##### Table of Contents



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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarter ended June 30,
    2007oro

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

38-2626206(State of
    Incorporation)

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




---



##### 



TABLE OF
    CONTENTS
  PagePART
    I  FINANCIAL INFORMATIONITEM 1 
    FINANCIAL STATEMENTS


2Consolidated
    Statements of Income (unaudited)


2-3Consolidated
    Statements of Comprehensive Income (unaudited)


4Consolidated
    Balance Sheets (unaudited)


5Consolidated
    Statements of Cash Flows (unaudited)


6Notes to
    Consolidated Financial Statements (unaudited)


7-20ITEM 2 
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
    AND RESULTS OF OPERATIONS


21-39ITEM 3 
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK


39ITEM 4 
    CONTROLS AND PROCEDURES


40-41PART
    II  OTHER INFORMATIONITEM 1 
    LEGAL PROCEEDINGS


41ITEM 1A 
    RISK FACTORS


41ITEM 2 
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
    PROCEEDS


41ITEM 4 
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


41ITEM 6 
    EXHIBITS


42SIGNATURES


43Amended and Restated Articles of IncorporationAt-Will Employment and Severance Agreement - James M. MahoneyAt-Will Employment and Severance Agreement - Joseph E. MattinglyCertification of Robert S. Cubbin, Chief Executive Officer Pursuant to Rule 13a-14(a)Certification of Karen M. Spaun, Senior Vice President and Chief Financial Officer Pursuant to Rule 13a-14(a)Certification Pursuant to Section 906, signed by Robert S. Cubbin, Chief Executive OfficerCertification Pursuant to Section 906, signed by Karen M. Spaun, Senior Vice President and Chief Financial Officer   1




---



##### Table of Contents



PART 1 
    FINANCIAL INFORMATION  ITEM 1
    FINANCIAL
    STATEMENTS  MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED STATEMENTS OF INCOME
  For the Six MonthsEnded June 30,2007


2006(Unaudited)(In thousands, except share data)RevenuesPremiums earnedGross

$
166,814


$
163,394Ceded


(34,419
)


(35,756
)Net earned premiums


132,395



127,638Net commissions and fees


22,294



21,987Net investment income


12,385



10,619Net realized gains


14



18Total revenues


167,088



160,262ExpensesLosses and loss adjustment expenses


101,382



107,819Reinsurance recoveries


(25,029
)


(33,630
)Net losses and loss adjustment
    expenses


76,353



74,189Salaries and employee benefits


26,432



27,214Policy acquisition and other
    underwriting expenses


26,812



24,604Other administrative expenses


14,992



14,927Amortization expense


687



307Interest expense


3,154



2,887Total expenses


148,430



144,128Income before taxes and equity
    earnings


18,658



16,134Federal and state income tax
    expense


5,610



5,159Equity earnings of affiliates


61



25Net income

$
13,109


$
11,000Earnings Per ShareBasic

$
0.44


$
0.38Diluted

$
0.44


$
0.37Weighted average number of common
    sharesBasic


29,822,086



28,842,427Diluted


29,876,480



29,579,217    2




---



##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF INCOME
  For the Three MonthsEnded June 30,2007


2006(Unaudited)(In thousands, except share data)RevenuesPremiums earnedGross

$
85,263


$
81,703Ceded


(18,072
)


(17,189
)Net earned premiums


67,191



64,514Net commissions and fees


10,743



10,698Net investment income


6,229



5,380Net realized gains


20



25Total revenues


84,183



80,617ExpensesLosses and loss adjustment expenses


51,380



57,935Reinsurance recoveries


(11,673
)


(20,789
)Net losses and loss adjustment
    expenses


39,707



37,146Salaries and employee benefits


12,900



13,846Policy acquisition and other
    underwriting expenses


13,169



13,180Other administrative expenses


7,598



7,133Amortization expense


543



142Interest expense


1,667



1,499Total expenses


75,584



72,946Income before taxes and equity
    earnings


8,599



7,671Federal and state income tax
    expense


2,461



2,312Equity earnings of affiliates


48



16Net income

$
6,186


$
5,375Earnings Per ShareBasic

$
0.20


$
0.19Diluted

$
0.20


$
0.18Weighted average number of common
    sharesBasic


30,294,628



28,820,862Diluted


30,350,553



29,571,925    3




---



##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
  For the Six Months Ended June 30,2007


2006(Unaudited)(In thousands)Net income

$
13,109


$
11,000Other comprehensive income, net of
    tax:Unrealized losses on securities


(4,176
)


(5,245
)Net deferred derivative
    gain  hedging activity


113



431Less: reclassification adjustment
    for gains included in net income


21



19Other comprehensive loss, net of
    tax


(4,042
)


(4,795
)Comprehensive income

$
9,067


$
6,205   MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME
  For the Three Months Ended June 30,2007


2006(Unaudited)(In thousands)Net income

$
6,186


$
5,375Other comprehensive income, net of
    tax:Unrealized losses on securities


(4,556
)


(2,216
)Net deferred derivative
    gain  hedging activity


189



179Less: reclassification adjustment
    for gains included in net income


3



Other comprehensive loss, net of
    tax


(4,364
)


(2,037
)Comprehensive income

$
1,822


$
3,338    4




---



##### Table of Contents



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


December 31,2007


2006(Unaudited)(In thousands, except share data)ASSETSInvestmentsDebt securities available for
    sale, at fair value (amortized cost of $523,567 and $486,213)

$
515,688


$
484,724Cash and cash equivalents


26,377



42,876Accrued investment income


6,035



5,884Premiums and agent balances
    receivable, net


97,192



85,578Reinsurance recoverable on:Paid losses


6,771



4,257Unpaid losses


200,214



198,422Prepaid reinsurance premiums


15,869



20,425Deferred policy acquisition costs


27,670



27,902Deferred federal income taxes


18,503



15,732Goodwill


43,497



31,502Other assets


59,926



51,698Total assets

$
1,017,742


$
969,000LIABILITIES AND
    SHAREHOLDERS EQUITYLiabilitiesLosses and loss adjustment expenses

$
523,258


$
501,077Unearned premiums


145,265



144,575Debt


22,025



7,000Debentures


55,930



55,930Accounts payable and accrued
    expenses


26,161



25,384Reinsurance funds held and
    balances payable


9,745



15,124Payable to insurance companies


4,913



5,442Other liabilities


11,122



12,775Total liabilities


798,419



767,307Shareholders EquityCommon stock, $0.01 stated
    value; authorized 75,000,000 shares; 30,529,260 and
    29,107,818 shares issued and outstanding


305



291Additional paid-in capital


135,376



126,828Retained earnings


89,391



76,282Note receivable from officer


(870
)


(871
)Accumulated other comprehensive
    loss


(4,879
)


(837
)Total shareholders equity


219,323



201,693Total liabilities and
    shareholders equity

$
1,017,742


$
969,000    5




---



##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  For the Six Months Ended June 30,2007


2006(Unaudited)(In thousands)Cash Flows From Operating
    ActivitiesNet income

$
13,109


$
11,000Adjustments to reconcile net income
    to net cash provided by operating activities:Amortization of other intangible
    assets


687



307Amortization of deferred debenture
    issuance costs


118



118Depreciation of furniture,
    equipment, and building


1,525



1,122Net accretion of discount and
    premiums on bonds


1,389



1,266Loss on sale of investments, net


32



30Gain on sale of fixed assets


(44
)


(44
)Stock-based employee compensation


2



114Incremental tax benefits from stock
    options exercised


(623
)


(301
)Long-term incentive plan expense


119



393Deferred income tax expense


(595
)


(319
)Changes in operating assets and
    liabilities:Decrease (increase) in:Premiums and agent balances
    receivable


(7,740
)


(14,702
)Reinsurance recoverable on paid and
    unpaid losses


(4,306
)


(4,066
)Prepaid reinsurance premiums


4,556



1,070Deferred policy acquisition costs


232



494Other assets


1,740



423Increase (decrease) in:Losses and loss adjustment expenses


22,181



25,892Unearned premiums


690



(122
)Payable to insurance companies


(528
)


(3,378
)Reinsurance funds held and balances
    payable


(5,379
)


(28
)Other liabilities


(4,928
)


(2,219
)Total adjustments


9,128



6,050Net cash provided by operating
    activities


22,237



17,050Cash Flows From Investing
    ActivitiesPurchase of debt securities
    available for sale


(125,019
)


(112,107
)Proceeds from sales and maturities
    of debt securities available for sale


87,244



56,614Capital expenditures


(1,710
)


(2,980
)Purchase of books of business


(75
)


(120
)Acquisition of U.S Specialty
    Underwriters, Inc.


(12,644
)


Other investing activities


(214
)


288Net cash used in investing
    activities


(52,418
)


(58,305
)Cash Flows From Financing
    ActivitiesProceeds from lines of credit


19,025



10,078Payment of lines of credit


(4,000
)


(5,178
)Book overdraft


361



421Stock options exercised


(340
)


202Cash payment for payroll taxes
    associated with long-term incentive plan net stock issuance


(1,841
)


Incremental tax benefits from stock
    options exercised


623



301Other financing activities


(146
)


(137
)Net cash provided by financing
    activities


13,682



5,687Net decrease in cash and cash
    equivalents


(16,499
)


(35,568
)Cash and cash equivalents,
    beginning of period


42,876



58,038Cash and cash equivalents, end of
    period

$
26,377


$
22,470Supplemental Disclosure of
    Non-Cash Investing and Financing Activities:Common stock portion of purchase
    price for acquisition of U.S. Specialty Underwriters, Inc.

$
10,000


$
    6




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited) NOTE 1
    
    Summary of Significant Accounting Policies  Basis
    of Presentation and Management Representation
        Form 10-K,
    Revenue
    Recognition
         7




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
              Earnings
    Per Share
        Recent
    Accounting Pronouncements
  Fair Value
    Measurements,
 8




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
  The Fair Value Option for Financial Assets and
    Financial Liabilities  Including an amendment of FASB
    Statement No. 115. instrument-by-instrument
  NOTE 2 
    Stock
    Options, Long Term Incentive Plan, and Deferred Compensation
    Plan  Stock
    Options
  Share-Based Payment, Accounting for Stock-Based Compensation 
    Transition and Disclosure  an amendment of FASB
    Statement No. 123.
       9




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
    Weighted-AverageExerciseOptions


PriceOutstanding as of
    December 31, 2006


391,678


$
7.38Exercised


(200,926
)

$
2.75Forfeited


(15,052
)

$
21.68Outstanding as of June 30,
    2007


175,700


$
11.45Exercisable as of June 30,
    2007


149,830


$
11.30     Options Outstanding


Options ExercisableWeighted-


Weighted-





Weighted-Average


Average





AverageRange of




Remaining


Exercise





ExerciseExercise Prices

Options


Life (Years)


Price


Options


Price$2.173 to $3.507


75,393



0.9


$
2.17



75,393


$
2.17$6.48


1,500



2.7


$
6.48



1,000


$
3.24$10.91 to $24.6875


98,807



1.2


$
18.60



73,437


$
23.47175,700



1.1


$
11.45



149,830


$
11.30     Long
    Term Incentive Plan
    2004-2006 2004-2006
 10




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
  2007-2009 2007-2009
  2004-2006 2004-2006
  Deferred
    Compensation Plan
    NOTE 3 
    Reinsurance     11




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
        rent-a-captive
      June 30, 2007


December 31, 2006Non Risk


Risk





Non Risk


RiskSharing(1)


Sharing(2)


Total


Sharing(1)


Sharing(2)


TotalGross exposure

$
6,770


$
7,396


$
14,166


$
6,863


$
7,952


$
14,815Collateral or other security


(5
)


(3,317
)


(3,322
)


(170
)


(3,453
)


(3,623
)Allowance


(6,684
)


(2,928
)


(9,612
)


(6,777
)


(2,954
)


(9,731
)Net exposure

$
81


$
1,151


$
1,232


$
(84
)

$
1,545


$
1,461     (1)
    
    Balances related to three unaffiliated insurance companies,
    which are under regulatory liquidation or control, for which
    allowances have been established; all other admitted reinsurers
    have an A.M. Best rating of A- or better.(2)
    
    Balances related to risk-sharing partners, which have either
    captive or
    rent-a-captive
    quota-share reinsurance contracts with the Company.     12




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
                 13




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
    NOTE 4
    
    Debt  Lines
    of Credit
          Senior
    Debentures
        Junior
    Subordinated Debentures
   14




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
                    NOTE 5 
    Derivative
    Instruments   15




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
  non-amortizing,
  non-amortizing,
      NOTE 6 
    Shareholders
    Equity      2004-2006 ~ Stock Options, Long Term Incentive Plan, and Deferred
    Compensation Plan
 16




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
      NOTE 7 
    Regulatory
    Matters and Rating Agencies            NOTE 8 
    Segment
    Information   17




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
    Specialty
    Risk Management Operations
    Agency
    Operations
      For the Six MonthsEnded June 30,2007


2006RevenuesNet earned premiums

$
132,395


$
127,638Management fees


10,287



9,621Claims fees


4,451



4,451Loss control fees


1,143



1,131Reinsurance placement


418



561Investment income


11,921



10,170Net realized gains


14



18Specialty risk management


160,629



153,590Agency operations


6,745



7,139Miscellaneous income(2)


464



449Intersegment revenue


(750
)


(916
)Consolidated revenue

$
167,088


$
160,262Pre-tax income:Specialty risk management

$
22,020


$
18,632Agency operations(1)


1,868



2,265Non-allocated expenses


(5,230
)


(4,763
)Consolidated pre-tax income

$
18,658


$
16,134   18




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
  For the Three MonthsEnded June 30,2007


2006RevenuesNet earned premiums

$
67,191


$
64,514Management fees


5,412



5,090Claims fees


2,247



2,351Loss control fees


544



593Reinsurance placement


85



143Investment income


5,991



5,140Net realized gains


20



25Specialty risk management


81,490



77,856Agency operations


2,860



2,878Miscellaneous income(2)


238



240Intersegment revenue


(405
)


(357
)Consolidated revenue

$
84,183


$
80,617Pre-tax income:Specialty risk management

$
10,768


$
9,334Agency operations(1)


574



614Non-allocated expenses


(2,743
)


(2,277
)Consolidated pre-tax income

$
8,599


$
7,671     (1)
    
    The Companys agency operations include an allocation of
    corporate overhead, which includes expenses associated with
    accounting, information services, legal, and other corporate
    services. The corporate overhead allocation excludes those
    expenses specific to the holding company. For the six months
    ended June 30, 2007 and 2006, the allocation of corporate
    overhead to the agency operations segment was $1.2 million
    and $1.6 million, respectively. For the three months ended
    June 30, 2007 and 2006, the allocation of corporate
    overhead to the agency operations segment was $528,000 and
    $771,000, respectively.(2)
    
    The miscellaneous income included in the revenue relates to
    miscellaneous interest income within the holding company.    For the Six MonthsEnded June 30,2007


2006Holding company expenses

$
(1,389
)

$
(1,569
)Amortization


(687
)


(307
)Interest expense


(3,154
)


(2,887
)$
(5,230
)

$
(4,763
)   For the Three MonthsEnded June 30,2007


2006Holding company expenses

$
(533
)

$
(636
)Amortization


(543
)


(142
)Interest expense


(1,667
)


(1,499
)$
(2,743
)

$
(2,277
)  19




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
  NOTE 9 
    Income
    Taxes  Accounting for Uncertainty in Income Taxes 
    an interpretation of FASB Statement No. 109
        NOTE 10 
    Commitments
    and Contingencies  Accounting for
    Contingencies,
  NOTE 11 
    Subsequent
    Events   20




---



##### Table of Contents



ITEM 2



MANAGEMENTS
    DISCUSSION AND ANALYSIS OF

FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

For the Periods ended June 30, 2007 and 2006



Forward-Looking
    Statements



This quarterly report may provide information including
    certain statements which constitute forward-looking statements
    within the meaning of Section 27A of the Securities Act of
    1933, as amended, and Section 21E of the Securities
    Exchange Act of 1934, as amended. These include statements
    regarding the intent, belief, or current expectations of
    management, including, but not limited to, those statements that
    use the words believes, expects,
    anticipates, estimates, or similar
    expressions. You are cautioned that any such forward-looking
    statements are not guarantees of future performance and involve
    a number of risks and uncertainties, and results could differ
    materially from those indicated by such forward-looking
    statements. Among the important factors that could cause actual
    results to differ materially from those indicated by such
    forward-looking statements are: the frequency and severity of
    claims; uncertainties inherent in reserve estimates;
    catastrophic events; a change in the demand for, pricing of,
    availability or collectibility of reinsurance; increased rate
    pressure on premiums; ability to obtain rate increases in
    current market conditions; investment rate of return; changes in
    and adherence to insurance regulation; actions taken by
    regulators, rating agencies or lenders; attainment of certain
    processing efficiencies; changing rates of inflation; general
    economic conditions and other risks identified in our reports
    and registration statements filed with the Securities and
    Exchange Commission. We are not under any obligation to (and
    expressly disclaim any such obligation to) update or alter our
    forward-looking statements whether as a result of new
    information, future events or otherwise.



Description
    of Business



We are a publicly traded specialty risk management organization
    offering a full range of insurance products and services,
    focused on niche and specialty program business, which we
    believe is under served by the standard insurance market.
    Program business refers to an aggregation of individually
    underwritten risks that have some unique characteristic and are
    distributed through a select group of focused general agencies,
    retail agencies and program administrators. We perform the
    majority of underwriting and claims services associated with
    these programs. We also provide property and casualty insurance
    coverage and services through programs and alternative risk
    management solutions for agents, professional and trade
    associations, public entities and small to medium-sized
    insureds. In addition, we also operate as an insurance agency
    representing unaffiliated insurance companies in placing
    insurance coverages for policyholders. We define our business
    segments as specialty risk management operations and agency
    operations.



Critical
    Accounting Estimates



In certain circumstances, we are required to make estimates and
    assumptions that affect amounts reported in our consolidated
    financial statements and related footnotes. We evaluate these
    estimates and assumptions on an on-going basis based on a
    variety of factors. There can be no assurance, however, that
    actual results will not be materially different than our
    estimates and assumptions, and that reported results of
    operation will not be affected by accounting adjustments needed
    to reflect changes in these estimates and assumptions. The
    accounting estimates and related risks described in our annual
    report on
    Form 10-K
    as filed with the United States Securities and Exchange
    Commission on March 13, 2007, are those that we consider to
    be our critical accounting estimates. As of the three months and
    six months ended June 30, 2007, there have been no material
    changes in our critical accounting estimates.



RESULTS
    OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND
    2006



Executive
    Overview



For the first half of 2007, we experienced an improvement in our
    overall results in comparison to prior year. This improvement
    continues to reflect our selective growth, as well as our
    adherence to strict corporate

21




---



##### Table of Contents



Results
    of Operations
     22




---



##### Table of Contents



Specialty
    Risk Management Operations
    For the Six MonthsEnded June 30,2007


2006Revenue:Net earned premiums

$
132,395


$
127,638Management fees


10,287



9,621Claims fees


4,451



4,451Loss control fees


1,143



1,131Reinsurance placement


418



561Investment income


11,921



10,170Net realized gains


14



18Total revenue

$
160,629


$
153,590Pre-tax incomeSpecialty risk management
    operations

$
22,020


$
18,632              23




---



##### Table of Contents



Agency
    Operations
    For the Six Months Ended June 30,2007


2006Net commission

$
6,745


$
7,139Pre-tax income(1)

$
1,868


$
2,265     (1)
    
    Our agency operations include an allocation of corporate
    overhead, which includes expenses associated with accounting,
    information services, legal, and other corporate services. The
    corporate overhead allocation excludes those expenses specific
    to the holding company. For the six months ended June 30,
    2007 and 2006, the allocation of corporate overhead to the
    agency operations segment was $1.2 million and
    $1.6 million, respectively.      Other
    Items
  Reserves
   24




---



##### Table of Contents



Minimum


MaximumReserve


Reserve


SelectedLine of Business

Range


Range


ReservesWorkers Compensation(1)

$
153,864


$
170,184


$
163,842Commercial Multiple Peril/General
    Liability


68,541



85,108



76,120Commercial Automobile


59,198



67,080



63,342Other


17,512



22,357



19,740Total Net Reserves

$
299,115


$
344,729


$
323,044     (1)
    
    Includes Residual Markets        Reserves at


Incurred Losses


Paid Losses


Reserves atDecember 31,


Current


Prior


Total


Current


Prior


Total


June 30,Line of Business

2006


Year


Years


Incurred


Year


Years


Paid


2007Workers Compensation

$
137,113


$
28,796


$
(5,553
)

$
23,243


$
544


$
21,370


$
21,914


$
138,442Residual Markets


26,098



5,241



(2,135
)


3,106



1,994



1,810



3,804



25,400Commercial Multiple Peril/General
    Liability


63,056



13,747



7,520



21,267



(168
)


8,371



8,203



76,120Commercial Automobile


54,642



22,675



1,638



24,313



3,399



12,214



15,613



63,342Other


21,746



8,040



(3,616
)


4,424



1,492



4,938



6,430



19,740Net Reserves


302,655


$
78,499


$
(2,146
)

$
76,353


$
7,261


$
48,703


$
55,964



323,044Reinsurance Recoverable


198,422



























200,214Consolidated

$
501,077


























$
523,258   25




---



##### Table of Contents



Reserves at


Re-Estimated


DevelopmentDecember 31,


Reserves at June 30,


as a PercentageLine of Business

2006


2007 on Prior Years


of Prior Year ReservesWorkers Compensation

$
137,113


$
131,560



(4.0
)%Commercial Multiple Peril/General
    Liability


63,056



70,576



11.9
%Commercial Automobile


54,642



56,280



3.0
%Other


21,746



18,130



(16.6
)%Sub-total


276,557



276,546



0.0
%Residual Markets


26,098



23,963



(8.2
)%Total Net Reserves

$
302,655


$
300,509



(0.7
)%   Workers Compensation Excluding Residual
    Markets 
  Commercial Multiple Peril/General Liability 
  Commercial Automobile 
  Other 
  Residual Markets 
 26




---



##### Table of Contents



Salary
    and Employee Benefits and Other Administrative
    Expenses
        Amortization
    Expense
    Interest
    Expense
  Liquidity and Capital
    Resources
  Income
    Taxes
    Other
    than Temporary Impairments
     27




---



##### Table of Contents



June 30, 2007Less than 12 Months


Greater than 12 Months


TotalFair Value of


Gross


Fair Value of


Gross


Fair Value ofInvestments with


Unrealized


Investments with


Unrealized


Investments with


Gross UnrealizedUnrealized Losses


Losses


Unrealized Losses


Losses


Unrealized Losses


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

$
10,469


$
(106
)

$
16,047


$
(372
)

$
26,516


$
(478
)Obligations of states and political
    subdivisions


114,710



(2,182
)


80,955



(2,062
)


195,665



(4,244
)Corporate securities


13,947



(395
)


47,918



(1,429
)


61,865



(1,824
)Mortgage and asset backed securities


61,859



(1,015
)


61,727



(1,959
)


123,586



(2,974
)Totals

$
200,985


$
(3,698
)

$
206,647


$
(5,822
)

$
407,632


$
(9,520
)   December 31, 2006Less than 12 Months


Greater than 12 Months


TotalFair Value of


Gross


Fair Value of


Gross


Fair Value of


GrossInvestments with


Unrealized


Investments with


Unrealized


Investments with


UnrealizedUnrealized Losses


Losses


Unrealized Losses


Losses


Unrealized Losses


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

$
14,586


$
(61
)

$
27,076


$
(460
)

$
41,662


$
(521
)Obligations of states and political
    subdivisions


45,726



(210
)


68,958



(1,250
)


114,684



(1,460
)Corporate securities


7,646



(61
)


55,520



(1,454
)


63,166



(1,515
)Mortgage and asset backed securities


20,462



(91
)


67,495



(1,535
)


87,957



(1,626
)Totals

$
88,420


$
(423
)

$
219,049


$
(4,699
)

$
307,469


$
(5,122
)       RESULTS
    OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND
    2006
  Results
    of Operations
   28




---



##### Table of Contents



Specialty
    Risk Management Operations
    For the Three Months Ended June 30,2007


2006Revenue:Net earned premiums

$
67,191


$
64,514Management fees


5,412



5,090Claims fees


2,247



2,351Loss control fees


544



593Reinsurance placement


85



143Investment income


5,991



5,140Net realized gains


20



25Total revenue

$
81,490


$
77,856Pre-tax incomeSpecialty risk management
    operations

$
10,768


$
9,334            29




---



##### Table of Contents



Agency
    Operations
    For the Three Months Ended June 30,2007


2006Net commission

$
2,860


$
2,878Pre-tax income(1)

$
574


$
614     (1)
    
    Our agency operations include an allocation of corporate
    overhead, which includes expenses associated with accounting,
    information services, legal, and other corporate services. The
    corporate overhead allocation excludes those expenses specific
    to the holding company. For the three months ended June 30,
    2007 and 2006, the allocation of corporate overhead to the
    agency operations segment was $528,000 and $771,000,
    respectively.      Other
    Items
  Reserves
   30




---



##### Table of Contents



Salary
    and Employee Benefits and Other Administrative
    Expenses
        Amortization
    Expense
    Interest
    Expense
  Liquidity and Capital
    Resources
  Income
    Taxes
    LIQUIDITY
    AND CAPITAL RESOURCES
   31




---



##### Table of Contents



For the Six Months Ended June 30,2007


2006Net income

$
13,109


$
11,000Insurance Company Subsidiaries:Net income

$
11,071


$
9,535Adjustments to reconcile net
    income to net cash provided by operating activities


158



1,057Changes in operating assets and
    liabilities


9,732



8,696Total adjustments


9,890



9,753Net cash provided by operating
    activities

$
20,961


$
19,288Fee-based Subsidiaries:Net income

$
2,038


$
1,465Depreciation


1,525



1,121Amortization


687



307Interest


3,154



2,887Net income, excluding interest,
    depreciation, and amortization


7,404



5,780Adjustments to reconcile net
    income to net cash provided by (used in) operating activities


2,452



1,629Changes in operating assets and
    liabilities


(3,214
)


(5,333
)Total adjustments


(762
)


(3,703
)Depreciation


(1,525
)


(1,121
)Amortization


(687
)


(307
)Interest


(3,154
)


(2,887
)Net cash provided by (used in)
    operating activities

$
1,276


$
(2,238
)Consolidated total adjustments


9,128



6,050Consolidated net cash provided by
    operating activities

$
22,237


$
17,050   32




---



##### Table of Contents



For the Three MonthsEnded June 30,2007


2006Net income

$
6,186


$
5,375Insurance Company Subsidiaries:Net income

$
5,455


$
4,952Adjustments to reconcile net
    income to net cash provided by operating activities


(283
)


723Changes in operating assets and
    liabilities


(1,551
)


740Total adjustments


(1,834
)


1,463Net cash provided by operating
    activities

$
3,621


$
6,415Fee-based Subsidiaries:Net income

$
731


$
423Depreciation


788



578Amortization


543



142Interest


1,667



1,499Net income, excluding interest,
    depreciation, and amortization


3,729



2,642Adjustments to reconcile net
    income to net cash provided by (used in) operating activities


879



1,052Changes in operating assets and
    liabilities


(146
)


(3,913
)Total adjustments


733



(2,861
)Depreciation


(788
)


(578
)Amortization


(543
)


(142
)Interest


(1,667
)


(1,499
)Net cash provided by (used in)
    operating activities

$
1,464


$
(2,438
)Consolidated total adjustments


(1,101
)


(1,398
)Consolidated net cash provided by
    operating activities

$
5,085


$
3,977          33




---



##### Table of Contents



Other
    Items
  Long-term
    Debt
    InterestYear of




Year








Rate at


PrincipalIssuance


Description

Callable


Year Due


Interest Rate Terms


06/30/07


Amount2003


Junior subordinated debentures


2008



2033



Three-month LIBOR, plus 4.05
%


9.40
%

$
10,3102004


Senior debentures


2009



2034



Three-month LIBOR, plus 4.00
%


9.36
%


13,0002004


Senior debentures


2009



2034



Three-month LIBOR, plus 4.20
%


9.56
%


12,0002005


Junior subordinated debentures


2010



2035



Three-month LIBOR, plus 3.58
%


8.94
%


20,620Total


$
55,930     Interest
    Rate Swaps
  Accounting for
    Derivative Instruments and Hedging Activities,
  non-amortizing,
  non-amortizing,
   34




---



##### Table of Contents



Revolving
    Line of Credit
          Shareholders
    Equity
      2004-2006 ~ Stock Options, Long Term Incentive Plan, and Deferred
    Compensation Plan
    Recent
    Acquisition
   35




---



##### Table of Contents



Adjusted
    Expense Ratio
    For the Six Months Ended


For the Three MonthsJune 30,


Ended June 30,2007


2006


2007


2006Net earned premiums

$
132,395


$
127,638


$
67,191


$
64,514Less: Consolidated net loss and LAE


76,353



74,189



39,707



37,146Intercompany claim fees


6,648



6,273



3,353



3,115Unconsolidated net loss and LAE


83,001



80,462



43,060



40,261Consolidated policy acquisition
    and other underwriting expenses


26,812



24,604



13,169



13,180Intercompany administrative and
    other underwriting fees


18,330



18,408



9,178



9,291Unconsolidated policy acquisition
    and other underwriting expenses


45,142



43,012



22,347



22,471Underwriting income

$
4,252


$
4,164


$
1,784


$
1,782GAAP combined ratio as reported


96.8
%


96.7
%


97.4
%


97.2
%Specialty risk management
    operations pre-tax income

$
22,020


$
18,632


$
10,768


$
9,334Less: Underwriting income


4,252



4,164



1,784



1,782Net investment income and capital
    gains


12,399



10,637



6,249



5,405Fee-based operations pre-tax income


5,369



3,831



2,735



2,147Agency operations pre-tax income


1,868



2,265



574



614Total fee-for-service pre-tax
    income

$
7,237


$
6,096


$
3,309


$
2,761GAAP expense ratio as reported


34.1
%


33.7
%


33.3
%


34.8
%Adjustment to include pre-tax
    income from total fee-for-service income(1)


5.5
%


4.8
%


4.9
%


4.3
%GAAP expense ratio as
    adjusted


28.6
%


28.9
%


28.3
%


30.6
%GAAP loss and LAE ratio as reported


62.7
%


63.0
%


64.1
%


62.4
%GAAP combined ratio as adjusted


91.3
%


92.0
%


92.4
%


93.0
% 36




---



##### Table of Contents



For the Six Months Ended


For the Three MonthsJune 30,


Ended June 30,2007


2006


2007


2006Reconciliation of
    consolidated pre-tax income:Specialty risk management
    operations pre-tax income:Fee-based operations pre-tax income

$
5,369


$
3,831


$
2,735


$
2,147Underwriting income


4,252



4,164



1,784



1,782Net investment income and capital
    gains


12,399



10,637



6,249



5,405Total specialty risk management
    operations pre-tax income


22,020



18,632



10,768



9,334Agency operations pre-tax income


1,868



2,265



574



614Less: Holding company expenses


1,389



1,569



533



636Interest expense


3,154



2,887



1,667



1,499Amortization expense


687



307



543



142Consolidated pre-tax income

$
18,658


$
16,134


$
8,599


$
7,671     (1)
    
    Adjustment to include pre-tax income from total fee-for-service
    income is calculated by dividing total fee-for-service income by
    net earned premiums.  Regulatory
    Contractual
    Obligations and Commitments
  Subsequent Events,
  Regulatory
    and Rating Issues
   37




---



##### Table of Contents



Reinsurance
    Convertible
    Note
    Recent
    Accounting Pronouncements
  Fair Value
    Measurements,
  The Fair Value Option for Financial Assets and
    Financial Liabilities  Including an amendment of FASB
    Statement No. 115. instrument-by-instrument
 38




---



##### Table of Contents



Subsequent
    Events
      ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK          39




---



##### Table of Contents



Rates Down


Rates


Rates Up100bps


Unchanged


100bpsMarket Value

$
538,254


$
515,689


$
492,772Yield to Maturity or Call


3.87
%


4.87
%


5.87
%Effective Duration


4.09



4.36



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




---



##### Table of Contents



Changes
    in Internal Control over Financial Reporting
   PART II 
    OTHER INFORMATION  ITEM 1.
    LEGAL
    PROCEEDINGS  Commitments and Contingencies Form 10-Q
  ITEM 1A.
    RISK
    FACTORS  Form S-3
  ITEM 2.
    UNREGISTERED
    SALES OF EQUITY SECURITIES AND USE OF PROCEEDS    Form 10-K
  ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS           41




---



##### Table of Contents



PART II 
    OTHER INFORMATION
      ITEM 6.
    EXHIBITS    ExhibitNo.

Description3
.1

Amended and Restated Articles of
    Incorporation of the Company.10
.1

Fourth Amendment to Credit
    Agreement between Meadowbrook Insurance Group, Inc.,
    Meadowbrook, Inc., Crest Financial Corporation, and LaSalle Bank
    Midwest National Association, dated as of April 10, 2007
    (incorporated by reference to Exhibit 10.1 from Current Report
    on Form 8-K filed on April 12, 2007).10
.2

First Amendment to Promissory Note
    between Meadowbrook Insurance Group, Inc. and LaSalle Bank
    Midwest National Association, dated as of April 10, 2007
    (incorporated by reference to Exhibit 10.2 from Current Report
    on Form 8-K filed on April 12, 2007).10
.3

Asset Purchase Agreement, dated
    April 16, 2007 (incorporated by reference to Exhibit 10.1 from
    Current Report on Form 8-K filed on April 18, 2007).10
.4

Management Fee Agreement, dated
    April 16, 2007 (incorporated by reference to Exhibit 10.2 from
    Current Report on Form 8-K filed on April 18, 2007).10
.5

Underwriting Agreement, dated July
    18, 2007, among Meadowbrook Insurance Group, Inc., certain of
    its shareholders and KeyBanc Capital Markets Inc. (incorporated
    by reference to Exhibit 1.1 from Current Report on Form 8-K
    filed on July 23, 2007).10
.6

At-Will Employment and Severance
    Agreement by and among Meadowbrook, Inc., Meadowbrook Insurance
    Group, Inc. and James M. Mahoney, dated August 1, 2007.10
.7

At-Will Employment and Severance
    Agreement by and among Meadowbrook, Inc., Meadowbrook Insurance
    Group, Inc. and Joseph E. Mattingly, dated August 1, 2007.31
.1

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

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

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

Certification pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002, signed by Karen M. Spaun,
    Senior Vice President and Chief Financial Officer of the
    Corporation.  42




---



##### Table of Contents



SIGNATURES    Meadowbrook Insurance Group, Inc.
  By:
    /s/  Karen
    M. Spaun      43




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.

Description3
.1

Amended and Restated Articles of
    Incorporation of the Company.10
.1

Fourth Amendment to Credit
    Agreement between Meadowbrook Insurance Group, Inc.,
    Meadowbrook, Inc., Crest Financial Corporation, and LaSalle Bank
    Midwest National Association, dated as of April 10, 2007
    (incorporated by reference to Exhibit 10.1 from Current Report
    on Form 8-K filed on April 12, 2007).10
.2

First Amendment to Promissory Note
    between Meadowbrook Insurance Group, Inc. and LaSalle Bank
    Midwest National Association, dated as of April 10, 2007
    (incorporated by reference to Exhibit 10.2 from Current Report
    on Form 8-K filed on April 12, 2007).10
.3

Asset Purchase Agreement, dated
    April 16, 2007 (incorporated by reference to Exhibit 10.1 from
    Current Report on Form 8-K filed on April 18, 2007).10
.4

Management Fee Agreement, dated
    April 16, 2007 (incorporated by reference to Exhibit 10.2 from
    Current Report on Form 8-K filed on April 18, 2007).10
.5

Underwriting Agreement, dated July
    18, 2007, among Meadowbrook Insurance Group, Inc., certain of
    its shareholders and KeyBanc Capital Markets Inc. (incorporated
    by reference to Exhibit 1.1 from Current Report on Form 8-K
    filed on July 23, 2007).10
.6

At-Will Employment and Severance
    Agreement by and among Meadowbrook, Inc., Meadowbrook Insurance
    Group, Inc. and James M. Mahoney, dated August 1, 2007.10
.7

At-Will Employment and Severance
    Agreement by and among Meadowbrook, Inc., Meadowbrook Insurance
    Group, Inc. and Joseph E. Mattingly, dated August 1, 2007.31
.1

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

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

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

Certification pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002, signed by Karen M. Spaun,
    Senior Vice President and Chief Financial Officer of the
    Corporation.  44