##### Table of Contents



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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarter ended
    March 31, 2008oro

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

38-2626206(State of
    Incorporation)

(IRS Employer
    Identification No.)    26255
    American Drive,
    Southfield, Michigan 48034 (Address,
    zip code of principal executive offices)
   (248) 358-1100 (Registrants
    telephone number, including area code)
   þ o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ




---



##### 



TABLE OF
    CONTENTS
   
 PagePART I  FINANCIAL
    INFORMATIONITEM 1



FINANCIAL STATEMENTSConsolidated Statements of Income (unaudited)

2Consolidated Statements of Comprehensive Income
    (unaudited)

3Consolidated Balance Sheets (unaudited)

4Consolidated Statement of Cash Flows
    (unaudited)

5Notes to Consolidated Financial Statements
    (unaudited)

6-21ITEM 2



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

22-39ITEM 3



QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK

39-40ITEM 4



CONTROLS AND PROCEDURES

40PART II  OTHER
    INFORMATIONITEM 1



LEGAL PROCEEDINGS

41ITEM 1A  RISK FACTORS

41ITEM 2



UNREGISTERED SALES OF EQUITY SECURITIES AND USE
    OF PROCEEDS

41ITEM 6



EXHIBITS

41SIGNATURES

42Certification of Robert s. Cubbin, Chief Executive Officer pursuant to Rule 13a-14(a)Certification of Karen M. Spaun, Senior Vice President & Chief Financial Officer pursuant to Rule 13a-14(a)Section 906 CertificationSection 906 Certification by Senior Vice President & Chief Financial Officer   1




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##### Table of Contents



PART 1 
    FINANCIAL INFORMATION  ITEM 1
    FINANCIAL
    STATEMENTS  MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF INCOME
 For the
    Three Months Ended March 31,
  2008


2007(Unaudited)(In thousands, except share data)RevenuesPremiums earnedGross

$
83,971


$
81,551Ceded


(17,949
)


(16,347
)Net earned premiums


66,022



65,204Net commissions and fees


12,031



11,551Net investment income


7,148



6,156Net realized losses


(31
)


(6
)Total revenues


85,170



82,905ExpensesLosses and loss adjustment expenses


48,739



50,002Reinsurance recoveries


(11,078
)


(13,356
)Net losses and loss adjustment expenses


37,661



36,646Salaries and employee benefits


12,755



13,532Policy acquisition and other underwriting expenses


13,147



13,643Other administrative expenses


8,832



7,393Amortization expense


1,551



144Interest expense


1,311



1,488Total expenses


75,257



72,846Income before taxes and equity earnings


9,913



10,059Federal and state income tax expense


2,911



3,149Equity earnings of affiliates


56



13Net income

$
7,058


$
6,923Earnings Per ShareBasic

$
0.19


$
0.23Diluted

$
0.19


$
0.23Weighted average number of common sharesBasic


37,012,104



29,344,293Diluted


37,103,270



29,465,807Dividends paid per common share

$
0.02


$
    2




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME
 For the
    Three Months Ended March 31,
  2008


2007(Unaudited)(In thousands)Net income

$
7,058


$
6,923Other comprehensive income, net of tax:Unrealized gains on securities


1,789



380Net deferred derivative loss  hedging activity


(449
)


(76
)Less: reclassification adjustment for losses included in net
    income


65



18Other comprehensive income, net of tax


1,405



322Comprehensive income

$
8,463


$
7,245    3




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    BALANCE SHEETS
  March 31,


December 31,2008


2007(Unaudited)(In thousands, except share data)ASSETSDebt securities available for sale, at fair value (amortized
    cost of $581,250 and $604,829)

$
590,030


$
610,756Cash and cash equivalents


50,012



40,845Accrued investment income


6,776



6,473Premiums and agent balances receivable, net


94,611



87,341Reinsurance recoverable on:Paid losses, net of allowances


(239
)


1,053Unpaid losses


198,031



198,461Prepaid reinsurance premiums


18,883



17,763Deferred policy acquisition costs


28,420



26,926Deferred federal income taxes


15,268



14,936Goodwill


53,030



43,497Other assets


76,005



65,915Total assets

$
1,130,827


$
1,113,966LIABILITIES AND SHAREHOLDERS EQUITYLosses and loss adjustment expenses

$
545,521


$
540,002Unearned premiums


160,424



153,927Debentures


55,930



55,930Accounts payable and accrued expenses


20,761



22,604Reinsurance funds held and balances payable


15,862



16,416Payable to insurance companies


5,899



6,231Other liabilities


16,515



16,962Total liabilities


820,912



812,072Common stock, $0.01 stated value; authorized
    75,000,000 shares; 37,021,032 and 36,996,287 shares
    issued and outstanding


370



370Additional paid-in capital


194,913



194,621Retained earnings


110,593



104,274Note receivable from officer


(865
)


(870
)Accumulated other comprehensive income


4,904



3,499Total shareholders equity


309,915



301,894Total liabilities and shareholders equity

$
1,130,827


$
1,113,966    4




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 For the
    Three Months Ended March 31,
  2008


2007(Unaudited)(In thousands)Cash Flows From Operating ActivitiesNet income

$
7,058


$
6,923Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:Amortization of other intangible assets


1,551



144Amortization of deferred debenture issuance costs


118



59Depreciation of furniture, equipment, and building


745



738Net accretion of discount and premiums on bonds


696



690Loss on sale of investments


100



28Gain on sale of fixed assets


(22
)


(22
)Stock-based employee compensation






2Incremental tax benefits from stock options exercised


(80
)


(131
)Long term incentive plan expense


209



65Deferred income tax (benefit) expense


(1,089
)


443Changes in operating assets and liabilities:Decrease (increase) in:Premiums and agent balances receivable


(7,270
)


(9,541
)Reinsurance recoverable on paid and unpaid losses


1,722



(3,685
)Prepaid reinsurance premiums


(1,120
)


(1,186
)Deferred policy acquisition costs


(1,494
)


(1,711
)Other assets


(921
)


753Increase (decrease) in:Losses and loss adjustment expenses


5,519



13,756Unearned premiums


6,497



7,953Payable to insurance companies


(332
)


(2,715
)Reinsurance funds held and balances payable


(554
)


3,938Other liabilities


(2,490
)


651Total adjustments


1,785



10,229Net cash provided by operating activities


8,843



17,152Cash Flows From Investing ActivitiesPurchases of debt securities available for sale


(22,037
)


(70,135
)Proceeds from sales and maturities of debt securities available
    for sale


44,797



50,740Capital expenditures


(664
)


(927
)Purchase of books of business


(229
)


(75
)Acquisition of remaining economics of U.S. Specialty
    Underwriters, Inc.


(20,971
)


Other investing activities


(224
)


(241
)Net cash provided by (used in) investing activities


673



(20,638
)Cash Flows From Financing ActivitiesProceeds from lines of credit






5,900Payment of lines of credit






(2,500
)Book overdraft


326



423Dividend paid on common stock


(740
)


Stock options exercised


4



85Cash payment for payroll taxes associated with long-term
    incentive plan net stock issuance






(1,841
)Incremental tax benefits from stock options exercised


80



131Other financing activities


(19
)


(73
)Net cash (used in) provided by financing activities


(349
)


2,125Net increase (decrease) in cash and cash equivalents


9,167



(1,361
)Cash and cash equivalents, beginning of period


40,845



42,876Cash and cash equivalents, end of period

$
50,012


$
41,515    5




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  NOTE 1
    
    Summary of Significant Accounting Policies  Basis
    of Presentation and Management Representation
        Form 10-K,
  Segment
    Information Segment
    Information
  Revenue
    Recognition
     6




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              Earnings
    Per Share
      Recent
    Accounting Pronouncements
  , Fair Value
    Measurements
 7




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    The Fair Value Option for Financial Assets and
    Financial Liabilities  Including an amendment of FASB
    Statement No. 115 instrument-by-instrument
  Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of Accounting Research
    Bulletin No. 51.
  Disclosures about Derivative Instruments and Hedging
    Activities Accounting for
    Derivative Instruments and Hedging Activities.
  FAS 142-3, Determination of the Useful Life of Intangible
    Assets. FAS 142-3 Goodwill and Other Intangible
    Assets.
  NOTE 2 
    Stock
    Options, Long Term Incentive Plan, and Deferred Compensation
    Plan  Stock
    Options
   8




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##### Table of Contents



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


PriceOutstanding as of December 31, 2007


132,052


$
14.51Exercised


(31,745
)

$
2.17Expired and/or forfeited


(30,557
)

$
24.69Outstanding as of March 31, 2008


69,750


$
15.67Exercisable as of March 31, 2008


43,880


$
15.73     Options Outstanding


Options ExercisableWeighted-


Weighted-





Weighted-Average


Average





AverageRemaining


Exercise





ExerciseRange of Exercise Prices

Options


Life (Years)


Price


Options


Price$6.48


1,500



2.7


$
6.48



1,000


$
6.48$10.91 to $24.6875


68,250



1.8


$
15.67



42,880


$
15.7369,750



1.9


$
15.67



43,880


$
15.73     Long
    Term Incentive Plan
     9




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2004-2006 2007-2009 2004-2006
  Deferred
    Compensation Plan
    NOTE 3 
    Reinsurance       10




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    rent-a-captive
      March 31, 2008


December 31, 2007Non Risk


Risk





Non Risk


RiskSharing(1)


Sharing(2)


Total


Sharing(1)


Sharing(2)


TotalGross exposure

$
4,984


$
8,674


$
13,658


$
4,959


$
7,150


$
12,109Collateral or other security


(8
)


(4,628
)


(4,636
)


(1
)


(3,114
)


(3,115
)Allowance


(4,899
)


(3,263
)


(8,162
)


(4,873
)


(3,268
)


(8,141
)Net exposure

$
77


$
783


$
860


$
85


$
768


$
853     (1)
    
    Balances related to two unaffiliated insurance companies, which
    are under regulatory liquidation or control, for which
    allowances have been established; all other admitted reinsurers
    have an A.M. Best rating of A- or better.(2)
    
    Balances related to risk-sharing partners, which have either
    captive or
    rent-a-captive
    quota-share reinsurance contracts with the Company.       11




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MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                 12




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 4 
    Debt
  Lines
    of Credit
          Senior
    Debentures
         13




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Junior
    Subordinated Debentures
                    NOTE 5 
    Fair
    Value Measurements  Accounting for
    Certain Investments in Debt and Equity Securities. Accounting for Derivative Instruments and Hedging
    Activities.
 14




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    The Fair
    Value Option of Financial Assets and Financial Liabilities
  Fair Value
    Measurements
    
    Level 1  Observable unadjusted quoted prices in
    active markets for identical securities.    
    Level 2  Observable inputs other than quoted
    prices in active markets for identical securities, including:
    quoted prices in active markets for similar securities; quoted
    prices for identical or similar securities in markets that are
    not active; inputs other than quoted prices that are observable
    for the security, e.g., interest rates, yield curves observable
    at commonly quoted intervals, volatilities, prepayment speeds,
    credit risks, default rates; inputs derived from or corroborated
    by observable market data by correlation or other means.      
    Level 3  Unobservable inputs, including the
    reporting entitys own data, e.g., cash flow estimates, as
    long as there are no contrary data indicating market
    participants would use different assumptions.     15




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair Value Measurements UsingQuoted Prices

Significantin Active

Other

SignificantMarkets for

Observable

UnobservableIdentical Assets

Inputs

InputsTotal

(Level 1)

(Level 2)

(Level 3)Available-for-Sale Securities

$
590,030


$



$
588,385


$
1,645Derivative  interest rate swaps

$
(1,235
)

$



$
(1,235
)

$
     Fair ValueMeasurementUsing SignificantUnobservableInputs - Level 3Balance as of December 31, 2007

$
Total gains or losses (realized/unrealized) included in earnings


Included in other comprehensive income


(28
)Purchases, issuances and settlements


1,673Transfers in and out of Level 3


Balance as of March 31, 2008

$
1,645The amount of total gains or losses for the period included in
    earnings (or changes in net assets) attributable to the change
    in unrealized gains or losses relating to assets still held at
    the reporting date

$
(28
)   NOTE 6 
    Derivative
    Instruments    non-amortizing,
  non-amortizing,
 16




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        NOTE 7 
    Shareholders
    Equity        Regulatory
    Matters and Rating Issues
  NOTE 8 
    Regulatory
    Matters and Rating Issues   17




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          NOTE 9 
    Segment
    Information    Specialty
    Risk Management Operations
   18




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Agency
    Operations
      For the Three MonthsEnded March 31,2008


2007RevenuesNet earned premiums

$
66,022


$
65,204Management fees


6,032



4,875Claims fees


2,180



2,204Loss control fees


510



599Reinsurance placement


296



333Investment income


6,970



5,930Net realized losses


(31
)


(6
)Specialty risk management


81,979



79,139Agency operations


3,328



3,885Holding Company interest income earned


178



226Intersegment revenue


(315
)


(345
)Consolidated revenue

$
85,170


$
82,905Pre-tax income:Specialty risk management

$
12,912


$
11,320Agency operations(1)


763



1,227Non-allocated expenses


(3,762
)


(2,488
)Consolidated pre-tax income

$
9,913


$
10,059     (1)
    
    The Companys agency operations include an allocation of
    corporate overhead, which includes expenses associated with
    accounting, information services, legal, and other corporate
    services. The corporate overhead allocation excludes those
    expenses specific to the holding company. For the three months
    ended March 31, 2008 and 2007, the allocation of corporate
    overhead to the agency operations segment was $753,000 and
    $786,000, respectively. These balances include an allocation to
    our Insurance & Benefit Consultants agency business
    that was previously allocated to specialty risk management
    operations. For the three months ended March 31, 2007,
    pre-tax income for agency operations was overstated and
    specialty risk management was understated by $67,000,
    respectively. 19




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     For the Three MonthsEnded March 31,2008


2007Holding company expenses

$
(900
)

$
(856
)Amortization


(1,551
)


(144
)Interest expense


(1,311
)


(1,488
)$
(3,762
)

$
(2,488
)   NOTE 10 
    Income
    Taxes  Accounting for Uncertainty in Income Taxes 
    an interpretation of FASB Statement No. 109
        NOTE 11 
    Commitments
    and Contingencies  Accounting for
    Contingencies,
 20




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 12 
    Acquisitions        NOTE 13 
    Subsequent
    Events  Form S-4 Form S-4,
  Accounting for
    Derivative Instruments and Hedging Activities,
  non-amortizing,
  non-amortizing,
  non-amortizing,
 21




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##### Table of Contents



ITEM 2MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS
  For the
    Quarters ended March 31, 2008 and 2007
  Forward-Looking
    Statements
  This quarterly report may provide information including
    certain statements which constitute forward-looking statements
    within the meaning of Section 27A of the Securities Act of
    1933, as amended, and Section 21E of the Securities
    Exchange Act of 1934, as amended. These include statements
    regarding the intent, belief, or current expectations of
    management, including, but not limited to, those statements that
    use the words believes, expects,
    anticipates, estimates, or similar
    expressions. You are cautioned that any such forward-looking
    statements are not guarantees of future performance and involve
    a number of risks and uncertainties, and results could differ
    materially from those indicated by such forward-looking
    statements. Among the important factors that could cause actual
    results to differ materially from those indicated by such
    forward-looking statements are: the frequency and severity of
    claims; uncertainties inherent in reserve estimates;
    catastrophic events; a change in the demand for, pricing of,
    availability or collectibility of reinsurance; increased rate
    pressure on premiums; 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 lenders; obtainment of certain
    processing efficiencies; changing rates of inflation; general
    economic conditions and other risks identified in our reports
    and registration statements filed with the Securities and
    Exchange Commission. We are not under any obligation to (and
    expressly disclaim any such obligation to) update or alter our
    forward-looking statements whether as a result of new
    information, future events or otherwise.
  Description
    of Business
    Critical
    Accounting Policies
  Form 10-K
  RESULTS
    OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND
    2007
  Executive
    Overview
   22




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##### Table of Contents



Results
    of Operations
   23




---



##### Table of Contents



fee-for-service
  Specialty
    Risk Management Operations
    For the Three MonthsEndedMarch 31,2008


2007Revenue:Net earned premiums

$
66,022


$
65,204Management fees


6,032



4,875Claims fees


2,180



2,204Loss control fees


510



599Reinsurance placement


296



333Investment income


6,970



5,930Net realized losses


(31
)


(6
)Total revenue

$
81,979


$
79,139Pre-tax incomeSpecialty risk management operations

$
12,912


$
11,320            24




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##### Table of Contents



Agency
    Operations
    For the Three MonthsEndedMarch 31,2008

2007Net commission

$
3,328


$
3,885Pre-tax income(1)

$
763


$
1,227     (1)
    
    Our agency operations include an allocation of corporate
    overhead, which includes expenses associated with accounting,
    information services, legal, and other corporate services. The
    corporate overhead allocation excludes those expenses specific
    to the holding company. For the three months ended
    March 31, 2008 and 2007, the allocation of corporate
    overhead to the agency operations segment was $753,000 and
    $786,000, respectively. These balances include an allocation to
    our Insurance & Benefit Consultants agency business
    that was previously allocated to specialty risk management
    operations. For the three months ended March 31, 2007,
    pre-tax income for agency operations was overstated and
    specialty risk management was understated by $67,000,
    respectively. 25




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##### Table of Contents



Other
    Items
  Reserves
    Minimum


MaximumReserve


Reserve


SelectedLine of Business

Range


Range


ReservesWorkers Compensation(1)

$
156,071


$
172,790


$
167,190Commercial Multiple Peril/General Liability


81,724



102,814



91,429Commercial Automobile


65,339



73,458



70,292Other


16,924



19,694



18,579Total Net Reserves

$
320,058


$
368,756


$
347,490     (1)
    
    Includes Residual Markets     26




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##### Table of Contents



Reserves at


Incurred Losses


Paid Losses


Reserves atDecember 31,


Current


Prior


Total


Current


Prior


Total


March 31,Line of Business

2007


Year


Years


Incurred


Year


Years


Paid


2008Workers Compensation

$
141,359


$
14,178


$
(1,584
)

$
12,594


$
(872
)

$
12,732


$
11,860


$
142,093Residual Markets


25,428



2,107



(925
)


1,182



741



772



1,513



25,097Commercial Multiple Peril/General Liability


87,812



8,172



1,795



9,967



(278
)


6,628



6,350



91,429Commercial Automobile


69,426



11,879



(1,303
)


10,576



1,044



8,666



9,710



70,292Other


17,516



4,180



(838
)


3,342



114



2,165



2,279



18,579Net Reserves


341,541


$
40,516


$
(2,855
)

$
37,661


$
749


$
30,963


$
31,712



347,490Reinsurance Recoverable


198,461



























198,031Consolidated

$
540,002


























$
545,521   Re-estimated


DevelopmentReserves at


as aReserves at


March 31,


Percentage ofDecember 31,


2008 on


Prior YearLine of Business

2007


Prior Years


ReservesWorkers Compensation

$
141,359


$
139,775



−1.1
%Commercial MultiplePeril/General Liability


87,812



89,607



2.0
%Commercial Automobile


69,426



68,123



−1.9
%Other


17,516



16,678



−4.8
%Sub-total


316,113



314,183



−0.6
%Residual Markets


25,428



24,503



−3.6
%Total Net Reserves

$
341,541


$
338,686



−0.8
%   Workers Compensation Excluding Residual
    Markets
  Commercial Multiple Peril and General
    Liability
 27




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##### Table of Contents



Commercial Automobile
  Other
  Residual Markets
  Salaries
    and Employee Benefits and Other Administrative
    Expenses
        Amortization
    Expense
    Interest
    Expense
  Liquidity and Capital Resources
  Income
    Taxes
   28




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##### Table of Contents



Other
    Than Temporary Impairments
        March 31, 2008Less Than 12 months


Greater Than 12 months


TotalFair Value of





Fair Value of





Fair Value ofInvestments





Investments





Investmentswith


Gross


with


Gross


with


GrossUnrealized


Unrealized


Unrealized


Unrealized


Unrealized


UnrealizedLosses


Losses


Losses


Losses


Losses


LossesDebt Securities:Obligations of states and political subdivisions

$
74,055


$
(968
)

$
4,254


$
(124
)

$
78,309


$
(1,092
)Corporate securities


13,480



(669
)


11,152



(500
)


24,632



(1,169
)Mortgage and asset backed securities


17,895



(742
)


22,968



(556
)


40,863



(1,298
)Totals

$
105,430


$
(2,379
)

$
38,374


$
(1,180
)

$
143,804


$
(3,559
)   December 31, 2007Less Than 12 months


Greater Than 12 months


TotalFair Value of





Fair Value of





Fair Value ofInvestments





Investments





Investmentswith


Gross


with


Gross


with


GrossUnrealized


Unrealized


Unrealized


Unrealized


Unrealized


UnrealizedLosses


Losses


Losses


Losses


Losses


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

$



$



$
5,963


$
(29
)

$
5,963


$
(29
)Obligations of states and political subdivisions


19,400



(68
)


45,177



(255
)


64,577



(323
)Corporate securities


15,564



(415
)


30,601



(513
)


46,165



(928
)Mortgage and asset backed securities


9,116



(95
)


47,963



(520
)


57,079



(615
)Totals

$
44,080


$
(578
)

$
129,704


$
(1,317
)

$
173,784


$
(1,895
)  29




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##### Table of Contents



LIQUIDITY
    AND CAPITAL RESOURCES
   30




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##### Table of Contents



For the Three MonthsEnded March 31,2008


2007Net income

$
7,058


$
6,923Insurance Company Subsidiaries:Net income

$
7,288


$
5,616Adjustments to reconcile net income to net cash provided by
    operating activities


397



441Changes in operating assets and liabilities


1,273



11,283Total adjustments


1,670



11,724Net cash provided by operating activities

$
8,958


$
17,340Fee-based Subsidiaries:Net (loss) income

$
(230
)

$
1,307Depreciation


745



737Amortization


1,551



144Interest


1,311



1,488Net income, excluding interest, depreciation, and amortization


3,377



3,676Adjustments to reconcile net income to net cash provided by
    operating activities


1,831



1,573Changes in operating assets and liabilities


(1,716
)


(3,068
)Total adjustments


115



(1,495
)Depreciation


(745
)


(737
)Amortization


(1,551
)


(144
)Interest


(1,311
)


(1,488
)Net cash used in operating activities

$
(115
)

$
(188
)Consolidated total adjustments


1,785



10,229Consolidated net cash provided by operating activities

$
8,843


$
17,152          31




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##### Table of Contents



Other
    Items
  Long-term
    Debt
    InterestYear


Year





Rate at


PrincipalDescription

Callable


Due


Interest Rate Terms


03/31/08(1)


AmountJunior subordinated debentures


2008



2033



Three-month LIBOR, plus 4.05
%


6.75
%

$
10,310Senior debentures


2009



2034



Three-month LIBOR, plus 4.00
%


7.07
%


13,000Senior debentures


2009



2034



Three-month LIBOR, plus 4.20
%


7.29
%


12,000Junior subordinated debentures


2010



2035



Three-month LIBOR, plus 3.58
%


6.38
%


20,620Total


$
55,930     (1)
    
    The underlying three-month LIBOR rate varies as a result of the
    interest rate reset dates used in determining the three-month
    LIBOR rate, which varies for each long-term debt item each
    quarter.          Interest
    Rate Swaps
  Accounting for Derivative
    Instruments and Hedging Activities,
  non-amortizing,
 32




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##### Table of Contents



non-amortizing,
    Revolving
    Line of Credit
          Investment
    Portfolio
      Shareholders
    Equity
   33




---



##### Table of Contents



USSU
    Acquisition
   34




---



##### Table of Contents



Adjusted
    Expense Ratio
    For the Three MonthsEnded March 31,2008


2007Net earned premiums

$
66,022


$
65,204Less: Consolidated net loss and LAE


37,661



36,646Intercompany claim fees


3,106



3,295Unconsolidated net loss and LAE


40,767



39,941Consolidated policy acquisition and other underwriting expenses


13,147



13,643Intercompany administrative and other underwriting fees


8,088



9,152Unconsolidated policy acquisition and other underwriting expenses


21,235



22,795Underwriting income

$
4,020


$
2,468GAAP combined ratio as reported


93.9
%


96.3
%Specialty risk management operations pre-tax income

$
12,912


$
11,320Less: Underwriting income


4,020



2,468Net investment income and capital gains


7,117



6,150Fee-based operations pre-tax income


1,775



2,702Agency operations pre-tax income


763



1,227Total fee-for-service pre-tax income

$
2,538


$
3,929GAAP expense ratio as reported


32.2
%


35.0
%Adjustment to include pre-tax income from total fee-for-service
    income(1)


3.8
%


6.0
%GAAP expense ratio as adjusted


28.4
%


29.0
%GAAP loss and LAE ratio as reported


61.7
%


61.3
%GAAP combined ratio as adjusted


90.1
%


90.3
%Reconciliation of consolidated pre-tax income:Specialty risk management operations pre-tax income:Fee-based operations pre-tax income

$
1,775


$
2,702Underwriting income


4,020



2,468Net investment income and capital gains


7,117



6,150Total specialty risk management operations pre-tax income


12,912



11,320Agency operations pre-tax income


763



1,227Less: Holding company expenses


900



856Interest expense


1,311



1,488Amortization expense


1,551



144Consolidated pre-tax income

$
9,913


$
10,059     (1)
    
    Adjustment to include pre-tax income from total fee-for-service
    income is calculated by dividing total
    fee-for-service
    income by net earned premiums. 35




---



##### Table of Contents



Regulatory
    ProCentury
    Corporation Merger
    Form S-4. Hart-Scott-Rodino 30-day
      Contractual
    Obligations and Commitments
    Regulatory
    and Rating Issues
   36




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##### Table of Contents



Reinsurance
    Convertible
    Note
    Recent
    Accounting Pronouncements
  , Fair Value
    Measurements.
  The Fair Value Option for Financial Assets and
    Financial Liabilities  Including an amendment of FASB
    Statement No. 115. instrument-by-instrument
 37




---



##### Table of Contents



Business Combinations.
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of Accounting Research
    Bulletin No. 51.
  Disclosures about Derivative Instruments and Hedging
    Activities.
  FAS 142-3, Determination of the Useful Life of Intangible
    Assets. FAS 142-3 Goodwill and Other Intangible
    Assets.
  Subsequent
    Events
  Form S-4 Form S-4,
  Accounting for Derivative Instruments and Hedging
    Activities,
  non-amortizing,
 38




---



##### Table of Contents



non-amortizing,
  non-amortizing,
  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK          Rates Down


Rates


Rates Up100bps


Unchanged


100bpsMarket Value

$
617,070


$
589,984


$
561,632Yield to Maturity or Call


3.04
%


4.04
%


5.04
%Effective Duration


4.32



4.65



4.93    39




---



##### Table of Contents



Accounting for Derivative
    Instruments and Hedging Activities,
    ITEM 4.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures.
  Rule 13a-15(e) Form 10-Q,
    Changes
    in Internal Control over Financial Reporting
   40




---



##### Table of Contents



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

Description2
.1

Agreement and Plan of Merger between Meadowbrook Insurance
    Group, Inc., MBKPC Corp., a wholly-owned subsidiary of
    Meadowbrook, and ProCentury Corporation, dated February 20,
    2008 (incorporated by reference from Current Report on
    Form 8-K
    filed on February 22, 2008).31
.1

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

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

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

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002, signed by Karen M. Spaun, Senior Vice President and
    Chief Financial Officer of the Corporation.  41




---



##### Table of Contents



SIGNATURES    Meadowbrook Insurance Group, Inc.
  By:
    /s/  Karen
    M. Spaun      42




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.

Description2
.1

Agreement and Plan of Merger between Meadowbrook Insurance
    Group, Inc., MBKPC Corp., a wholly-owned subsidiary of
    Meadowbrook, and ProCentury Corporation, dated February 20,
    2008 (incorporated by reference from Current Report on
    Form 8-K
    filed on February 22, 2008).31
.1

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

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

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

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