at fair
	value (cost of $2,918 and $16,445)  |                                            |         | 3,322        |         |   |         | 16,455  |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cash and cash equivalents                                                          |                                            |         | 38,621       |         |   |         | 56,838  |        
|                                                             |                                                                                    |                                            |         |              |         |   |         |        
|                                                             |                                                                                    | Total cash and invested assets             |         |              | 241,038 |   |         |         | 240,083 | 
|                                                            
|                                                            
|                                                            
|                                                            
|Premiums and agent balances receivable                       |                                                                                    |                                            | 77,929  |              |         |   | 79,121  |        
|                                                            
|                                                            
|                                                            
|                                                            
|Reinsurance recoverable on paid and unpaid losses            |                                                                                    |                                            | 201,346 |              |         |   | 185,387 |        
|                                                            
|                                                            
|                                                            
|                                                            
|Prepaid reinsurance premiums                                 |                                                                                    |                                            | 48,715  |              |         |   | 55,854  |        
|                                                            
|                                                            
|                                                            
|                                                            
|Deferred policy acquisition costs                            |                                                                                    |                                            | 12,107  |              |         |   | 6,624   |        
|                                                            
|                                                            
|                                                            
|                                                            
|Intangible assets                                            |                                                                                    |                                            | 33,651  |              |         |   | 35,946  |        
|                                                            
|                                                            
|                                                            
|                                                            
|Other assets                                                 |                                                                                    |                                            | 74,513  |              |         |   | 58,168  |        
|                                                             |                                                                                    |                                            |         |              |         |   |         |        
|                                                             |                                                                                    | Total assets                               |         | $            | 689,299 |   |         | $       | 661,183 | 
|                                                             |                                                                                    |                                            |         |              |         |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|LIABILITIES AND SHAREHOLDERS
	EQUITY                       
|                                                            
|                                                            
|                                                            
|                                                            
|Liabilities:                                                 |                                                                                    |                                            |         |              |         |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|Reserve for losses and loss adjustment expenses              |                                                                                    | $                                          | 366,583 |              |         | $ | 341,824 |        
|                                                            
|                                                            
|                                                            
|                                                            
|Unearned premiums                                            |                                                                                    |                                            | 104,848 |              |         |   | 94,142  |        
|                                                            
|                                                            
|                                                            
|                                                            
|Debt                                                         |                                                                                    |                                            | 53,464  |              |         |   | 53,013  |        
|                                                            
|                                                            
|                                                            
|                                                            
|Reinsurance funds held and balances payable                  |                                                                                    |                                            | 34,175  |              |         |   | 38,171  |        
|                                                            
|                                                            
|                                                            
|                                                            
|Other liabilities                                            |                                                                                    |                                            | 51,449  |              |         |   | 48,058  |        
|                                                             |                                                                                    |                                            |         |              |         |   |         |        
|                                                             |                                                                                    | Total liabilities                          |         |              | 610,519 |   |         |         | 575,208 | 
|                                                             |                                                                                    |                                            |         |              |         |   |         |        
|Commitments and contingencies (note 7)                       |                                                                                    |                                            |         |              |         |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|Shareholders Equity:                                        |                                                                                    |                                            |         |              |         |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|Common stock, $.01 par value; authorized
	30,000,000 shares: |                                                                                    |                                            |         |              |         |   |         |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | 8,512,194 and 8,512,008 shares issued and
	outstanding                             |                                            |         | 85           |         |   |         | 85      |        
|                                                            
|                                                            
|                                                            
|                                                            
|Additional paid-in capital                                   |                                                                                    |                                            | 67,938  |              |         |   | 67,928  |        
|                                                            
|                                                            
|                                                            
|                                                            
|Retained earnings                                            |                                                                                    |                                            | 9,470   |              |         |   | 17,309  |        
|                                                            
|                                                            
|                                                            
|                                                            
|Note receivable from officer                                 |                                                                                    |                                            | (798    | )            |         |   | (772    | )      
|                                                            
|                                                            
|                                                            
|                                                            
|Accumulated other comprehensive income                       |                                                                                    |                                            | 2,085   |              |         |   | 1,425   |        
|                                                             |                                                                                    |                                            |         |              |         |   |         |        
|                                                             |                                                                                    | Total shareholders equity                 |         |              | 78,780  |   |         |         | 85,975  | 
|                                                             |                                                                                    |                                            |         |              |         |   |         |        
|                                                             |                                                                                    | Total liabilities and shareholders equity |         | $            | 689,299 |   |         | $       | 661,183 | 
|                                                             |                                                                                    |                                            |         |              |         |   |         |        

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

8



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##### Table of Contents



MEADOWBROOK INSURANCE GROUP, INC.






CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


For the Six Months Ended June 30,


(Unaudited)


|                                                        |                                                             |                                                      |         |         |         |   |        |         |        |  
|------------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------------------- | ------- | ------- | ------- | - | ------ | ------- | ------ | -
|                                                        |                                                             | 2001                                                 |         | 2000   
|                                                        |                                                             |                                                      |         |        
|                                                        |                                                             |                                                     
|                                                        |                                                             | (in thousands)                                      
|                                                       
|                                                       
|                                                       
|                                                       
|Net cash provided by operating activities               |                                                             | $                                                    | 6,484   |         |         | $ | 16,515 |        
|                                                        |                                                             |                                                      |         |         |         |   |        |        
|Cash flows (used in) provided by investing
	activities: |                                                             |                                                      |         |         |         |   |        |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Purchase of debt securities available for sale              |                                                      |         | (76,312 | )       |   |        | (39,375 | )     
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Purchase of equity securities available for sale            |                                                      |         | (453    | )       |   |        | (163    | )     
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Proceeds from sale of debt securities available
	for sale   |                                                      |         | 44,016  |         |   |        | 32,762  |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Proceeds from sale of equity securities available
	for sale |                                                      |         | 13,718  |         |   |        | 929     |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Other investing activities                                  |                                                      |         | (7,920  | )       |   |        | (2,141  | )     
|                                                        |                                                             |                                                      |         |         |         |   |        |        
|                                                        |                                                             | Net cash used in investing activities                |         |         | (26,951 | ) |        |         | (7,988 | )
|                                                       
|                                                       
|                                                       
|                                                       
|Cash flows provided by (used in) financing
	activities: |                                                             |                                                      |         |         |         |   |        |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Net proceeds from (payments of) bank loan                   |                                                      |         | 450     |         |   |        | (2,764  | )     
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Dividends paid on common stock                              |                                                      |         | (511    | )       |   |        | (511    | )     
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Other financing activities                                  |                                                      |         | 2,311   |         |   |        | (1,191  | )     
|                                                        |                                                             |                                                      |         |         |         |   |        |        
|                                                        |                                                             | Net cash provided by (used in) financing
	activities |         |         | 2,250   |   |        |         | (4,466 | )
|                                                        |                                                             |                                                      |         |         |         |   |        |        
|(Decrease) increase in cash and cash equivalents        |                                                             |                                                      | (18,217 | )       |         |   | 4,061  |        
|                                                       
|                                                       
|                                                       
|                                                       
|Cash and cash equivalents, beginning of period          |                                                             |                                                      | 56,838  |         |         |   | 23,713 |        
|                                                        |                                                             |                                                      |         |         |         |   |        |        
|Cash and cash equivalents, end of period                |                                                             | $                                                    | 38,621  |         |         | $ | 27,774 |        
|                                                        |                                                             |                                                      |         |         |         |   |        |        

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

9



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##### Table of Contents








NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)


NOTE 1  Basis of Presentation

These financial statements and the notes thereto should be read
in conjunction with the Meadowbrook Insurance Group, Inc.s
(the Company) audited financial statements and
accompanying notes included in its Annual Report on
Form 10-K for the year ended December 31, 2000.

The consolidated financial statements reflect all normal
recurring adjustments, which were, in the opinion of management,
necessary to present a fair statement of the results for the
interim quarters. The results of operations for the six months
ended June 30, 2001 are not necessarily indicative of the
results expected for the full year.

NOTE 2  New Accounting Pronouncements

Effective January 1, 2001, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 133
Accounting for Derivative Instruments and Hedging
Activities (as amended by SFAS No. 137 and 138). As
the Company does not customarily use derivative instruments, the
impact of adoption was immaterial to the results of operations
or financial position of the Company.

The Financial Accounting Standards Board (FASB) has
issued SFAS No. 141 Business Combinations. SFAS
No. 141 eliminates the pooling-of-interests
method for business combinations initiated after June 30,
2001. The Company does not anticipate the adoption of SFAS
No. 141 will have a material effect to the results of
operations or financial position of the Company.

FASB has issued SFAS No. 142 Goodwill and Other
Intangible Assets. SFAS No. 142, for periods starting
January 1, 2002 or thereafter, eliminates the amortization
of goodwill. In addition, goodwill would be separately tested
for impairment using a fair-value based approach. The Company
has not yet determined the impact that SFAS No. 142 will
have on its consolidated financial statements and expects to
implement it in 2002.

NOTE 3  Reinsurance

The insurance company subsidiaries cede insurance to other
insurers under pro rata and excess-of-loss contracts. These
reinsurance arrangements diversify the Companys business
and minimize its losses arising from large risks or from hazards
of an unusual nature covered by the reinsurance agreements. The
ceding of insurance does not discharge the original insurer from
its primary liability to its policyholder; and in the event that
any or all of the reinsuring companies are unable to meet their
obligations, the insurance company subsidiaries would be liable
for such defaulted amounts. Therefore, the Company is subject to
credit risk with respect to the obligations of its reinsurers.
In order to minimize its exposure to significant losses from
reinsurer insolvencies, the Company evaluates the financial
condition of its reinsurers and monitors the economic
characteristics of the reinsurers on an ongoing basis. The
Company also assumes insurance from other insurers and
reinsurers, both domestic and foreign, under pro rata and
excess-of-loss contracts.

At June 30, 2001, the Company had reinsurance recoverables
for paid and unpaid losses of $201.3 million. The Company
customarily collateralizes reinsurance balances due from
non-admitted reinsurers through Funds Withheld Trusts or Letters
of Credit. The largest unsecured reinsurance recoverable is due
from an admitted reinsurer with an A++
(Superior) A.M. Best Company
(A.M. Best) rating and accounts for 14.4% of
the total recoverable for paid and unpaid losses.

During the six months ended June 30, 2001, the Company
recorded a provision of $1.0 million related to balances
due from HIH America Compensation & Liability Company
(HIH), a California domiciled insurance company
which was recently seized by the California Department of
Insurance.

During the six months ended June 30, 2001, the Company
recorded a provision of $5.5 million related to balances
due from Connecticut Surety Company, of which $3.3 million
was related to reinsurance recoverable balances. See Note 6 for
additional information.

10



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(unaudited)


The Companys insurance subsidiaries maintain an excess
reinsurance program designed to protect against large or unusual
loss and loss adjustment expense activity. The Company
determines the appropriate amount of reinsurance based on the
Companys evaluation of the risks accepted and analysis
prepared by consultants and reinsurers and on market conditions
including the availability and pricing of reinsurance.

Under the workers compensation reinsurance program, the
Company reinsures each loss in excess of $100,000 up to a limit
of $20 million, under separate treaties. The first treaty
covers losses in excess of $100,000 up to $250,000, and the
second treaty reinsures losses in excess of $250,000 up to
$20 million. In addition, the Company purchases coverage in
excess of $20 million up to $140 million to protect itself
in the event of a catastrophe.

Under the liability reinsurance treaty, the reinsurers are
responsible for 100% of the amount of each loss in excess of
$250,000 up to $5.0 million per occurrence.

Under the property program, the reinsurers are responsible for
100% of the amount of each loss in excess of $250,000 up to
$1.0 million per occurrence. Additionally, the property
program provides coverage for losses in excess of
$1.0 million up to $1.75 million per occurrence, and
losses in excess of $1.75 million to $3.0 million per
occurrence.

In its risk-sharing programs, the Company is also subject to
credit risk with respect to the payment of claims by its
clients captive insurers, rent-a-captive, large deductible
programs, indemnification agreements and on the portion of risk
exposure either ceded to the captives or retained by the client.
The capitalization and credit worthiness of prospective
risk-sharing partners is one of the factors considered by the
Company in entering into and renewing risk-sharing programs. The
Company typically collateralizes balances due from its
risk-sharing partners through Funds Withheld Trusts or Letters
of Credit. Although to date the Company has not experienced any
material difficulties in collecting balances from its
risk-sharing partners, the Company does have concerns about the
ultimate collectibility of certain of these balances.
Consequently the Company has an allowance of $5.7 million
for balances due from marginally capitalized risk sharing
partners in the event they are unable or unwilling to meet their
obligation. No assurance can be given, however, regarding the
future ability of any of the Companys risk-sharing
partners to meet their obligations.

NOTE 4  Secured Line of Credit

The Company has an secured line of credit totaling
$48.0 million, of which $47.5 million was outstanding
at June 30, 2001. The Company drew on this line of credit
primarily to consummate the acquisitions made during 1997
through 1999. The Company also uses the line of credit
periodically to fund operating expenses of the non-regulated
subsidiaries and to make investments with the regulated
subsidiaries.

At December 31, 2000, the Company was obligated to reduce
the credit line to $33 million by April 30, 2001. In
May 2001, the Company received a permanent waiver of this
obligation to reduce the credit line. Concurrent with the
permanent waiver, the Company and its banks agreed to waive all
prior covenant violations of the existing loan agreement and
establish new covenants related to statutory surplus, GAAP net
worth, fixed charge coverage, net and gross premium ratios and a
minimum A.M. Best rating. In addition, the Company agreed
to a revised pay down schedule and an interest rate that
increases one-quarter point every two months beginning
June 1, 2001 until the facility is paid down to
$33 million. Pursuant to the revised pay down schedule,
proceeds from capital raising efforts, including any sales of
non-regulated subsidiaries, must first be used to reduce the
loan commitment from $48 million to $33 million. Half
of any proceeds in excess of $15 million from sales of
non-regulated subsidiaries must be used to further reduce the
loan commitment. If there have been no required or voluntary
reductions in the loan facility prior to September 30,
2001, the Company is required to begin reducing the loan
commitment by $5 million per quarter until the facility is
paid in full, expires in August 2002, is renegotiated or
extended. As of the current date, the Company does not have, and
may not have, the liquidity in the non-regulated subsidiaries to
make the required $5.0 million payment on
September 30, 2001. On July 5, 2001, the banks
provided a waiver to the Company allowing all of

11



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(unaudited)


the proceeds from the sale of Meadowbrook-Villari Agency of
Florida to be contributed to the surplus of the Companys
insurance subsidiaries.

As of June 30, 2001, the Company was in violation of
several covenants. Specifically, the recent A.M. Best downgrade
to B (Fair) (See Note 5 
Regulatory Matters and Rating Agencies for further
discussion)caused the Company to be below the minimum
B+ (Very Good) rating required in the
loan agreement. In addition, the Company is below minimum
shareholders equity requirements, and is above maximum
debt to total capital requirements. Also, under the provisions
of the loan agreement, the Company is precluded from paying
dividends to shareholders while it is in default. The Company
intends to seek approval to pay the third quarter dividend,
however, there can be no assurance the approval will be
received. The Company remains current on its debt service
obligation.

Under the terms of the credit agreement, due to the covenant
violations, the banks have the right to terminate the revolving
credit facility and demand full and immediate repayment. If such
repayment is required, the Company currently does not have
sufficient cash to repay the bank loan. The Banks have not
expressed a current intent to require immediate repayment, and
while the Banks and the Company continue to discuss new terms or
an agreeable timetable, there can be no assurances that the
Banks will not require such repayment. As part of the loan
agreement, the Company pledged the stock of its non-regulated
subsidiaries as collateral in the event of a default. Should the
banks exercise this right to sell the Companys
non-regulated subsidiaries, the cash generated may be
insufficient to repay the debt. While the Banks have not
expressed a current intent to exercise that right, there can be
no assurances that they will not exercise their right.

The Banks have taken no formal action to date with respect to
this line of credit. The Company has retained Goldman,
Sachs & Co. (Goldman Sachs) to review its
strategic and capital raising alternatives. A portion of any
capital received will likely be used to pay down all or a
portion of the outstanding balances on the credit facility. No
assurance can be given that these capital raising efforts will
be successful.

NOTE 5  Regulatory Matters and Rating Agencies

A significant portion of the Companys consolidated assets
represent assets of the Companys insurance subsidiaries
that cannot be transferred to the holding company in the form of
dividends, loans or advances. The restriction on the
transferability to the holding company from its insurance
subsidiaries is dictated by Michigan regulatory guidelines,
which are as follows: The maximum discretionary dividend that
may be declared, based on data from the preceding calendar year,
is the greater of each insurance companys net income
(excluding realized capital gains) or ten percent of the
insurance companys policyholders surplus (excluding
unrealized gains). These dividends are further limited by a
clause in the Michigan law that prohibits an insurer from
declaring dividends except out of surplus earnings of the
company. Earned surplus balances are calculated on a quarterly
basis. Since Star Insurance Company (Star) is the
parent insurance company, its maximum dividend calculation
represents the combined insurance companies surplus. Based
upon the 2000 statutory financial statements, Star may not pay
any dividends to the Company during 2001 without prior approval
of the Michigan Commissioner of Insurance. Stars earned
surplus position at December 31, 2000 was negative
$25.9 million. At June 30, 2001 earned surplus was
negative $36.2 million. No statutory dividends were paid to
the Company in 2000 and 1999.

In March 1998, the National Association of Insurance
Commissioners (NAIC) voted to adopt its Codification
of Statutory Accounting Principles project (referred to
hereafter as codification). Codification is a
modified form of statutory accounting principles that resulted
in a change to the NAIC Accounting Practices and Procedures
Manual previously applicable to insurance enterprises. The
Companys insurance subsidiaries adopted codification
effective January 1, 2001.

Insurance operations are subject to various leverage tests (e.g.
premium to statutory surplus ratios) which are evaluated by
regulators and rating agencies. The Companys target for
gross and net written premium to statutory surplus are 3 to 1
and 2 to 1, respectively. Due primarily to large net losses in
2000 and in the first

12



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(unaudited)


half of 2001, statutory surplus has diminished to a level where
the premium leverage ratios as of June 30, 2001, on a
consolidated basis, were 6.2 to 1 and 3.0 to 1 on a gross and
net written premium basis, respectively.

The Company has received inquiries from various state regulators
requesting additional information concerning the Companys
financial condition. The losses, adverse trends and
uncertainties discussed in this report have been and continue to
be reviewed by the domiciliary and other insurance regulators of
the Companys insurance subsidiaries. The Company has
submitted a business plan to reduce its current leverage ratios
and is working closely with the Michigan Office of Financial and
Insurance Services to monitor its progress. To date, the Company
has been unsuccessful in reducing its premium leverage ratios.
As noted elsewhere, additional capital from sources outside the
Company will be necessary to assist in bringing the leverage
ratios back into line. Reductions in premium writings may also
be required. If the regulators determine that the Company has
made insufficient progress towards reducing its leverage ratios,
they may take action at any time. While the regulators have
taken no actions to date, these actions could include requiring
the Company to propose steps to correct the capital deficiency,
reductions in permitted premium writings, and placing the
Company under regulatory control.

The National Association of Insurance Commissioners
(NAIC) has adopted a risk-based capital
(RBC) formula to be applied to all property and
casualty insurance companies. The formula measures required
capital and surplus based on an insurance companys
products and investment portfolio and is to be used as a tool to
identify weakly capitalized companies. At December 31, 2000
and 1999, all of the insurance subsidiaries were in compliance
with RBC requirements. Regulatory measures are required when the
RBC ratio falls below 2 to 1 actual surplus to authorized
control level surplus. Star, the parent insurance company, had
actual statutory surplus of $56.2 million and
$70.2 million at December 31, 2000 and 1999,
respectively; the authorized control level RBC was
$27.0 million in 2000 and $19.6 million in 1999.

Management believes, based on current operating results and
forecasted operating trends, that absent a significant capital
contribution to its insurance subsidiaries, it is probable that
as of December 31, 2001 (the next RBC measurement date) the
Companys RBC ratio will fall below 2 to 1, a level that
will require formal regulatory action. While the Company has
engaged Goldman Sachs to assist in its capital raising
strategies, there can be no assurance that the required capital
will be raised by the next RBC measurement date.

The Companys insurance subsidiaries are rated by A.M.
Best. A.M. Bests rating represents its opinion of the
financial strength of the Companys insurance company
subsidiaries and their capacity to meet the obligations of
insurance policies, and are not directed toward the protection
of investors. A.M. Best assigns ratings along a scale with
ratings at the top end of the scale, in the opinion of
A.M. Best, possessing the strongest capacity for payment of
claims, while companies at the bottom end of the scale
possessing the weakest capacity.

On August 10, 2001, A.M. Best reduced its rating of the
Companys insurance company subsidiaries from
B++ (Very Good) to B
(Fair) and removed the Company from under review. In
February 2001, the Companys rating was lowered from
A- (Excellent) to B++
(Very Good) and put under review with developing
implications. If the Company is unsuccessful in increasing its
capital significantly in the immediate future such that its
rating returns to previous levels, the downgrade could have a
material adverse effect on the Companys ability to market
its insurance products, which in turn would have a material
adverse effect on the Companys financial condition,
results of operations, and liquidity. The financial impact of
the rating change cannot be quantified at this time. There can
be no assurance that A.M. Best will not further reduce its
rating of the Companys insurance company subsidiaries in
the future. See also Item 2, Dependence on Key
Programs for a discussion of the impact of the downgrade
on certain programs.

In May 2001, Standard & Poors downgraded Star and
its insurance company subsidiaries from an A to a
BB+ rating. This change in the Companys rating
was primarily the result of Standard & Poors
concerns that the Company might fall below accepted levels of
regulatory capital as measured by the NAICs risk based
capital ratio. At the Companys request, Standard &
Poors no longer rates the Company.

13



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(unaudited)


NOTE 6  Other matters

Effective December 31, 2000, Connecticut Surety Company
(CSC) executed a Subordinated Surplus Note with Star
in the principal sum of $3.8 million. Interest earns at 9%
per annum, payable quarterly beginning April 1, 2001. These
loan proceeds were deposited by CSC into a trust account
established for the benefit of Star in order to collateralize
CSCs reinsurance obligations under the various reinsurance
agreements. This Subordinated Surplus Note, along with the other
notes ($195,000 Subordinated Surplus Note and $300,000
Promissory Notes), were intended to be converted into Voting
Convertible Preferred Stock of CSC, or its parent, as a part of
a recapitalization of CSC, pursuant to a Letter of Intent dated
December 31, 2000 between CSC, Star, and other investors.
Upon obtainment of the requisite regulatory approval, it was
anticipated that Star would own greater than 50% of CSC, or its
parent company, if it had fully exercised its conversion rights
under the Voting Convertible Preferred Stock.

As of March 31, 2001, without the effect of the investment
noted above, CSC reported capital and surplus of negative
$530,000. Star, in conjunction with the Connecticut Insurance
Department and the other CSC shareholders, developed the
recapitalization plan described above that would have allowed
CSC to continue as a going concern, subject to regulatory
approval. In conjunction with its investment, Star has two seats
on CSCs board.

During the second quarter of 2001, CSC advised the Company it
was no longer able to pay surety bond claims from its cashflow,
which related to reinsurance agreements in effect prior to
June 1, 2000. As a result, the Company has paid surety bond
claims covered under the reinsurance agreements in effect prior
to June 1, 2000 from the trust account. In addition, an
affiliate of CSC has suspended premium remittances to the
Company on bonds currently being issued.

On June 26, 2001, the Company was advised that certain
investors had decided to no longer participate in the
re-capitalization plan of CSC. In view of this decision, a
hearing scheduled before Connecticut Insurance Department was
adjourned and has been rescheduled for August 16, 2001, so
as to provide the Company additional time to consider whether it
would proceed with the re-capitalization plan of CSC. Absent a
substantial infusion of capital into CSC, the Company believes
CSC will be unable to meet its reinsurance and other obligations
to the Company. While CSC has undertaken efforts to raise
capital, it has been unsuccessful to date. In view of these
events, the Company currently intends not to convert the
Subordinated Surplus Note, nor other notes as described above,
into Voting Convertible Preferred Stock of CSC, or its parent
and currently intends to withdraw its Form A pending before
the Connecticut Department of Insurance.

The Company estimates its exposure from CSC is approximately
$5.5 million at June 30, 2001 and has recorded a
charge for this amount. This charge included a provision of
$3.3 million for reinsurance recoverables,
$1.3 million for uncollectible receivables, and $870,000
for impairment in the Subordinated Surplus Note.

NOTE 7  Commitments and Contingencies

The Company is involved in litigation arising in the ordinary
course of operations. While the results of litigation cannot be
predicted with certainty, management is of the opinion, after
reviewing these matters with legal counsel, that the final
outcome of such litigation will not have a material effect upon
the Companys financial statements.

NOTE 8  Segment Information

The Company defines its operations as agency operations and
program business operations based upon differences in products
and services. The separate financial information of these
segments is consistent with the way results are regularly
evaluated by management in deciding how to allocate resources
and in assessing performance. Intersegment revenue is eliminated
in consolidation.

14



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(unaudited)


Agency Operations

The agency segment was formed in 1955 as Meadowbrooks
original business. The insurance agency primarily places
commercial insurance, as well as personal property, casualty,
life and accident and health insurance, with more than 50
insurance carriers from which it earns commission income.
Effective July 1, 2001, the Company sold the business of
Meadowbrook-Villari Agency of Florida. It is anticipated that
this sale will result in a reduction of annualized agency
revenue of approximately $3.2 million, but should not have
a material impact on the Companys overall results of
operations. The Company recorded an impairment of approximately
$850,000 in conjunction with the sale.

Program Business

The program business segment is engaged primarily in developing
and managing alternative market risk management programs for
defined client groups and their members. This includes providing
services, such as reinsurance brokering, risk management
consulting, claims handling, and administrative services, along
with various types of property and casualty insurance coverage,
including workers compensation, general liability and
commercial multiple peril. Insurance coverage is primarily
provided to associations or similar groups of members, commonly
referred to as programs. A program is a set of coverages and
services tailored to meet the specific requirements of a group
of clients.

The following table sets forth the segment results (in
thousands):

|                       |                                    |                          |                                    |         |         |         |   |        |        |        | 
|---------------------- | ---------------------------------- | ------------------------ | ---------------------------------- | ------- | ------- | ------- | - | ------ | ------ | ------ | 
|                       |                                    |                         
|                       |                                    | For the Six Months      
|                       |                                    | Ended June 30,          
|                       |                                    |                         
|                       |                                    | 2001                     |                                    | 2000   
|                       |                                    |                          |                                    |        
|Revenues:              |                                    |                          |                                    |         |         |         |   |       
|                      
|                      
|                      
|                      
|                       | Net earned premiums                |                          | $                                  | 80,817  |         |         | $ | 71,097 |       
|                      
|                      
|                      
|                      
|                       | Management fees                    |                          |                                    | 13,938  |         |         |   | 12,272 |       
|                      
|                      
|                      
|                      
|                       | Investment income                  |                          |                                    | 6,954   |         |         |   | 6,387  |       
|                      
|                      
|                      
|                      
|                       | Net realized losses on investments |                          |                                    | (1,321  | )       |         |   | (234   | )     
|                       |                                    |                          |                                    |         |         |         |   |       
|                       |                                    | Program business segment |                                    |         | 100,388 |         |   |        | 89,522 |       
|                      
|                      
|                      
|                      
|                       | Agency operations                  |                          |                                    | 9,160   |         |         |   | 8,744  |       
|                      
|                      
|                      
|                      
|                       | Reconciling items                  |                          |                                    | (824    | )       |         |   | 26     |       
|                      
|                      
|                      
|                      
|                       | Intersegment revenue               |                          |                                    | (353    | )       |         |   | (314   | )     
|                       |                                    |                          |                                    |         |         |         |   |       
|                       |                                    |                          | Consolidated revenue               |         | $       | 108,371 |   |        | $      | 97,978 | 
|                       |                                    |                          |                                    |         |         |         |   |       
|Pre-tax (loss) income: |                                    |                          |                                    |         |         |         |   |       
|                      
|                      
|                      
|                      
|                       | Program business                   |                          | $                                  | (12,320 | )       |         | $ | 2,104  |       
|                      
|                      
|                      
|                      
|                       | Agency operations                  |                          |                                    | 2,937   |         |         |   | 2,386  |       
|                      
|                      
|                      
|                      
|                       | Reconciling items                  |                          |                                    | (1,811  | )       |         |   | (3,758 | )     
|                       |                                    |                          |                                    |         |         |         |   |       
|                       |                                    |                          | Consolidated pre-tax (loss) income |         | $       | (11,194 | ) |        | $      | 732    | 
|                       |                                    |                          |                                    |         |         |         |   |       

15



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(unaudited)


|                       |                                    |                          |                                    |         |        |         |   |        |        |        | 
|---------------------- | ---------------------------------- | ------------------------ | ---------------------------------- | ------- | ------ | ------- | - | ------ | ------ | ------ | 
|                       |                                    |                         
|                       |                                    | For the Quarters        
|                       |                                    | Ended June 30,          
|                       |                                    |                         
|                       |                                    | 2001                     |                                    | 2000   
|                       |                                    |                          |                                    |        
|Revenues:              |                                    |                          |                                    |         |        |         |   |       
|                      
|                      
|                      
|                      
|                       | Net earned premiums                |                          | $                                  | 39,644  |        |         | $ | 37,829 |       
|                      
|                      
|                      
|                      
|                       | Management fees                    |                          |                                    | 6,202   |        |         |   | 6,135  |       
|                      
|                      
|                      
|                      
|                       | Investment income                  |                          |                                    | 3,459   |        |         |   | 3,603  |       
|                      
|                      
|                      
|                      
|                       | Net realized losses on investments |                          |                                    | (1,466  | )      |         |   | (223   | )     
|                       |                                    |                          |                                    |         |        |         |   |       
|                       |                                    | Program business segment |                                    |         | 47,839 |         |   |        | 47,344 |       
|                      
|                      
|                      
|                      
|                       | Agency operations                  |                          |                                    | 4,274   |        |         |   | 4,469  |       
|                      
|                      
|                      
|                      
|                       | Reconciling items                  |                          |                                    | (837    | )      |         |   | 12     |       
|                      
|                      
|                      
|                      
|                       | Intersegment revenue               |                          |                                    | (141    | )      |         |   | (84    | )     
|                       |                                    |                          |                                    |         |        |         |   |       
|                       |                                    |                          | Consolidated revenue               |         | $      | 51,135  |   |        | $      | 51,741 | 
|                       |                                    |                          |                                    |         |        |         |   |       
|Pre-tax (loss) income: |                                    |                          |                                    |         |        |         |   |       
|                      
|                      
|                      
|                      
|                       | Program business                   |                          | $                                  | (12,947 | )      |         | $ | 1,571  |       
|                      
|                      
|                      
|                      
|                       | Agency operations                  |                          |                                    | 1,367   |        |         |   | 1,270  |       
|                      
|                      
|                      
|                      
|                       | Reconciling items                  |                          |                                    | 205     |        |         |   | (1,970 | )     
|                       |                                    |                          |                                    |         |        |         |   |       
|                       |                                    |                          | Consolidated pre-tax (loss) income |         | $      | (11,375 | ) |        | $      | 871    | 
|                       |                                    |                          |                                    |         |        |         |   |       

The pre-tax (loss) income reconciling items represent other
expenses relating to the holding company, amortization, interest
expense, as well as the recorded impairment in conjunction with
the sale of Meadowbrook-Villari Agency of Florida, which are not
allocated among the segments.

NOTE 9  Reclassifications

Certain amounts in the 2000 notes to consolidated financial
statements have been reclassified to conform with the 2001
presentation.

16



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##### Table of Contents








PART I  FINANCIAL INFORMATION


In the opinion of management, the financial statements reflect
all adjustments of a normal recurring nature necessary for a
fair presentation of the interim periods. Preparation of
financial statements under GAAP requires management to make
estimates. Actual results could differ from those estimates.
Interim results are not necessarily indicative of results
expected for the entire year. These financial statements should
be read in conjunction with the Companys 2000 Annual
Report on Form 10-K, as filed with the Securities and
Exchange Commission.

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 the
Companys management. You are cautioned that any such
forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties, and
results could differ materially from those indicated by such
forward-looking statements. Among the important factors that
could cause actual results to differ materially from those
indicated by such forward-looking statements are: the frequency
and severity of claims; uncertainties inherent in reserve
estimates; catastrophic events; a change in the demand for,
pricing of, availability or collectibility of reinsurance;
increased rate pressure on premiums; obtainment of certain rate
increases in current market conditions; investment rate of
return; changes in and adherence to insurance regulation;
actions taken by regulators, rating agencies or banks;
obtainment of certain processing efficiencies; changing rates of
inflation; general economic conditions and other risks
identified in the Companys reports and registration
statements filed with the Securities and Exchange Commission.
The Company is not under any obligation to (and expressly
disclaims any such obligation to) update or alter its
forward-looking statements whether as a result of new
information, future events or otherwise.

17



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##### Table of Contents



PART I  FINANCIAL INFORMATION






ITEM 2


MANAGEMENTS DISCUSSION AND ANALYSIS OF


FINANCIAL CONDITION AND RESULTS OF OPERATIONS


For the Periods ended June 30, 2001 and 2000


Meadowbrook Insurance Group, Inc. (the Company) is a
program-oriented risk management company specializing in
alternative risk management solutions for agents, brokers,
professional/ trade associations, and insureds of all sizes. The
Company provides a broad array of insurance products and
services through its subsidiaries. The Company owns insurance
carriers, which are essential elements of the risk management
process. Management defines its business segments as agency
operations and program business operations based upon
differences in products and services.






RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 2001 AND 2000


Overview

Net loss for the six months ended June 30, 2001 was
$7,329,000, or $0.86 per share, compared to net income of
$1,019,000, or $0.12 per share, for the six months
ended June 30, 2000. The net loss in 2001 reflects the
impact of a $5.5 million charge related to management
concerns about the financial condition of Connecticut Surety
Company (CSC) and increased losses on several of the
Companys programs. The charge associated with CSC includes
provisions of $3.3 million for unrecoverable reinsurance,
$1.3 million for uncollectible receivables, and $870,000
for impairment of the investment. The results also reflect a
$1.0 million provision related to balances due from
HIH America Compensation & Liability Company
(HIH), a California domiciled insurance company
which was recently seized by the California Department of
Insurance.

Program Business

The following table sets forth the revenues and results from
operations for program business (in thousands):

|                      |                                    |                    |         |        |         |   |       |        |        | 
|--------------------- | ---------------------------------- | ------------------ | ------- | ------ | ------- | - | ----- | ------ | ------ | 
|                      |                                    |                   
|                      |                                    | For the Six Months
|                      |                                    | Ended June 30,    
|                      |                                    |                   
|                      |                                    | 2001               |         | 2000  
|                      |                                    |                    |         |       
|Revenues:             |                                    |                    |         |        |         |   |       |       
|                     
|                     
|                     
|                     
|                      | Net earned premiums                |                    | $       | 80,817 |         |   | $     | 71,097 |       
|                     
|                     
|                     
|                     
|                      | Management fees                    |                    |         | 13,938 |         |   |       | 12,272 |       
|                     
|                     
|                     
|                     
|                      | Investment income                  |                    |         | 6,954  |         |   |       | 6,387  |       
|                     
|                     
|                     
|                     
|                      | Net realized losses on investments |                    |         | (1,321 | )       |   |       | (234   | )     
|                      |                                    |                    |         |        |         |   |       |       
|                      |                                    | Total revenue      |         | $      | 100,388 |   |       | $      | 89,522 | 
|                      |                                    |                    |         |        |         |   |       |       
|Pre-tax (loss) income |                                    | $                  | (12,320 | )      |         | $ | 2,104 |       
|                      |                                    |                    |         |        |         |   |       |       

Revenues from program business increased $10.9 million, or
12.1%, to $100.4 million for the six months ended
June 30, 2001 from $89.5 million for the comparable
period in 2000. This increase reflects 13.7% growth in net
earned premiums to $80.8 million in the six months ended
June 30, 2001 from $71.1 million in the comparable period
in 2000, and is the result of growth in existing programs both
from increasing the number of insureds and from rate increases.
These increases were partially offset by the impact of the
purchase of a large quota share reinsurance treaty for several
workers compensation programs and the decline in written
premium from programs previously discontinued. Management fees
grew $1.6 million, or 13.6%, to $13.9 million from
$12.3 million. This increase resulted from a profit sharing
fee of $1.6 million relating to the good experience
achieved on a loss portfolio transfer. The remaining increase in
total revenue reflects a $567,000, or 8.9%, increase in
investment income. This increase is the result of increased
average invested

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##### Table of Contents





Program business generated a pre-tax loss of $12.3 million
for the six months ended June 30, 2001 compared to a
$2.1 million pre-tax gain for the comparable period in
2000. The growth in program business revenues was more than
offset by an increase in the Companys loss and loss
adjustment expenses and operating expenses on program business.
The Companys loss and loss adjustment expense ratio was
85.3% for the six months ended June 30, 2001 compared to
75.2% for the same period last year. Included in losses for the
six months ended June 30, 2001 were provisions of
$3.3 million and $1.0 million for exposures on the CSC
and HIH reinsurance balances due, respectively. The impact of
development on prior accident year reserves was $3.3 million.
The net development primarily related to programs that were
discontinued in 1999 and 2000.

The Companys expense ratio was 35.6% for the six months
ended June 30, 2001 compared to 33.4% for the comparable
period in 2000. This increase reflects the reduction in programs
in which the Company retains limited risk, and where the Company
was receiving a ceding commission in excess of the actual
expenses. In the past, this margin had the effect of reducing
the expense ratio.

Agency Operations

The following table sets forth the revenues and results from
operations for agency operations (in thousands):

|                               |  |                    |       |      |  |   |       | 
|------------------------------ |  | ------------------ | ----- | ---- |  | - | ----- | 
|                               |  |                   
|                               |  | For the Six Months
|                               |  | Ended June 30,    
|                               |  |                   
|                               |  | 2001               |       | 2000
|                               |  |                    |       |     
|Revenue from agency operations |  | $                  | 9,160 |      |  | $ | 8,744 | 
|                              
|                              
|                              
|                              
|Pre-tax income                 |  | $                  | 2,937 |      |  | $ | 2,386 | 

Revenue from agency operations, which consists primarily of
agency commission revenue, increased $416,000, or 4.8%, to
$9.2 million for the six months ended June 30, 2001
from $8.7 million for the comparable period in 2000. Agency
operations generated pre-tax income of $2.9 million for the
six months ended June 30, 2001 compared to
$2.4 million for the comparable period in 2000. The
improvement in agency operations reflects the growth in revenue.
Effective July 1, 2001, the Company sold the business of
Meadowbrook-Villari Agency of Florida. It is anticipated that
this sale will result in a reduction of annualized agency
revenue of approximately $3.2 million, but should not have
a material impact on the Companys overall results of
operations. The Company recorded an impairment of approximately
$850,000 in conjunction with the sale.

Other Items

Taxes

Federal income tax benefit for the six months ended
June 30, 2001 was $3.9 million, or 34.5% of income
before taxes. For the same six months last year, the Company
reflected a federal income tax benefit of $287,000 on income
before taxes of $732,000.






RESULTS OF OPERATIONS FOR THE QUARTERS ENDED JUNE 30, 2001
AND 2000


Overview

Net loss for the quarter ended June 30, 2001 was $7,482,000
compared to net income of $914,000 for the quarter ended
June 30, 2000. The net loss for the quarter ended
June 30, 2001 primarily reflects the impact of the
aforementioned $5.5 million charge related to CSC (as
described in Note 6 to the Companys unaudited consolidated
financial statements) and increased losses on several of the
Companys programs.

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##### Table of Contents



Program Business

The following table sets forth the revenues and results from
operations for program business (in thousands):

|                      |                                    |                  |         |        |        |   |       |        |        | 
|--------------------- | ---------------------------------- | ---------------- | ------- | ------ | ------ | - | ----- | ------ | ------ | 
|                      |                                    |                 
|                      |                                    | For the Quarters
|                      |                                    | Ended June 30,  
|                      |                                    |                 
|                      |                                    | 2001             |         | 2000  
|                      |                                    |                  |         |       
|Revenues:             |                                    |                  |         |        |        |   |       |       
|                     
|                     
|                     
|                     
|                      | Net earned premiums                |                  | $       | 39,644 |        |   | $     | 37,829 |       
|                     
|                     
|                     
|                     
|                      | Management fees                    |                  |         | 6,202  |        |   |       | 6,135  |       
|                     
|                     
|                     
|                     
|                      | Investment income                  |                  |         | 3,459  |        |   |       | 3,603  |       
|                     
|                     
|                     
|                     
|                      | Net realized losses on investments |                  |         | (1,466 | )      |   |       | (223   | )     
|                      |                                    |                  |         |        |        |   |       |       
|                      |                                    | Total revenue    |         | $      | 47,839 |   |       | $      | 47,344 | 
|                      |                                    |                  |         |        |        |   |       |       
|Pre-tax (loss) income |                                    | $                | (12,947 | )      |        | $ | 1,571 |       
|                      |                                    |                  |         |        |        |   |       |       

Revenues from program business increased $495,000, or 1.0%, to
$47.8 million for the quarter ended June 30, 2001 from
$47.3 million for the comparable period in 2000. This
increase reflects a $1.8 million, or 4.8% increase in net
earned premiums to $39.6 million in the quarter ended
June 30, 2001 from $37.8 million in the comparable
period in 2000, and is the result of growth in existing programs
both from increasing the number of insureds and from rate
increases. These increases were partially offset by the impact
of the purchase of a quota share reinsurance treaty for several
workers compensation programs. Management fees grew
$67,000, or 1.1%, to $6.2 million from $6.1 million.
These increases were partially offset by charges of $870,000 and
$414,000 for impairments related to the CSC Subordinated Surplus
Note and captive investments, respectively. Net investment
income for the quarter ended June 30, 2001 decreased
$144,000, or 4.0% from $3.6 million to $3.5 million.
The pre-tax yields remained flat at 5.9%.

Program business generated a pre-tax loss of $12.9 million
for the quarter ended June 30, 2001 compared to pre-tax
income of $1.6 million for the comparable period in 2000.
The growth in program business revenues was fully offset by an
increase in the Companys loss and loss adjustment expense
ratio and the expense ratio on program business. The
Companys loss and loss adjustment expense ratio was 92.4%
for the quarter ended June 30, 2001 compared to 76.7% for
the same quarter last year. Included in losses for the quarter
ended June 30, 2001 was a provision of $3.3 million
for the exposure on the CSC reinsurance balances due. The
incurred loss and loss adjustment expenses for the quarter ended
June 30, 2001 was impacted by adverse development on prior
accident years of $800,000. The prior accident year development
was primarily related to discontinued workers compensation
programs. In addition, the effect of increasing the 2001
accident year loss ratio for the quarter ended June 30,
2001 was approximately $4.5 million. The increase in the
2001 accident year loss ratio reflects a higher level of
reported property claims in the quarter.

The Companys expense ratio was 35.9% for the quarter ended
June 30, 2001 compared to 32.6% for the comparable period
in 2000. This increase reflects the reduction in programs in
which the Company retains limited risk, and was receiving a
ceding commission in excess of the actual expenses. The increase
also reflects an increase in administrative and processing costs
related to implementation of the Companys internet based
initiatives.

Agency Operations

The following table sets forth the revenues and results from
operations for agency operations (in thousands):

|                               |  |                  |       |      |  |   |       | 
|------------------------------ |  | ---------------- | ----- | ---- |  | - | ----- | 
|                               |  |                 
|                               |  | For the Quarters
|                               |  | Ended June 30,  
|                               |  |                 
|                               |  | 2001             |       | 2000
|                               |  |                  |       |     
|Revenue from agency operations |  | $                | 4,274 |      |  | $ | 4,469 | 
|                              
|                              
|                              
|                              
|Pre-tax income                 |  | $                | 1,367 |      |  | $ | 1,270 | 

20



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Revenue from agency operations, which consists primarily of
agency commission revenue, decreased $195,000, or 4.4%, to
$4.3 million for the quarter ended June 30, 2001 from
$4.5 million for the comparable period in 2000. Agency
operations generated pre-tax income of $1.4 million for the
quarter ended June 30, 2001 compared to $1.3 million
for the comparable period in 2000. Effective July 1, 2001,
the Company sold the business of Meadowbrook-Villari Agency of
Florida. It is anticipated that this sale will result in a
reduction of annualized agency revenue of approximately
$3.2 million, but should not have a material impact on the
Companys overall results of operations. The Company
recorded an impairment of approximately $850,000 in conjunction
with the sale.

Other Items

Taxes

Federal income tax benefit for the quarter ended June 30,
2001 was $3.9 million, or 34.2% of income before taxes. For
the same quarter last year, the Company reflected a federal
income tax benefit of $43,000 on income before taxes of $871,000.

Liquidity and Capital Resources

The principal sources of funds for the Company and its
subsidiaries are insurance premiums, investment income, proceeds
from the maturity and sale of invested assets, risk management
fees, agency commissions, and management fees from the
Companys insurance subsidiaries. Funds are primarily used
for the payment of claims, commissions, salaries and employee
benefits, other operating expenses, shareholder dividends, and
debt service. The Company generates operating cash flow from
non-regulated subsidiaries in the form of commission revenue,
outside management fees, and intercompany management fees. These
sources of income are used to meet debt service,
shareholders dividends, and other operating expenses of
the holding company and the non-regulated subsidiaries. Earnings
before interest, taxes, depreciation and amortization from
non-regulated subsidiaries were approximately $9.0 million
and $7.3 million for the six months ended June 30,
2001 and 2000, respectively.

Cash flows provided by operating activities for the six months
ended June 30, 2001 were $6.5 million, which compares
to $16.5 million of cash flows provided by operating
activities for the comparable period in 2000. The decrease in
cash from operations reflects an increase in paid claims and
underwriting-related expenses. In addition, as noted previously,
the Company purchased a large quota share reinsurance treaty for
several workers compensation programs. The Company has an
unsecured line of credit totaling $48.0 million, of which
$47.5 million was outstanding at June 30, 2001. The
Company drew on this line of credit primarily to consummate the
acquisitions made during 1997 through 1999. The Company also
uses the line of credit periodically to fund operating expenses
of the non-regulated subsidiaries.

At December 31, 2000, the Company was obligated to reduce
the credit line to $33 million by April 30, 2001. In
May 2001, the Company received a permanent waiver of this
obligation to reduce the credit line. Concurrent with the
permanent waiver, the Company and its banks agreed to waive all
prior covenant violations of the existing loan agreement and
establish new covenants related to statutory surplus, GAAP net
worth, fixed charge coverage, net and gross premium ratios and a
minimum A.M. Best rating. In addition, the Company agreed
to a revised pay down schedule and an interest rate that
increases one-quarter point every two months beginning
June 1, 2001 until the facility is paid down to
$33 million. Pursuant to the revised pay down schedule,
proceeds from capital raising efforts, including any sales of
non-regulated subsidiaries, must first be used to reduce the
loan commitment from $48 million to $33 million. Half
of any proceeds in excess of $15 million from sales of
non-regulated subsidiaries must be used to further reduce the
loan commitment. If there have been no required or voluntary
reductions in the loan facility prior to September 30,
2001, the Company is required to begin reducing the loan
commitment by $5 million per quarter until the facility is
paid in full, expires in August 2002, is renegotiated or
extended. As of the current date, the Company does not have, and
may not have, the liquidity in the non-regulated subsidiaries to
make the required $5.0 million payment on
September 30, 2001. On July 5, 2001, the banks
provided a waiver to the Company allowing all of

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##### Table of Contents





As of June 30, 2001, the Company was in violation of
several covenants. Specifically, the recent A.M. Best downgrade
to B (Fair) caused the Company to be
below the minimum B+ (Very Good)
required rating in the loan agreement. In addition, the Company
is below minimum shareholders equity requirements, and is
above maximum debt to total capital requirements. Also, under
the provisions of the loan agreement, the Company is precluded
from paying dividends to shareholders while it is in default.
The Company intends to seek approval to pay the third quarter
dividend, however, there can be no assurance the approval will
be received. The Company remains current on its debt service
obligations.

Under the terms of the amended agreement, due to the covenant
violations, the banks have the right to terminate the revolving
credit facility and demand full and immediate repayment. If such
repayment is required, the Company currently does not have
sufficient cash to repay the bank loan. The Banks have not
expressed a current intent to require immediate repayment, and
while the Banks and the Company continue to discuss new terms or
an agreeable timetable, there can be no assurances that the
Banks will not require such repayment. As part of the loan
agreement, the Company pledged the stock of its non-regulated
subsidiaries as collateral in the event of a default. Should the
bank exercise this right to sell the Companys
non-regulated subsidiaries, the cash generated may be
insufficient to repay the debt. While the Banks have not
expressed a current intent to exercise that right, there can be
no assurances that they will not exercise their right.

The Banks have taken no formal action to date with respect to
this line of credit. As noted elsewhere, the Company has
retained Goldman Sachs to review its strategic and capital
raising alternatives. A portion of any capital received will
likely be used to pay down the outstanding balances on the
credit facility. No assurance can be given that these capital
raising efforts will be successful.

Shareholders equity was $78.8 million, or $9.26 per
common share, at June 30, 2001 compared to
$86.0 million, or $10.10 per common share, at
December 31, 2000. The decrease in shareholders
equity during the six months ended June 30, 2001 reflects
the Companys net loss and shareholders dividends,
net of unrealized appreciation on available for sale securities.
Changes in shareholders equity related to the unrealized
values of underlying portfolio investments have been and will
continue to be volatile as market prices of debt securities
fluctuate with changes in the interest rate environment.

A significant portion of the Companys consolidated assets
represent assets of the Companys insurance subsidiaries
that cannot be transferred to the holding company in the form of
dividends, loans or advances. The restriction on the
transferability to the holding company from its insurance
subsidiaries is limited by Michigan regulatory guidelines, which
are as follows: The maximum discretionary dividend that may be
declared, based on data from the preceding calendar year, is the
greater of each insurance companys net income (excluding
realized capital gains) or ten percent of the insurance
companys policyholders surplus (excluding unrealized
gains). These dividends are further limited by a clause in the
Michigan law that prohibits an insurer from declaring dividends
except out of surplus earnings of the company. Earned surplus
balances are calculated on a quarterly basis. Since Star is the
parent insurance company, its maximum dividend calculation
represents the combined insurance companies surplus. Based
upon the 2000 statutory financial statements, Star may not pay
any dividend to the Company during 2001 without prior approval
of the Michigan Commissioner of Insurance. Stars earned
surplus position at December 31, 2000 was negative
$25.9 million. At June 30, 2001, earned surplus was
negative $36.2 million. No statutory dividends were paid in
2000 and 1999.

Dependence on Key Programs

The Company provides alternative risk management products and
services to certain large client groups and associations and
then markets them to their individual members. For the six
months ended June 30, 2001, the Companys top four
programs accounted for 35.8% of the Companys total net
earned premium. The loss or cancellation of any of the
Companys significant programs by the relevant client
groups, or the general availability of commercial market
coverage to members of such groups on more favorable terms than
provided under the Companys programs, could have a
material adverse effect on the Companys results of
operations.

22



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New Accounting Pronouncements

Effective January 1, 2001, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 133
Accounting for Derivative Instruments and Hedging
Activities (as amended by SFAS No. 137 and 138). As
the Company does not customarily use derivative instruments, the
impact of adoption was immaterial to the results of operations
or financial position of the Company.

The Financial Accounting Standards Board (FASB) has
issued SFAS No. 141 Business Combinations. SFAS
No. 141 eliminates the pooling-of-interests
method for business combinations initiated after June 30,
2001. The Company does not anticipate the adoption of SFAS
No. 141 will have a material effect to the results of
operations or financial position of the Company.

FASB has issued SFAS No. 142 Goodwill and Other
Intangible Assets. SFAS No. 142, for periods starting
January 1, 2002 or thereafter, eliminates the amortization
of goodwill. In addition, goodwill would be separately tested
for impairment using a fair-value based approach. The Company
has not yet determined the impact that SFAS No. 142 will
have on its consolidated financial statements and expects to
implement it in 2002.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

No material changes since December 31, 2000 Annual Report
on Form 10-K.

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##### Table of Contents








PART II  OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

The information required by this item is included under
Note 7 of the Companys Form 10-Q for
the six months ended June 30, 2001, which is hereby
incorporated by reference.

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

On May 21, 2001, the Company held its Annual Meeting of
Shareholders (Annual Meeting) to consider and act
upon the following proposals: (1) the election of
four (4) members of the Board of Directors of the Company;
and (2) ratification of the appointment of the
Companys independent accountants, PricewaterhouseCoopers,
LLP.

The following Directors were up for election at the Annual
Meeting: (1) Merton J. Segal; (2) David K.
Page; (3) Joseph S. Dresner; and (4) Herbert
Tyner. The shareholders re-elected the Directors at the Annual
Meeting; and therefore, each shall continue in office. The vote
tabulation for each Director was as follows:
(1) Merton J. Segal  7,593,365 in favor and
66,405 withheld; (2) David K. Page 
7,590,172 in favor and 69,598 withheld; (3) Joseph S.
Dresner  7,590,022 in favor and 69,748 withheld; and
(4) Herbert Tyner  7,589,722 in favor and 70,048
withheld.

The shareholders ratified the appointment of
PricewaterhouseCoopers, LLP by a vote of 7,651,094 in
favor, 7,062 against and 1,614 abstained.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)  The following documents are filed as part of this
Report:

|        |       |             |  |                                                                                                                                   
|------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|No.     |       | Description
|        |       |            
|        | 10.23 |             |  | Employment Contract between the Company and
	Robert S. Cubbin dated June 1, 2001                                                  
|        | 10.24 |             |  | Asset Purchase Agreement dated July 5, 2001
	by and among Brown &Brown, Inc., Meadowbrook of
	Florida, Inc., and Meadowbrook, Inc.
|        | 10.25 |             |  | Employment Contract between the Company and
	Merton J. Segal dated June 1, 2001.                                                  
|        | 10.26 |             |  | Employment Contract between the Company and
	Michael G. Costello dated June 1, 2001.                                              
|        | 11    |             |  | Statement re computation of per share earnings                                                                                    
|        | 23    |             |  | Awareness Letter                                                                                                                  



| |     |                    
| | --- | -------------------
| | (B) | Reports on Form 8-K

None.

24



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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/ JEFFREY H. KOENIG

| |                             
| | ----------------------------
| |                             
| | Executive Vice President and
| | Chief Financial Officer     

Dated: August 14, 2001

25



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EXHIBIT INDEX


|        |       |             |  |                                                                                                                                   
|------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|No.     |       | Description
|        |       |            
|        | 10.23 |             |  | Employment Agreement between the Company and
	Robert S. Cubbin dated June 1, 2001.                                                
|        | 10.24 |             |  | Asset Purchase Agreement dated July 5, 2001
	by and among Brown &Brown, Inc., Meadowbrook of
	Florida, Inc., and Meadowbrook, Inc.
|        | 10.25 |             |  | Employment Contract between the Company and
	Merton J. Segal dated June 1, 2001.                                                  
|        | 10.26 |             |  | Employment Contract between the Company and
	Michael G. Costello dated June 1, 2001.                                              
|        | 11    |             |  | Statement re: computation on per share earnings                                                                                   
|        | 23    |             |  | Awareness Letter