##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-Q

|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|  
|   |  | For the quarter ended March 31,
    2003                                                    
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-14094



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Meadowbrook Insurance Group, Inc.

(Exact name of registrant as specified in its
charter)


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

26600 Telegraph Road, Southfield, Michigan
48034

(Address, zip code of principal executive
offices)


(248) 358-1100

(Registrants telephone number, including
area code)




---

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 þ          No o

Indicate by check
mark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act).
Yes þ          No o

The aggregate
number of shares of the Registrants Common Stock, $.01 par
value, outstanding on May 9, 2003 was 29,329,994.



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TABLE OF CONTENTS



|                                                                                             |  |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART 1 -- FINANCIAL INFORMATION                                                             
|Item 1 Financial Statements                                                                 
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME                                                 
|CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME                                              
|CONDENSED CONSOLIDATED BALANCE SHEETS                                                       
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                             
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                  
|ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|PART II -- OTHER INFORMATION                                                                
|SIGNATURES                                                                                  
|Form of Certification for Quarterly Reports on Form 10-Q                                    
|Form of Certification for Quarterly Reports on Form 10-Q                                    
|EXHIBIT INDEX                                                                               
|EX-10.1 Pledge Agreement                                                                    
|EX-10.2 Subsidiary Pledge Agreement                                                         
|EX-10.3 Subsidiary Pledge Agreement                                                         
|EX-99.1 Certification Pursuant to 18 USC Sec. 1350                                          
|EX-99.2 Certification Pursuant to 18 USC Sec. 1350                                          



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TABLE OF CONTENTS

|                                   |  |                                                                                           |       |      |       | 
|---------------------------------- |  | ----------------------------------------------------------------------------------------- | ----- | ---- | ----- | 
|                                   |  |                                                                                           |       | Page |      
|                                   |  |                                                                                           |       |      |      
|PART I  FINANCIAL
    INFORMATION
|Item 1                            |  | Financial Statements                                                                      |       |      |       | 
|                                   |  | Condensed Consolidated Statements of Income
    (unaudited)                               |       |      | 2     | 
|                                   |  | Consolidated Statements of Comprehensive Income
    (unaudited)                           |       |      | 3     | 
|                                   |  | Condensed Consolidated Balance Sheets (unaudited)                                         |       |      | 4     | 
|                                   |  | Condensed Consolidated Statements of Cash Flows
    (unaudited)                           |       |      | 5     | 
|                                   |  | Notes to Consolidated Financial Statements
    (unaudited) and Management Representation  |       |      | 6-12  | 
|Item 2                            |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |       |      | 13-19 | 
|Item 3                            |  | Quantitative and Qualitative Disclosures about
    Market Risk                            |       |      | 20    | 
|Item 4                            |  | Controls and Procedures                                                                   |       |      | 20    | 
|PART II  OTHER
    INFORMATION   
|Item 1                            |  | Legal Proceedings                                                                         |       |      | 21    | 
|Item 6                            |  | Exhibits and Reports on Form 8-K                                                          |       |      | 21    | 
|Signatures                         |  |                                                                                           | 22    |     
|Certification of Quarterly Report  |  |                                                                                           | 23-24 |     

1



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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 March 31,


|                                                          |                                                    |                            |       |            |        |  |     |           |        | 
|--------------------------------------------------------- | -------------------------------------------------- | -------------------------- | ----- | ---------- | ------ |  | --- | --------- | ------ | 
|                                                          |                                                    | 2003                       |       |            | 2002   | 
|                                                          |                                                    |                            |       |            |        | 
|                                                          |                                                    |                           
|                                                          |                                                    | (Unaudited)                |      
|                                                          |                                                    | (in thousands,             |      
|                                                          |                                                    | except per share data)     |      
|Revenues:                                                 |                                                    |                            |       |            |        |  |     |          
|                                                          | Net premium earned                                 |                            | $     | 27,384     |        |  | $   | 38,657    |       
|                                                          | Net commissions and fees                           |                            |       | 13,356     |        |  |     | 8,964     |       
|                                                          | Net investment income                              |                            |       | 3,353      |        |  |     | 3,124     |       
|                                                          | Net realized gains on investments                  |                            |       | 205        |        |  |     | 9         |       
|                                                          | Gain on sale of subsidiary                         |                            |       |           |        |  |     | 199       |       
|                                                          |                                                    |                            |       |            |        | 
|                                                          |                                                    | Total revenues             |       |            | 44,298 |  |     |           | 50,953 | 
|                                                          |                                                    |                            |       |            |        | 
|Expenses:                                                 |                                                    |                            |       |            |        |  |     |          
|                                                          | Net loss and loss adjustment expenses              |                            |       | 17,186     |        |  |     | 24,458    |       
|                                                          | Salaries and employee benefits                     |                            |       | 11,932     |        |  |     | 9,613     |       
|                                                          | Policy acquisition and other underwriting expenses |                            |       | 3,756      |        |  |     | 8,986     |       
|                                                          | Other operating expenses                           |                            |       | 7,084      |        |  |     | 5,418     |       
|                                                          | Interest on notes payable                          |                            |       | 237        |        |  |     | 1,250     |       
|                                                          |                                                    |                            |       |            |        | 
|                                                          |                                                    | Total expenses             |       |            | 40,195 |  |     |           | 49,725 | 
|                                                          |                                                    |                            |       |            |        | 
|                                                          |                                                    | Income before income taxes |       |            | 4,103  |  |     |           | 1,228  | 
|Federal income tax expense                                |                                                    |                            | 1,347 |            |        |  | 318 |          
|                                                          |                                                    |                            |       |            |        | 
|                                                          |                                                    | Net income                 |       | $          | 2,756  |  |     | $         | 910    | 
|                                                          |                                                    |                            |       |            |        | 
|Earnings per share:                                       |                                                    |                            |       |            |        |  |     |          
|                                                          | Basic                                              |                            | $     | 0.09       |        |  | $   | 0.11      |       
|                                                          | Diluted                                            |                            | $     | 0.09       |        |  | $   | 0.11      |       
|Weighted average number of common shares
    outstanding: |                                                    |                            |       |            |        |  |     |          
|                                                          | Basic                                              |                            |       | 29,503,567 |        |  |     | 8,512,194 |       
|                                                          | Diluted                                            |                            |       | 29,510,681 |        |  |     | 8,512,194 |       

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

2



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MEADOWBROOK INSURANCE GROUP, INC.






CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME


For the Quarter Ended March 31,


|           |                                         |                                                                        |                                               |  |      |       |     |  |        |        |  
|---------- | --------------------------------------- | ---------------------------------------------------------------------- | --------------------------------------------- |  | ---- | ----- | --- |  | ------ | ------ | -
|           |                                         | 2003                                                                   |                                               |  | 2002 |      
|           |                                         |                                                                        |                                               |  |      |      
|           |                                         |                                                                       
|           |                                         | (Unaudited)                                                            |                                              
|           |                                         | (in thousands)                                                         |                                              
|Net income |                                         | $                                                                      | 2,756                                         |  |      | $     | 910 | 
|           | Other comprehensive income, net of tax: |                                                                        |                                               |  |      |       |     |  |       
|           |                                         | Unrealized gains (losses) on securities                                |                                               |  | 292  |       |     |  | (1,603 | )     
|           |                                         | Less: reclassification adjustment for gains
    included in net income |                                               |  | (141 | )     |     |  | (6     | )     
|           |                                         |                                                                        |                                               |  |      |      
|           |                                         |                                                                        | Other comprehensive income (loss), net of tax |  |      | 151   |     |  |        | (1,609 | )
|           |                                         |                                                                        |                                               |  |      |      
|           |                                         |                                                                        | Comprehensive income (loss)                   |  | $    | 2,907 |     |  | $      | (699   | )
|           |                                         |                                                                        |                                               |  |      |      

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

3



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##### Table of Contents



MEADOWBROOK INSURANCE GROUP, INC.






CONDENSED CONSOLIDATED BALANCE
SHEETS


|                                                                |                                                                                       |                                                             |         |         |              |   |         |         |         | 
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------- | ------- | ------------ | - | ------- | ------- | ------- | 
|                                                                |                                                                                       | March 31,                                                   |         |         | December 31, |  
|                                                                |                                                                                       | 2003                                                        |         |         | 2002         |  
|                                                                |                                                                                       |                                                             |         |         |              |  
|                                                                |                                                                                       | (Unaudited)                                                 |         |         |             
|                                                                |                                                                                       |                                                            
|                                                                |                                                                                       | (in thousands,                                              |        
|                                                                |                                                                                       | except share data)                                          |        
|ASSETS                                                         
|Invested assets:                                                |                                                                                       |                                                             |         |         |              |   |         |        
|                                                                | Debt securities available for sale, at fair value
    (cost of $243,881 and $231,876) |                                                             | $       | 257,093 |              |   | $       | 244,861 |        
|                                                                | Equity securities available for sale, at fair
    value (cost of $1,980 and $1,980)   |                                                             |         | 1,804   |              |   |         | 1,804   |        
|                                                                |                                                                                       |                                                             |         |         |              |  
|                                                                |                                                                                       | Total invested assets                                       |         |         | 258,897      |   |         |         | 246,665 | 
|Cash and cash equivalents                                       |                                                                                       |                                                             | 34,310  |         |              |   | 39,385  |        
|Premiums and agent balances receivable                          |                                                                                       |                                                             | 81,315  |         |              |   | 71,420  |        
|Reinsurance recoverable on paid and unpaid losses               |                                                                                       |                                                             | 199,202 |         |              |   | 202,213 |        
|Prepaid reinsurance premiums                                    |                                                                                       |                                                             | 17,173  |         |              |   | 18,115  |        
|Deferred policy acquisition costs                               |                                                                                       |                                                             | 15,902  |         |              |   | 12,140  |        
|Deferred federal income taxes                                   |                                                                                       |                                                             | 17,676  |         |              |   | 19,099  |        
|Goodwill                                                        |                                                                                       |                                                             | 28,997  |         |              |   | 28,997  |        
|Other assets                                                    |                                                                                       |                                                             | 38,770  |         |              |   | 36,805  |        
|                                                                |                                                                                       |                                                             |         |         |              |  
|                                                                |                                                                                       | Total assets                                                |         | $       | 692,242      |   |         | $       | 674,839 | 
|                                                                |                                                                                       |                                                             |         |         |              |  
|LIABILITIES AND SHAREHOLDERS
    EQUITY                       
|Liabilities:                                                    |                                                                                       |                                                             |         |         |              |   |         |        
|Reserve for losses and loss adjustment expenses                 |                                                                                       | $                                                           | 361,923 |         |              | $ | 374,933 |        
|Unearned premiums                                               |                                                                                       |                                                             | 92,153  |         |              |   | 68,678  |        
|Debt                                                            |                                                                                       |                                                             | 21,035  |         |              |   | 32,497  |        
|Reinsurance funds held and balances payable                     |                                                                                       |                                                             | 18,189  |         |              |   | 16,199  |        
|Other liabilities                                               |                                                                                       |                                                             | 49,108  |         |              |   | 35,137  |        
|                                                                |                                                                                       |                                                             |         |         |              |  
|                                                                |                                                                                       | Total liabilities                                           |         |         | 542,408      |   |         |         | 527,444 | 
|                                                                |                                                                                       |                                                             |         |         |              |  
|Commitments and contingencies (Note 6)                          |                                                                                       |                                                             |         |         |              |   |         |        
|Shareholders Equity:                                           |                                                                                       |                                                             |         |         |              |   |         |        
|Common stock, $.01 par value; authorized
    50,000,000 shares: |                                                                                       |                                                             |         |         |              |   |         |        
|                                                                |                                                                                       | 29,363,694 and 29,591,494 shares issued and
    outstanding |         |         | 294          |   |         |         | 296     | 
|Additional paid-in capital                                      |                                                                                       |                                                             | 126,537 |         |              |   | 127,429 |        
|Retained earnings                                               |                                                                                       |                                                             | 15,268  |         |              |   | 12,073  |        
|Note receivable from officer                                    |                                                                                       |                                                             | (889    | )       |              |   | (876    | )      
|Accumulated other comprehensive income                          |                                                                                       |                                                             | 8,624   |         |              |   | 8,473   |        
|                                                                |                                                                                       |                                                             |         |         |              |  
|                                                                |                                                                                       | Total shareholders equity                                  |         |         | 149,834      |   |         |         | 147,395 | 
|                                                                |                                                                                       |                                                             |         |         |              |  
|                                                                |                                                                                       | Total liabilities and shareholders equity                  |         | $       | 692,242      |   |         | $       | 674,839 | 
|                                                                |                                                                                       |                                                             |         |         |              |  

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

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MEADOWBROOK INSURANCE GROUP, INC.






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


For the Quarter Ended March 31,


|                                                           |                                                              |                                                         |        |         |         |   |        |        |        | 
|---------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------------- | ------ | ------- | ------- | - | ------ | ------ | ------ | 
|                                                           |                                                              | 2003                                                    |        |         | 2002    |  
|                                                           |                                                              |                                                         |        |         |         |  
|                                                           |                                                              |                                                        
|                                                           |                                                              | (Unaudited)                                             |       
|                                                           |                                                              | (in thousands)                                          |       
|Net cash provided by (used in) operating
    activities    |                                                              | $                                                       | 12,814 |         |         | $ | (6,354 | )     
|                                                           |                                                              |                                                         |        |         |         |  
|Cash flows (used in) provided by investing
    activities: |                                                              |                                                         |        |         |         |   |        |       
|                                                           | Purchase of debt securities available for sale               |                                                         |        | (22,988 | )       |   |        | (1,495 | )     
|                                                           | Proceeds from sale of debt securities available
    for sale |                                                         |        | 15,333  |         |   |        | 9,541  |       
|                                                           | Other investing activities                                   |                                                         |        | (48     | )       |   |        | 1,982  |       
|                                                           |                                                              |                                                         |        |         |         |  
|                                                           |                                                              | Net cash (used in) provided by investing
    activities |        |         | (7,703  | ) |        |        | 10,028 | 
|Cash flows (used in) provided by financing
    activities: |                                                              |                                                         |        |         |         |   |        |       
|                                                           | Net payments on bank loan                                    |                                                         |        | (11,462 | )       |   |        | (14    | )     
|                                                           | Share repurchases                                            |                                                         |        | (546    | )       |   |        |       |       
|                                                           | Other financing activities                                   |                                                         |        | 1,822   |         |   |        | 737    |       
|                                                           |                                                              |                                                         |        |         |         |  
|                                                           |                                                              | Net cash (used in) provided by financing
    activities |        |         | (10,186 | ) |        |        | 723    | 
|                                                           |                                                              |                                                         |        |         |         |  
|(Decrease) increase in cash and cash equivalents           |                                                              |                                                         | (5,075 | )       |         |   | 4,397  |       
|Cash and cash equivalents, beginning of period             |                                                              |                                                         | 39,385 |         |         |   | 33,302 |       
|                                                           |                                                              |                                                         |        |         |         |  
|Cash and cash equivalents, end of period                   |                                                              | $                                                       | 34,310 |         |         | $ | 37,699 |       
|                                                           |                                                              |                                                         |        |         |         |  

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

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


(Unaudited)


Note 1  Summary of Significant
Accounting Policies

Basis of
Presentation

The consolidated financial statements include
accounts, after elimination of intercompany accounts and
transactions, of Meadowbrook Insurance Group, Inc. (the
Company), its wholly owned subsidiary Star Insurance
Company (Star), and Stars wholly owned
subsidiaries, Savers Property and Casualty Insurance Company,
Williamsburg National Insurance Company, and Ameritrust
Insurance Corporation (which collectively are referred to as the
Insurance Company Subsidiaries), and American Indemnity
Insurance Company, Ltd. and Preferred Insurance Company, Ltd.
The consolidated financial statements also include Meadowbrook,
Inc. and its subsidiaries, and Crest Financial Corporation and
its subsidiaries.

These financial statements and the notes thereto
should be read in conjunction with the Companys audited
financial statements and accompanying notes included in its
Annual Report on Form 10-K for the year ended
December 31, 2002.

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 quarter. The results of operations for the
quarter ended March 31, 2003, are not necessarily
indicative of the results expected for the full year.

Earnings Per
Share

Basic earnings per share are based on the
weighted average number of common shares outstanding during the
period, while diluted earnings per share includes the weighted
average number of common shares and potential dilution from
shares issuable pursuant to stock options using the treasury
stock method. Outstanding options of 2,685,223 and 1,562,436 for
the periods ended March 31, 2003 and 2002, respectively,
have been excluded from the diluted earnings per share as they
were anti-dilutive. Shares issuable pursuant to stock options
included in diluted earnings per share were 7,113 for the period
ended March 31, 2003. There were no shares issuable
pursuant to stock options included in diluted earnings per share
for the period ended March 31, 2002. In addition,
outstanding warrants of 300,000 for the period ended
March 31, 2003 have been excluded from the diluted earnings
per share as they were anti-dilutive.

New
Accounting Pronouncements

The Financial Accounting Standards Board
(FASB) has issued Statement of Financial Accounting
Standards (SFAS) No. 148 Accounting for
Stock-Based Compensation  Transition and Disclosure-
an amendment of FASB Statement No. 123, for periods
starting after December 15, 2003, or thereafter. SFAS
No. 148 provides three optional transition methods for
entities that decide to voluntarily adopt the fair value
recognition principles of SFAS No 123, Accounting for
Stock-Based Compensation, and modifies the disclosure
requirements of that Statement. Under the prospective method,
stock-based compensation expense is recognized for awards
granted after the beginning of the fiscal year in which the
change is made. The modified prospective method recognizes
stock-based compensation expense related to new and unvested
awards in the year of change equal to that which would have been
recognized had SFAS No. 123 been adopted as of its
effective date, fiscal years beginning after December 15,
1994. The retrospective restatement method recognizes stock
compensation costs for the year of change and restates financial
statements for all prior periods presented as though the fair
value recognition provisions of SFAS No. 123 had been
adopted as of its effective date.

The Company, through its 1995 and 2002 Stock
Option Plans (the Plans), may grant options to key
executives and other members of management of the Company and
its subsidiaries in amounts not to exceed 2,000,000 shares of
the Companys common stock in each plan. The plans are
administered by the Compensation Committee (the
Committee) appointed by the Board of Directors.
Option shares may be

6



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


exercised subject to the terms of the Plans and
the terms prescribed by the Committee at the time of grant.
Currently, the Plans options have either five or ten-year
terms and are exercisable/vest in equal increments over the
option term.

As of January 1, 2003, the Company adopted
the requirements of SFAS No. 148 utilizing the prospective
method. Under the prospective method, stock based compensation
expense is recognized for awards granted after the beginning of
the fiscal year in which the change is made. If compensation
cost for stock option grants had been determined based on a fair
value method, net income and earnings per share on a pro forma
basis for the periods ending March 31, 2003 and 2002 would
be as follows (in thousands):

|                                                                                                                                                     |                       |              |       |      |      |   |      |      | 
|---------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ------------ | ----- | ---- | ---- | - | ---- | ---- | 
|                                                                                                                                                     |                       |             
|                                                                                                                                                     |                       | For the      |      
|                                                                                                                                                     |                       | Three-Month  |      
|                                                                                                                                                     |                       | Period Ended |      
|                                                                                                                                                     |                       | March 31,    |      
|                                                                                                                                                     |                       |              |      
|                                                                                                                                                     |                       | 2003         |       |      | 2002 |  
|                                                                                                                                                     |                       |              |       |      |      |  
|Net income, as reported                                                                                                                              |                       | $            | 2,756 |      |      | $ | 910  |     
|Add: Stock-based employee compensation expense
    included in reported income, net of related tax effects                                           |                       |              | 57    |      |      |   |     |     
|Deduct: Total stock-based employee compensation
    expense determined under fair-value-based methods for all
    awards, net of related tax effects |                       |              | (286  | )    |      |   | (205 | )   
|                                                                                                                                                     |                       |              |       |      |      |  
|Pro forma net income                                                                                                                                 |                       | $            | 2,527 |      |      | $ | 705  |     
|                                                                                                                                                     |                       |              |       |      |      |  
|Earnings per share:                                                                                                                                  |                       |              |       |      |      |   |      |     
|                                                                                                                                                     | Basic  as reported   |              | $     | 0.09 |      |   | $    | 0.11 | 
|                                                                                                                                                     | Basic  pro forma     |              | $     | 0.09 |      |   | $    | 0.08 | 
|                                                                                                                                                     | Diluted  as reported |              | $     | 0.09 |      |   | $    | 0.11 | 
|                                                                                                                                                     | Diluted  pro forma   |              | $     | 0.09 |      |   | $    | 0.08 | 

The Black-Scholes valuation model utilized the
following annualized assumptions for all applicable years:
Risk-free interest rate of 2.90% and 4.46% for 2003 and 2002,
respectively. No dividends were declared in periods ended
March 31, 2003 and 2002. The volatility factor for the
expected market price of the Companys common stock of
0.586 and 0.562 in 2003 and 2002, respectively. The weighted
average expected life of options is 5.0 for the 2003 and 2002
grants.

Compensation expense of $86,000 has been recorded
for stock options granted in the period ended March 31,
2003 under SFAS 148. No compensation cost has been recorded
for stock option grants issued during 2002 as the market value
equaled the exercise price at the date of grant.

Note 2  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 exposure to large losses or from
hazards of an unusual nature. The ceding of insurance does not
discharge the original insurer from its primary liability to its
policyholder. In the event that all or any 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 a 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 March 31, 2003, the Company had
reinsurance recoverables for paid and unpaid losses of
$199.2 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

7



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


due from an admitted reinsurer with an
A+ A.M. Best rating and accounts for 40.4% of the
total recoverable for paid and unpaid losses.

The Company maintains an excess-of-loss
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. To date,
there have been no disputes with the Companys
excess-of-loss reinsurers. No assurance can be given, however,
regarding the future ability of any of the Companys
excess-of-loss reinsurers to meet their obligations.

Under the workers compensation reinsurance
program, the Company reinsures each loss in excess of $300,000
up to a limit of $20.0 million, under separate treaties.
The first treaty covers losses in excess of $300,000 up to
$500,000, and the second treaty reinsures losses in excess of
$500,000 up to $20.0 million. In addition, the Company
purchases coverage in excess of $20.0 million up to
$50.0 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 $2.0 million per occurrence.

Under the property 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 location for
an occurrence. In addition, the reinsurers are responsible for
100% of the excess of $750,000 up to $20.0 million for a
multi-location loss due to a catastrophe. Additional capacity
for individual risks may be acquired through facultative
reinsurance sources.

In its risk-sharing programs, the Company is also
subject to credit risk with respect to the payment of claims by
its clients captive, rent-a-captive, large deductible
programs, indemnification agreements, and on the portion of risk
exposure either ceded to the captives, or retained by the
clients. 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 collateralizes balances due from its risk-sharing
partners through funds withheld trusts or letters of credit. At
March 31, 2003, the Company had risk exposure in excess of
collateral in the amount of $13.3 million, on these
programs, for which the Company has an allowance of
$7.7 million, related to these exposures. The Company has
historically maintained an allowance for the potential
uncollectibility of certain reinsurance balances due from some
risk-sharing partners. At the end of each quarter, an analysis
of these exposures is conducted to determine the potential
exposure to uncollectibility. As of March 31, 2003,
management believes that this allowance is adequate. To date,
the Company has not, in the aggregate, experienced material
difficulties in collecting balances from its risk-sharing
partners. No assurance can be given, however, regarding the
future ability of any of the Companys risk-sharing
partners to meet their obligations. At March 31, 2003, the
exposure amount in litigation with former risk-sharing partners
which is not reserved or collateralized is $2.1 million.

Note 3  Debt

The Company has a credit agreement which includes
a term loan and a revolving line of credit. This credit
agreement consists of a $20.0 million term loan and a
revolving line of credit for up to $8.0 million. The
Company uses the revolving line of credit to meet short-term
working capital needs. At March 31, 2003, the
Companys term loan had an outstanding balance of
$17.5 million. The Company had no outstanding balance on
the revolving line of credit at March 31, 2003. At
December 31, 2002, the outstanding balance on the term loan
and revolving line of credit was $18.8 million and
$5.3 million, respectively. The term loan calls for
quarterly amortization through July 1, 2006, at which time
the term loan will be paid in full. The quarterly amortization
requires payments of $1.0 million on April 1, 2003 and
July 1, 2003; $1.5 million on October 1, 2003;
and $1.2 million for the remaining quarterly amortization
payments in 2004, 2005, and 2006, with a final payment of
$1.5 million on July 1, 2006. The revolving line of
credit will expire on July 1, 2004, and is thereafter
renewable on an annual basis.

8



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


The Company made principal payments of
$1.2 million on January 1, 2003 and $1.0 million
on April 1, 2003 on the term loan.

Both the term loan and revolving line of credit
provide for interest at a variable rate based, at the
Companys option, upon either the prime rate or
eurocurrency rate. The applicable margin, which ranges from 200
to 300 basis points above eurocurrency rates, is determined by
the level of the fixed charge coverage ratio. Of all the
covenants, the most restrictive covenant is the fixed charge
coverage ratio. The fixed coverage ratio, as defined by the
credit facility, is the ratio of the non-regulated earnings
before interest and taxes for the four preceding fiscal quarters
to the sum of fixed charges which include interest expense,
principal payments payable, stock repurchases, and dividends
declared during the period. Any unused portion of the revolving
credit as of the date of determination reduces the sum of these
fixed charges. This ratio at March 31, 2003, was 3.8 to
1.0, compared to the covenant minimum of 1.2 to 1.0.

As of March 31, 2003, the Company was in
compliance with all debt covenants.

In addition, a non-insurance premium finance
subsidiary of the Company maintains a line of credit with a
bank, which permits borrowings up to 80% of the accounts
receivable, which collateralize the line of credit. At
March 31, 2003, this line of credit had an outstanding
balance of $3.5 million.

On January 14, 2003, the Company paid in
full a $3.5 million subordinated promissory note, due
June 30, 2003.

Note 4  Shareholders
Equity

At March 31, 2003, shareholders equity
was $149.8 million, or $5.10 per common share, compared to
$147.4 million, or $4.98 per common share, at
December 31, 2002.

On September 17, 2002, the Companys
Board of Directors authorized management to repurchase up to
1,000,000 shares of the Companys common stock in market
transactions for a period not to exceed twenty-four months. As
of March 31, 2003, the Company repurchased and retired
423,500 shares of common stock for a total cost of approximately
$1.0 million. For the quarter ended March 31, 2003,
the Company repurchased and retired 227,800 shares of common
stock for a total cost of approximately $546,000. As of
May 9, 2003, the Company repurchased and retired 457,200
shares of common stock for a total cost of approximately
$1.1 million.

Note 5  Regulatory Matters and
Rating Agencies

A significant portion of the Companys
consolidated assets represent assets of the Insurance Company
Subsidiaries that at this time, without prior approval of the
Michigan Office of Financial and Insurance Services
(OFIS), 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
Company Subsidiaries is dictated by Michigan insurance
regulatory guidelines which, in general, 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 surplus
(excluding unrealized gains). These dividends are further
limited by a clause in the Michigan law that prohibits an
insurer from declaring dividends, except from 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
Company Subsidiaries surplus. Based upon the 2002
statutory financial statements, Star may only pay dividends to
the Company during 2003 with the prior approval of OFIS.
Stars earned surplus position at December 31, 2002
was negative $24.3 million. At March 31, 2003, earned
surplus was negative $27.6 million. No statutory dividends
were paid from Star in 2002.

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 targets for gross and net written

9



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


premium to statutory surplus are 3.0 to 1 and 2.0
to 1, respectively. As of March 31, 2003, on a statutory
consolidated basis, gross and net premium leverage ratios were
2.2 to 1.0 and 1.7 to 1.0, respectively.

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 used as a tool to
evaluate the capital of regulated companies. The RBC formula is
used by state insurance regulators to monitor trends in
statutory capital and surplus for the purpose of initiating
regulatory action. In general, an insurance company must submit
a calculation of its RBC formula to the insurance department of
its state of domicile as of the end of the previous calendar
year. These laws require increasing degrees of regulatory
oversight and intervention as an insurance companys RBC
declines. The level of regulatory oversight ranges from
requiring the insurance company to inform and obtain approval
from the domiciliary insurance commissioner of a comprehensive
financial plan for increasing its RBC to mandatory regulatory
intervention requiring an insurance company to be placed under
regulatory control in a rehabilitation or liquidation proceeding.

At December 31, 2002, all of the Insurance
Company Subsidiaries were in compliance with RBC requirements.
Star reported statutory surplus of $93.8 million at
December 31, 2002, compared to the threshold requiring the
minimum regulatory involvement of $49.7 million in 2002. At
March 31, 2003, Stars statutory surplus decreased
$3.2 million to $90.6 million.

The Insurance Company Subsidiaries A.M.
Best financial strength rating is a B+ (Very Good)
with a positive outlook. A positive outlook is placed on a
companys rating if its financial and market trends are
favorable, relative to its current rating level.

Note 6  Commitments and
Contingencies

The Company is involved in litigation arising in
the ordinary course of operations. The Company vigorously
defends such litigation. 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 7  Segment
Information

The Company defines its operations as specialty
risk management operations and agency 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.

Specialty
Risk Management Operations

The specialty risk management operations segment
focuses on specialty or niche insurance business in which it
provides services and coverages that are tailored to meet the
specific requirements of defined client groups and their
members. This includes providing services, such as risk
management consulting, claims handling, loss control, and
reinsurance brokering, along with various types of property and
casualty insurance coverage, including workers
compensation, general liability and commercial multiple peril.

Agency
Operations

The agency operations segment was formed in 1955
as a retail insurance agency. The agency operations have grown
to be one of the largest agencies in Michigan and, with
acquisitions, have expanded into California. The agency
operations produces primarily commercial insurance, as well as
personal property, casualty, life, and accident and health
insurance, with more than fifty insurance carriers from which it
earns commission income.

10



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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

|                |                                   |                                   |                             |        |        |       |   |        |        |       | 
|--------------- | --------------------------------- | --------------------------------- | --------------------------- | ------ | ------ | ----- | - | ------ | ------ | ----- | 
|                |                                   |                                  
|                |                                   | For the                           |                            
|                |                                   | Quarters Ended                    |                            
|                |                                   | March 31,                         |                            
|                |                                   |                                   |                            
|                |                                   | 2003                              |                             |        | 2002   |      
|                |                                   |                                   |                             |        |        |      
|Revenues:       |                                   |                                   |                             |        |        |       |   |       
|                | Net earned premiums               |                                   | $                           | 27,384 |        |       | $ | 38,657 |       
|                | Management fees                   |                                   |                             | 10,362 |        |       |   | 5,563  |       
|                | Investment income                 |                                   |                             | 3,340  |        |       |   | 3,111  |       
|                | Net realized gains on investments |                                   |                             | 205    |        |       |   | 9      |       
|                |                                   |                                   |                             |        |        |      
|                |                                   | Specialty risk management segment |                             |        | 41,291 |       |   |        | 47,340 |      
|                | Agency operations                 |                                   |                             | 4,147  |        |       |   | 3,638  |       
|                | Reconciling items                 |                                   |                             | 13     |        |       |   | 13     |       
|                | Gain on sale of subsidiary        |                                   |                             |       |        |       |   | 199    |       
|                | Intersegment revenue              |                                   |                             | (1,153 | )      |       |   | (237   | )     
|                |                                   |                                   |                             |        |        |      
|                |                                   | Consolidated revenue              |                             | $      | 44,298 |       |   | $      | 50,953 |      
|                |                                   |                                   |                             |        |        |      
|Pre-tax income: |                                   |                                   |                             |        |        |       |   |       
|                | Specialty risk management         |                                   | $                           | 2,636  |        |       | $ | 888    |       
|                | Agency operations *               |                                   |                             | 2,052  |        |       |   | 1,694  |       
|                | Reconciling items                 |                                   |                             | (585   | )      |       |   | (1,553 | )     
|                | Gain on sale of subsidiary        |                                   |                             |       |        |       |   | 199    |       
|                |                                   |                                   |                             |        |        |      
|                |                                   |                                   | Consolidated pre-tax income |        | $      | 4,103 |   |        | $      | 1,228 | 
|                |                                   |                                   |                             |        |        |      



---



|  |                                                
|- | -----------------------------------------------
|* | Excluding the allocation of corporate overhead.

The reconciling item included in the revenue
relates to interest income in the holding company. The following
table sets forth the pre-tax income reconciling items:

|                         |  |                |      |   |      |   |        |  
|------------------------ |  | -------------- | ---- | - | ---- | - | ------ | -
|                         |  |               
|                         |  | For the        |     
|                         |  | Quarters Ended |     
|                         |  | March 31,      |     
|                         |  |                |     
|                         |  | 2003           |      |   | 2002 |  
|                         |  |                |      |   |      |  
|Holding Company Expenses |  | $              | (278 | ) |      | $ | (303   | )
|Amortization             |  |                | (70  | ) |      |   |        |  
|Interest Expense         |  |                | (237 | ) |      |   | (1,250 | )
|                         |  |                |      |   |      |  
|                         |  | $              | (585 | ) |      | $ | (1,553 | )
|                         |  |                |      |   |      |  

Note 8  Reclassifications

Certain amounts in the 2002 notes to consolidated
financial statements have been reclassified to conform with the
2003 presentation.

11



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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
2002 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, 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 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.

12



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##### Table of Contents








ITEM 2


MANAGEMENTS DISCUSSION AND ANALYSIS
OF


FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


For the Quarters ended March 31, 2003 and
2002


Meadowbrook Insurance Group, Inc. (the
Company) is a publicly traded specialty risk
management company, specializing in alternative market insurance
and risk management solutions for agents, brokers, professional
and trade associations, and insureds of all sizes. The
alternative market includes a wide range of approaches to
financing and managing risk exposures, such as captives, risk
retention and risk purchasing groups, governmental pools and
trusts, and self-insurance plans. The alternative market
developed as a result of the historical volatility in the cost
and availability of traditional commercial insurance coverages,
and usually involves some form of self-insurance or risk-sharing
on the part of the client. The Company develops and manages
alternative risk management programs for defined groups and
their members. The Company also operates as an insurance agency
representing policyholders in placing their insurance coverages
with unaffiliated insurance companies. Management defines its
business segments as specialty risk management operations and
agency operations.

Results of Operations for the Quarters Ended
March 31, 2003 and 2002

Overview

Net income for the quarter ended March 31,
2003 was $2.8 million, compared to net income of $910,000
for the quarter ended March 31, 2002. This improvement
reflects the addition of new fee-for-service agreements and the
Companys continued expense reduction initiatives. These
initiatives have allowed the Company to leverage its fixed costs.

Revenues for the quarter ended March 31,
2003 decreased $6.7 million, or 13.1%, to
$44.3 million from $51.0 million for the comparable
period in 2002.

Specialty
Risk Management Operations

The following table sets forth the revenues and
results from specialty risk management operations (in thousands):

|               |                                   |                |       |        |        |   |     |        |        | 
|-------------- | --------------------------------- | -------------- | ----- | ------ | ------ | - | --- | ------ | ------ | 
|               |                                   |               
|               |                                   | For the        |      
|               |                                   | Quarters Ended |      
|               |                                   | March 31,      |      
|               |                                   |                |      
|               |                                   | 2003           |       |        | 2002   |  
|               |                                   |                |       |        |        |  
|Revenues:      |                                   |                |       |        |        |   |     |       
|               | Net earned premiums               |                | $     | 27,384 |        |   | $   | 38,657 |       
|               | Management fees                   |                |       | 10,362 |        |   |     | 5,563  |       
|               | Investment income                 |                |       | 3,340  |        |   |     | 3,111  |       
|               | Net realized gains on investments |                |       | 205    |        |   |     | 9      |       
|               |                                   |                |       |        |        |  
|               |                                   | Total revenue  |       | $      | 41,291 |   |     | $      | 47,340 | 
|               |                                   |                |       |        |        |  
|Pre-tax income |                                   | $              | 2,636 |        |        | $ | 888 |       
|               |                                   |                |       |        |        |  

Revenues from specialty risk management
operations decreased $6.0 million, or 12.8%, to
$41.3 million for the quarter ended March 31, 2003,
from $47.3 million for the comparable period in 2002. This
decrease reflects an $11.3 million, or 29.2% decrease in
net earned premiums to $27.4 million in the quarter ended
March 31, 2003, from $38.7 million in the comparable
period in 2002. This decrease is the result of a reduction in
earned premium of $18.0 million related to programs
discontinued in 1999 and programs terminated for leverage ratio
purposes. In addition, earned premium related to existing
programs and new business decreased $587,000. Offsetting the
overall decrease in net earned premium is a $7.3 million
reduction in ceded earned premium associated with the
cancellation in 2002 of the surplus relief treaty related to
several workers compensation programs.

13



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##### Table of Contents



Management fees increased $4.8 million, or
86.3%, to $10.4 million from $5.6 million. New claims
handling and management services agreements contributed
$4.7 million to this increase. Existing managed programs
contributed $96,000 to this increase.

Net investment income increased $229,000, or
7.4%, to $3.3 million for the quarter ended March 31,
2003, compared to $3.1 million for the comparable period in
2002. This increase reflects a $59.0 million, or 25.6%
increase in average invested assets and cash and cash
equivalents, to $289.6 million for the quarter ended
March 31, 2003, from $230.7 million for the comparable
period in 2002. The increase in average invested assets and cash
and cash equivalents, primarily reflects net assets invested of
$37.5 million from the proceeds received from the
Companys public offering in June 2002. In addition, the
increase in average invested assets and cash and cash
equivalents, was the result of growth in premiums, collection of
reinsurance recoverables, and the cancellation of the surplus
relief treaty in 2002. The pre-tax yield for March 31, 2003
was 4.8%, compared to 5.5% for the comparable period in 2002.

Specialty risk management operations generated
pre-tax income of $2.6 million for the quarter ended
March 31, 2003, compared to pre-tax income of $888,000 for
the comparable period in 2002. This improvement reflects the
favorable impact of the previously indicated fee-for-service
agreements.

Net loss and loss adjustment expenses
(LAE) decreased $7.3 million, or 29.7%, to
$17.2 million for the quarter ended March 31, 2003,
from $24.5 million for the same period in 2002. The
Companys loss and loss adjustment expense ratio increased
by 1.6 percentage points to 69.0% for the quarter ended
March 31, 2003, from 67.4% for the same period in 2002.
This ratio is the unconsolidated net loss and loss adjustment
expenses in relation to net earned premium. The increase in the
overall loss ratio reflects a $2.1 million increase in
unallocated loss adjustment expenses paid in 2003 relating to
the growth in gross written premium in 2003, as compared to the
decline in premium experienced in 2002. In general, the payment
of claims handling fees are weighted to the beginning of the
premium cycle, since a number of the claim contracts are based
upon an overall payment pattern applied to gross written
premium. The unallocated loss adjustment expense ratio was 7.3%
for the quarter ended March 31, 2003, compared to 4.2% for
the same period in 2002. The loss ratio, excluding unallocated
loss adjustment expenses, was 61.7% for the quarter ended
March 31, 2003, compared to 63.2% for the same period in
2002. The loss ratio was also impacted by losses relating to the
Companys mandatory participation in workers
compensation residual market pools. Due to the lower level of
net earned premiums in the first quarter of 2003, compared to
the same period in 2002, the residual market losses added 3.9
points to the 2003 loss ratio.

For the quarter ended March 31, 2003, the
Company reported net adverse development on loss and LAE of
$331,000, or 0.2% of $193.1 million of net loss and LAE
reserves at December 31, 2002. There were no significant
changes in the key assumptions utilized in the analysis and
calculations of the Companys reserves for the quarters
ending March 31, 2003 and 2002. The major components of
this development are as follows:

Continuing Programs:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The continuing programs contributed net
    unfavorable development of $1.6 million, or 1.6%, on
    reserves of $98.7 million related to accident years 2002
    and prior. General liability, liability occurrence programs, and
    medical malpractice contributed $1.2 million, $601,000 and
    $237,000, respectively, to the net unfavorable development. Also
    contributing to this net unfavorable development was $568,000 of
    adverse development in residual markets. Offsetting the net
    unfavorable development was favorable development of $473,000
    and $361,000, in property and workers compensation
    programs, respectively. The remaining favorable development was
    in other lines of business.

Discontinued and Terminated Programs:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The discontinued programs that had aggregate stop
    loss provisions, lack of risk sharing or proven actuarial
    experience, and the surety line of business contributed net
    favorable development of $1.4 million, or 4.8%, on reserves
    of $28.8 million related to accident years 2002 and prior.
    This favorable development reflects better than expected claims
    run-off on workers compensation

14



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##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | programs that contributed $1.3 million and
    on the liability occurrence programs that contributed $142,000
    to the net favorable development.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The programs that were terminated in late 2000
    and in 2001 to reduce leverage ratios accounted for $123,000. or
    0.3%, of the adverse development on reserves of
    $45.5 million related to accident years 2002 and prior.
    This adverse development primarily reflects higher than expected
    claims reported and paid in automobile liability of $586,000 and
    $133,000 in workers compensation and all other lines. This
    adverse development was partially offset by favorable
    development in general liability, claims made liability, and
    property of $200,000, $360,000, and $36,000, respectively.

At March 31, 2003, the Company recorded
managements best estimate for the ultimate liability for
loss and LAE reserves, net of reinsurance recoverables, which
was $187.1 million. Reserves are reviewed by both internal
and independent actuaries for adequacy on a periodic basis. When
reviewing reserves, the Company analyzes historical data and
estimates the impact of various factors such as (i) per
claim information; (ii) Company and industry historical
loss experience; (iii) legislative enactments, judicial
decisions, legal developments in the imposition of damages, and
changes in political attitudes; and (iv) trends in general
economic conditions, including the effects of inflation. This
process assumes that past experience, adjusted for the effects
of current developments and anticipated trends, is an
appropriate basis for predicting future events. There is no
precise method for subsequently evaluating the impact of any
specific factor on the adequacy of reserves, because the
eventual deficiency or redundancy is affected by multiple
factors.

At March 31, 2003, the key assumptions used
in the development of the ultimate estimates for losses and LAE
have remained consistent with the key assumptions used in
previous quarters. The key assumptions used in managements
selection of ultimate reserves included the underlying actuarial
methodologies, a review of current pricing and underwriting
initiatives, an evaluation of reinsurance costs and retention
levels, and a detailed claims analysis with an emphasis on how
aggressive claims handling may be impacting the paid and
incurred loss data trends embedded in the traditional actuarial
methods.

The Companys expense ratio improved
1.3 percentage points to 36.5% for the quarter ended
March 31, 2003, from 37.8% for the same period in 2002.
This ratio is the unconsolidated policy acquisition and other
underwriting expenses in relation to net earned premium. The
improvement reflects the impact of an unusual ceding commission
adjustment in 2002 related to a surplus relief treaty.

Agency
Operations

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

|                |  |                |       |  |      |   |       | 
|--------------- |  | -------------- | ----- |  | ---- | - | ----- | 
|                |  |               
|                |  | For the        |      
|                |  | Quarters Ended |      
|                |  | March 31,      |      
|                |  |                |      
|                |  | 2003           |       |  | 2002 |  
|                |  |                |       |  |      |  
|Net commission  |  | $              | 4,147 |  |      | $ | 3,638 | 
|Pre-tax income* |  | $              | 2,052 |  |      | $ | 1,694 | 



---



|  |                                               
|- | ----------------------------------------------
|* | Excluding the allocation of corporate overhead

Revenue from agency operations, which consists
primarily of agency commission revenue, increased $509,000, or
14.0%, to $4.1 million for the quarter ended March 31,
2003, from $3.6 million for the comparable period in 2002.
This increase is primarily the result of rate increases,
increases in contingent commissions and an increase due to the
acquisition of books of business from new producers.

Agency operations generated pre-tax income of
$2.1 million for the quarter ended March 31, 2003,
compared to $1.7 million for the comparable period in 2002.
The improvement in the pre-tax margin is the result of rate
increases and overall expense reductions.

15



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##### Table of Contents



Other Items

Salary and
Employee Benefits and Other Administrative
Expenses

Salary and employee benefits increased
$2.3 million, or 24.1%, to $11.9 million, from
$9.6 million for the comparable period in 2002. This
increase is primarily the result of the hiring of employees to
handle new fee-for-service agreements. In addition, this
increase reflects both merit increases and a slight increase in
staffing levels. Other administrative expenses increased
$1.6 million, or 30.1%, to $7.1 million, from
$5.4 million for the comparable period in 2002. The
increase in administrative expenses is also attributable to the
new fee-for-service agreements. Salary and benefits and
administrative expenses include both corporate overhead and the
holding company expenses included in the reconciling items of
the Companys segment information.

Interest
Expense

Interest expense for the quarter ended
March 31, 2003 decreased by $1.0 million, or 81.0%, to
$237,000, from $1.3 million for the comparable period in
2002. Interest expense is primarily attributable to the
Companys term loan and revolving line of credit. This
decrease reflects both the reduction in the average outstanding
balance and a reduction in the average interest rate. The
average outstanding balance during the first quarter of 2003 was
$23.8 million, compared to $54.7 for the same period in
2002. The average interest rate in 2003 was 4.0%, compared to
9.1% in 2002. The applicable margin in the agreement, which
ranges from 200 to 300 basis points above eurocurrency rates, is
determined by the level of the fixed charge coverage ratio. The
fixed charge coverage ratio, as defined by the credit facility,
is the ratio of the non-regulated earnings before interest and
taxes for the four preceding fiscal quarters to the sum of fixed
charges which include interest expense, principal payments
payable, stock repurchases, and dividends declared during the
period. Any unused portion of the revolving credit as of the
date of determination reduces the sum of these fixed charges.
This ratio at March 31, 2003, was 3.8 to 1.0, compared to
the covenant minimum of 1.2 to 1.0.

Taxes

Federal income tax expense for the quarter ended
March 31, 2003 was $1.3 million, or 32.8% of income before
taxes. For the same quarter last year, the Company reflected a
federal income tax expense of $318,000, or 25.9% of income
before taxes. The increase in tax expense is the result of an
increase in earnings. The Companys effective tax rate
differs from the 34% statutory rate primarily due to tax-exempt
investment income. The overall change in the effective rate in
comparison to the quarter ended March 31, 2002 is related
to changes in the proportion of tax-exempt investment income to
total underwriting results.

At March 31, 2003, the Company had a
deferred tax asset of $17.7 million, $6.6 million of
which is related to a net operating loss carryforward
(NOL). Realization of the deferred tax asset is
dependent on generating sufficient taxable income to absorb both
the applicable reversing temporary differences and the NOL. At
March 31, 2003, management concluded that the positive
evidence supporting the generation of future taxable income
sufficient to realize the deferred tax asset outweighed the
negative evidence of the cumulative losses reported for the
periods ended December 31, 2001, 2000, and 1999. This
conclusion was based upon:



| |   |                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The current market conditions that supported the
    cumulative premium rate increases of 49% since the beginning of
    2000 is expected to continue;                                                                                                                                                     
|
| |  | For the first quarter of 2003, loss reserves
    continue to stabilize with a calendar year 2003 loss and LAE
    ratio of 69.0% and net adverse development on loss and LAE on
    prior year accident years of $331,000, or 0.2% of $193.1 million
    of net loss and LAE reserves at December 31, 2002;
|
| |  | The completion of the Companys exit of
    certain discontinued unprofitable programs. Exposures related to
    these programs were fully earned during the first half of 2002.
    Furthermore, the uncertainty                                                                                          

16



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##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | of future reserve development appears to have
    been reduced by aggressive claims handling which reduced the
    number of pending claims, reserve strengthening in 2002, and a
    claim by claim review conducted by the Companys corporate
    claims department during the fourth quarter of 2002; and
|
| |  | Alternative tax strategies, which could generate
    capital gains from the potential sale of assets and/or
    subsidiaries.                                                                                                                                                                                

Other Than
Temporary Impairments

The Companys policy on other than
temporarily impaired securities is to determine impairment based
on analysis of the following factors: market value less than 80%
of amortized cost for a six month period; rating downgrade or
other credit event, e.g., failure to pay interest when due;
financial condition and near-term prospects of the issuer,
including any specific events which may influence the operations
of the issuer such as changes in technology or discontinuance of
a business segment; prospects for the issuers industry
segment; intent and ability of the Company to retain the
investment for a period of time sufficient to allow for
anticipated recovery in market value. Investments which are
determined to be impaired are written down to their estimated
net realizable value. At March 31, 2003, the Company did
not hold any securities in its investment portfolio that were
impaired. For the quarter ended March 31, 2003, unrealized
gains and losses on securities were $14.1 million and
($1.1) million, respectively.

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, and agency commissions. 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, which have been set forth in the table below for
the periods ending March 31, 2003 and 2002.

|                           |                                                                                  |                  |       |       |      |   |     |       | 
|-------------------------- | -------------------------------------------------------------------------------- | ---------------- | ----- | ----- | ---- | - | --- | ----- | 
|                           |                                                                                  |                 
|                           |                                                                                  | For the Quarters |      
|                           |                                                                                  | Ended March 31,  |      
|                           |                                                                                  |                  |      
|                           |                                                                                  | 2003             |       |       | 2002 |  
|                           |                                                                                  |                  |       |       |      |  
|Net income                 |                                                                                  | $                | 2,756 |       |      | $ | 910 |      
|                           |                                                                                  |                  |       |       |      |  
|Regulated Subsidiaries     |                                                                                  |                  |       |       |      |   |     |      
|                           | Net income                                                                       |                  | $     | 866   |      |   | $   | 529   | 
|                           |                                                                                  |                  |       |       |      |  
|Non-regulated Subsidiaries |                                                                                  |                  |       |       |      |   |     |      
|                           | Net income                                                                       |                  | $     | 1,890 |      |   | $   | 381   | 
|                           | Interest, depreciation, and amortization                                         |                  |       | 747   |      |   |     | 1,811 | 
|                           |                                                                                  |                  |       |       |      |  
|                           | Non-regulated net income, excluding interest,
    depreciation, and amortization |                  | $     | 2,637 |      |   | $   | 2,192 | 
|                           |                                                                                  |                  |       |       |      |  

Cash flow provided by operations for the quarter
ended March 31, 2003 was $12.8 million, compared to
cash flow used in operations of $6.4 million for the
comparable quarter in 2002. The increase in cash flow from
operations primarily reflects an increase in earnings, the
acceleration of collections on reinsurance recoverables,
increased collections on premiums, and $2.4 million in cash
receipts on fee-for-service contracts in advance of the related
earnings process.

The Company has a credit agreement which includes
a term loan and a revolving line of credit. This credit
agreement consists of a $20.0 million term loan and a
revolving line of credit for up to $8.0 million. The
Company uses the revolving line of credit to meet short-term
working capital needs. At March 31, 2003, the
Companys term loan had an outstanding balance of
$17.5 million. The Company had no outstanding balance on
the revolving line of credit at March 31, 2003. At
December 31, 2002, the outstanding balance on the term

17



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##### Table of Contents



loan and revolving line of credit was
$18.8 million and $5.3 million, respectively. The term
loan calls for quarterly amortization of the principal through
July 1, 2006, at which time the term loan will be paid in
full. The quarterly amortization requires payments of
$1.0 million on April 1, 2003 and July 1, 2003;
$1.5 million on October 1, 2003; and $1.2 million
for the remaining quarterly amortization payments in 2004, 2005,
and 2006, with a final payment of $1.5 million on
July 1, 2006. The revolving line of credit will expire on
July 1, 2004, and is thereafter renewable on an annual
basis.


The Company made principal payments of
$1.2 million on January 1, 2003 and $1.0 million
on April 1, 2003 on the term loan.

Both the term loan and revolving line of credit
provide for interest at a variable rate based, at the
Companys option, upon either the prime rate or
eurocurrency rate. The applicable margin, which ranges from 200
to 300 basis points above eurocurrency rates, is determined by
the level of the fixed charge coverage ratio. Of all the
covenants, the most restrictive covenant is the fixed charge
coverage ratio. The fixed coverage ratio, as defined by the
credit facility, is the ratio of the non-regulated earnings
before interest and taxes for the four preceding fiscal quarters
to the sum of fixed charges which include interest expense,
principal payments payable, stock repurchases, and dividends
declared during the period. Any unused portion of the revolving
credit as of the date of determination reduces the sum of these
fixed charges. This ratio at March 31, 2003, was 3.8 to
1.0, compared to the covenant minimum of 1.2 to 1.0.

As of March 31, 2003, the Company was in
compliance with all debt covenants.

In addition, a non-insurance premium finance
subsidiary of the Company maintains a line of credit with a
bank, which permits borrowings up to 80% of the accounts
receivable, which collateralize the line of credit. At
March 31, 2003, this line of credit had an outstanding
balance of $3.5 million.

On January 14, 2003, the Company paid in
full a $3.5 million subordinated promissory note, due
June 30, 2003.

Shareholders equity was
$149.8 million, or $5.10 per common share, at
March 31, 2003, compared to $147.4 million, or $4.98
per common share, at December 31, 2002.

On September 17, 2002, the Companys
Board of Directors authorized management to repurchase up to
1,000,000 shares of the Companys common stock in market
transactions for a period not to exceed twenty-four months. As
of March 31, 2003, the Company repurchased and retired
423,500 shares of common stock for a total cost of approximately
$1.0 million. For the quarter ended March 31, 2003,
the Company repurchased and retired 227,800 shares of common
stock for a total cost of approximately $546,000. As of
May 9, 2003, the Company repurchased and retired 457,200
shares of common stock for a total cost of approximately
$1.1 million.

A significant portion of the Companys
consolidated assets represent assets of the Insurance Company
Subsidiaries that at this time, without prior approval of the
Michigan Office of Financial and Insurance Services
(OFIS), 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
Company Subsidiaries is limited by Michigan insurance regulatory
guidelines which, in general, 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 surplus (excluding
unrealized gains). These dividends are further limited by a
clause in the Michigan law that prohibits an insurer from
declaring dividends, except from 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 Company
Subsidiaries surplus. Based upon the 2002 statutory
financial statements, Star may only pay dividends to the Company
during 2003 with the prior approval of OFIS. Stars earned
surplus position at December 31, 2002 was negative
$24.3 million. At March 31, 2003, earned surplus was
negative $27.6 million. No statutory dividends were paid in
2002.

18



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##### Table of Contents



Regulatory and Rating Issues

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 used as a tool to
evaluate the capital of regulated companies. The RBC formula is
used by state insurance regulators to monitor trends in
statutory capital and surplus for the purpose of initiating
regulatory action. In general, an insurance company must submit
a calculation of its RBC formula to the insurance department of
its state of domicile as of the end of the previous calendar
year. These laws require increasing degrees of regulatory
oversight and intervention as an insurance companys RBC
declines. The level of regulatory oversight ranges from
requiring the insurance company to inform and obtain approval
from the domiciliary insurance commissioner of a comprehensive
financial plan for increasing its RBC to mandatory regulatory
intervention requiring an insurance company to be placed under
regulatory control in a rehabilitation or liquidation proceeding.

At December 31, 2002, all of the Insurance
Company Subsidiaries were in compliance with RBC requirements.
Star reported statutory surplus of $93.8 million at
December 31, 2002, compared to the threshold requiring the
minimum regulatory involvement of $49.7 million in 2002. At
March 31, 2003, Stars statutory surplus decreased
$3.2 million to $90.6 million. Statutory accounting
principles differ in some respects from generally accepted
accounting principles (GAAP). These differences
include the costs of acquiring and renewing business. Under
statutory accounting principles these acquisition costs are
expensed as premium is written, while under GAAP these costs are
deferred and recognized as premium is earned over the terms of
the policies or reinsurance treaties to which the costs relate.
At March 31, 2003, deferred policy acquisition costs
increased $3.8 million, to $ 15.9 million, compared to
$12.1 million at December 31, 2002.

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 targets for gross and net written premium to
statutory surplus are 3.0 to 1 and 2.0 to 1, respectively. As of
March 31, 2003, on a statutory consolidated basis, gross
and net premium leverage ratios were 2.2 to 1.0 and 1.7 to 1.0,
respectively.

The Insurance Company Subsidiaries A.M.
Best financial strength rating is a B+ (Very Good)
with a positive outlook. A positive outlook is placed on a
companys rating if its financial and market trends are
favorable, relative to its current rating level.

New Accounting Pronouncements

The Financial Accounting Standards Board
(FASB) has issued Statement of Financial Accounting
Standards (SFAS) No. 148 Accounting for
Stock-Based Compensation  Transition and Disclosure-
an amendment of FASB Statement No. 123, for periods
starting after December 15, 2003, or thereafter. SFAS
No. 148 provides three optional transition methods for
entities that decide to voluntarily adopt the fair value
recognition principles of SFAS No. 123, Accounting
for Stock-Based Compensation, and modifies the disclosure
requirements of that Statement. Under the prospective method,
stock-based compensation expense is recognized for awards
granted after the beginning of the fiscal year in which the
change is made. The modified prospective method recognizes
stock-based compensation expense related to new and unvested
awards in the year of change equal to that which would have been
recognized had SFAS No. 123 been adopted as of its
effective date, fiscal years beginning after December 15,
1994. The retrospective restatement method recognizes stock
compensation costs for the year of change and restates financial
statements for all prior periods presented as though the fair
value recognition provisions of SFAS No. 123 had been
adopted as of its effective date.

As of January 1, 2003, the Company has
adopted the requirements of SFAS No. 148 utilizing the
prospective method. Compensation expense of $86,000 has been
recorded for stock options granted in the period ended
March 31, 2003 under SFAS 148. No compensation cost
has been recorded for stock option grants issued during 2002 as
the market value equaled the exercise price at the date of grant.

19



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##### Table of Contents



Item
3.     Quantitative and Qualitative
Disclosures About Market Risk

No material changes since December 31, 2002
Annual Report on Form 10-K.

Item
4.     Controls and
Procedures

Within 90 days prior to the date of this
report, the Company carried out an evaluation, under the
supervision and with the participation of the Companys
management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based upon
that evaluation, the Companys Chief Executive Officer and
Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective to ensure that
all material information relating to the Company (including its
consolidated subsidiaries) required to be included in this
quarterly report has been made known in a timely manner. There
have been no significant changes in the Companys internal
controls or in other factors that could significantly affect
these internal controls subsequent to the date of the most
recent evaluation by the Companys Chief Executive Officer
and Chief Financial Officer.

20



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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 6 of the Companys
Form 10-Q for the three months ended March 31, 2003,
which is hereby incorporated by reference.



|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

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

|        |      |  |             |                                                                                                                                
|------- | ---- |  | ----------- | -------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |            
|No.     |      |  | Description
|        |      |  |            
|        | 10.1 |  |             | Pledge Agreement between Meadowbrook Insurance
    Group, Inc. and Comerica Bank, dated September 25, 2002.                    
|        | 10.2 |  |             | Subsidiary Pledge Agreement between Meadowbrook,
    Inc. and Comerica Bank, dated September 25, 2002.                         
|        | 10.3 |  |             | Subsidiary Pledge Agreement between Crest
    Financial Corporation and Comerica Bank, dated
    September 25, 2002.           
|        | 99.1 |  |             | Certification pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002.
|        | 99.2 |  |             | Certification pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.

(B) Reports on Form 8-K:

None.

21



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##### Table of Contents








SIGNATURES


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



| |                                  
| | ---------------------------------
| | MEADOWBROOK INSURANCE GROUP, INC.



| |     |                   
| | --- | ------------------
| | By: | /s/ KAREN M. SPAUN

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

Dated: May 15, 2003

22



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##### Table of Contents








Form of Certification for Quarterly Reports on
Form 10-Q


I, Robert S. Cubbin, Chief Executive
Officer, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this quarterly report on
    Form 10-Q of Meadowbrook Insurance Group, Inc.;                                                                                                                                                                                                                                                      
|
| | 2. | Based on my knowledge, this quarterly report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    quarterly report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we
    have:                                                                                                         



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this quarterly report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officers
    and I have indicated in this quarterly report whether or not
    there were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |                        
| | -----------------------
| | /s/ ROBERT S. CUBBIN   
| |                        
| | Robert S. Cubbin       
| | Chief Executive Officer

Date: May 15, 2003

23



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Form of Certification for Quarterly Reports on
Form 10-Q


I, Karen M. Spaun, Senior Vice President and
Chief Financial Officer, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this quarterly report on
    Form 10-Q of Meadowbrook Insurance Group, Inc.;                                                                                                                                                                                                                                                      
|
| | 2. | Based on my knowledge, this quarterly report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    quarterly report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we
    have:                                                                                                         



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this quarterly report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officers
    and I have indicated in this quarterly report whether or not
    there were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |                          
| | -------------------------
| | /s/ KAREN M. SPAUN       
| |                          
| | Karen M. Spaun           
| | Senior Vice President and
| | Chief Financial Officer  

Date: May 15, 2003

24



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##### Table of Contents








EXHIBIT INDEX


|        |      |  |             |                                                                                                                                
|------- | ---- |  | ----------- | -------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |            
|No.     |      |  | Description
|        |      |  |            
|        | 10.1 |  |             | Pledge Agreement between Meadowbrook Insurance
    Group, Inc. and Comerica Bank, dated September 25, 2002.                    
|        | 10.2 |  |             | Subsidiary Pledge Agreement between Meadowbrook,
    Inc. and Comerica Bank, dated September 25, 2002.                         
|        | 10.3 |  |             | Subsidiary Pledge Agreement between Crest
    Financial Corporation and Comerica Bank, dated
    September 25, 2002.           
|        | 99.1 |  |             | Certification pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.
|        | 99.2 |  |             | Certification pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.