##### 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
    September 30, 2006oro

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




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##### 



TABLE OF
    CONTENTS
  
  PagePART I 
    FINANCIAL INFORMATIONITEM 1



FINANCIAL
    STATEMENTSConsolidated
    Statements of Income (unaudited)


2-3Consolidated
    Statements of Comprehensive Income (unaudited)


4-5Consolidated
    Balance Sheets (unaudited)


6Consolidated
    Statements of Cash Flows (unaudited)


7Notes to
    Consolidated Financial Statements (unaudited)


8-22ITEM 2



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


23-40ITEM 3



QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT MARKET RISK


40-42ITEM 4



CONTROLS AND
    PROCEDURES


42PART II 
    OTHER INFORMATIONITEM 1



LEGAL
    PROCEEDINGS


42ITEM 1A



RISK
    FACTORS


42ITEM 2



UNREGISTERED SALES
    OF EQUITY SECURITIES AND USE OF PROCEEDS


42ITEM 6



EXHIBITS


43SIGNATURES


44Section 302 Certification of Chief Executive OfficerSection 302 Certification of Chief Financial OfficerSection 906 Certification of Chief Executive OfficerSection 906 Certification of Chief Financial Officer   1




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##### Table of Contents



PART 1 
    FINANCIAL INFORMATION  ITEM 1
    Financial
    Statements  MEADOWBROOK
    INSURANCE GROUP, INC.
 CONSOLIDATED STATEMENTS OF INCOME  For the Nine Months EndedSeptember 30,2006


2005(Unaudited)(In thousands,except share data)RevenuesPremiums earnedGross

$
244,557


$
244,016Ceded


(53,231
)


(56,660
)Net earned premiums


191,326



187,356Net commissions and fees


31,599



27,333Net investment income


16,203



13,159Net realized gains


46



31Total revenues


239,174



227,879ExpensesLosses and loss adjustment expenses


160,066



179,669Reinsurance recoveries


(49,748
)


(66,338
)Net losses and loss adjustment
    expenses


110,318



113,331Salaries and employee benefits


41,397



39,166Policy acquisition and other
    underwriting expenses


37,663



33,740Other administrative expenses


22,142



19,868Interest expense


4,445



2,527Total expenses


215,965



208,632Income before taxes and equity
    earnings


23,209



19,247Federal and state income tax
    expense


7,215



6,250Equity earnings (loss) of
    affiliates


99



(12
)Net income

$
16,093


$
12,985Earnings Per ShareBasic

$
0.56


$
0.45Diluted

$
0.55


$
0.44Weighted average number of common
    sharesBasic


28,894,053



29,052,785Diluted


29,509,892



29,363,045    2




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MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF INCOME
  For the Three Months EndedSeptember 30,2006


2005(Unaudited)(In thousands,except share data)RevenuesPremiums earnedGross

$
81,164


$
82,466Ceded


(17,476
)


(19,261
)Net earned premiums


63,688



63,205Net commissions and fees


9,612



9,200Net investment income


5,584



4,591Net realized gains


28



41Total revenues


78,912



77,037ExpensesLosses and loss adjustment expenses


52,247



61,805Reinsurance recoveries


(16,118
)


(23,336
)Net losses and loss adjustment
    expenses


36,129



38,469Salaries and employee benefits


14,183



12,913Policy acquisition and other
    underwriting expenses


13,059



11,947Other administrative expenses


6,908



6,037Interest expense


1,558



948Total expenses


71,837



70,314Income before taxes and equity
    earnings


7,075



6,723Federal and state income tax
    expense


2,056



2,048Equity earnings (loss) of
    affiliates


74



(13
)Net income

$
5,093


$
4,662Earnings Per ShareBasic

$
0.18


$
0.16Diluted

$
0.17


$
0.16Weighted average number of common
    sharesBasic


28,884,578



28,957,369Diluted


29,498,596



29,269,638    3




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MEADOWBROOK
    INSURANCE GROUP, INC.
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  For the Nine Months Ended September 30,2006


2005(Unaudited)(In thousands)Net income

$
16,093


$
12,985Other comprehensive income, net of
    tax:Unrealized gains (losses) on
    securities


488



(4,844
)Net deferred derivative
    gain  hedging activity


118



Less: reclassification adjustment
    for losses included in net income


19



61Other comprehensive income (loss),
    net of tax


625



(4,783
)Comprehensive income

$
16,718


$
8,202    4




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MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME
  For the Three Months Ended September 30,2006


2005(Unaudited)(In thousands)Net income

$
5,093


$
4,662Other comprehensive income, net of
    tax:Unrealized gains (losses) on
    securities


5,302



(3,633
)Net deferred derivative
    loss  hedging activity


(322
)


Less: reclassification adjustment
    for gains included in net income






(18
)Other comprehensive income (loss),
    net of tax


4,980



(3,651
)Comprehensive income

$
10,073


$
1,011    5




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##### Table of Contents



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


December 31,2006


2005(Unaudited)(In thousands,except share data)ASSETSInvestmentsDebt securities available for
    sale, at fair value (amortized cost of $477,804 and $403,947)

$
476,665


$
402,195Cash and cash equivalents


24,745



58,038Accrued investment income


5,691



4,953Premiums and agent balances
    receivable, net


106,560



84,807Reinsurance recoverable on:Paid losses


4,229



15,327Unpaid losses


197,192



187,254Prepaid reinsurance premiums


22,964



24,588Deferred policy acquisition costs


27,118



26,371Deferred federal income taxes


15,816



16,630Goodwill


30,802



30,802Other assets


52,323



50,379Total assets

$
964,105


$
901,344LIABILITIES AND
    SHAREHOLDERS EQUITYLiabilitiesLosses and loss adjustment expenses

$
493,641


$
458,677Unearned premiums


145,531



140,990Debt


9,700



7,000Debentures


55,930



55,930Accounts payable and accrued
    expenses


29,531



26,667Reinsurance funds held and
    balances payable


20,426



15,240Payable to insurance companies


3,846



6,684Other liabilities


10,043



12,791Total liabilities


768,648



723,979Shareholders EquityCommon stock, $0.01 stated
    value; authorized 50,000,000 shares; 29,048,146 and
    28,672,009 shares issued and outstanding


290



287Additional paid-in capital


126,308



124,819Retained earnings


70,341



54,248Note receivable from officer


(859
)


(859
)Accumulated other comprehensive
    loss


(623
)


(1,130
)Total shareholders equity


195,457



177,365Total liabilities and
    shareholders equity

$
964,105


$
901,344    6




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##### Table of Contents



MEADOWBROOK
    INSURANCE GROUP, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  For the Nine Months Ended September 30,2006


2005(Unaudited)(In thousands)Cash Flows From Operating
    ActivitiesNet income

$
16,093


$
12,985Adjustments to reconcile net income
    to net cash provided by operating activities:Amortization of other intangible
    assets


448



277Amortization of deferred debenture
    issuance costs


177



116Depreciation of furniture,
    equipment, and building


1,761



1,853Net accretion of discount and
    premiums on bonds


1,947



1,786Loss on sale of investments, net


30



94Gain on sale of fixed assets


(66
)


(148
)Stock-based employee compensation


118



32Incremental tax benefits from stock
    options exercised


(1,386
)


Long-term incentive plan expense


704



585Deferred income tax expense


540



1,067Changes in operating assets and
    liabilities:Decrease (increase) in:Premiums and agent balances
    receivable


(21,753
)


(21,721
)Reinsurance recoverable on paid and
    unpaid losses


1,160



(27,289
)Prepaid reinsurance premiums


1,623



1,332Deferred policy acquisition costs


(747
)


(1,427
)Other assets


(1,532
)


6,172Increase (decrease) in:Losses and loss adjustment expenses


34,963



65,137Unearned premiums


4,541



9,010Payable to insurance companies


(2,838
)


(1,464
)Reinsurance funds held and balances
    payable


5,186



(2,444
)Other liabilities


2,008



2,746Total adjustments


26,884



35,714Net cash provided by operating
    activities


42,977



48,699Cash Flows From Investing
    ActivitiesPurchase of debt securities
    available for sale


(156,015
)


(174,301
)Proceeds from sales and maturities
    of debt securities available for sale


80,182



115,196Proceeds from sales of equity
    securities available for sale






8Capital expenditures


(3,790
)


(14,050
)Proceeds from sale of assets






633Other investing activities


167



(2,284
)Net cash used in investing
    activities


(79,456
)


(74,798
)Cash Flows From Financing
    ActivitiesProceeds from lines of credit


12,578



6,388Payment of lines of credit


(9,878
)


(16,234
)Net proceeds from debentures






19,400Book overdraft


23



1,172Issuance of common stock


(716
)


995Share repurchases of common stock






(3,404
)Incremental tax benefits from stock
    options exercised


1,386



Other financing activities


(207
)


(196
)Net cash provided by financing
    activities


3,186



8,121Net decrease in cash and cash
    equivalents


(33,293
)


(17,978
)Cash and cash equivalents,
    beginning of period


58,038



69,875Cash and cash equivalents, end of
    period

$
24,745


$
51,897    7




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)



Note 1 
    Summary of Significant Accounting Policies



Basis
    of Presentation and Management Representation



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 are collectively referred to as the Insurance
    Company Subsidiaries), and Preferred Insurance Company,
    Ltd. The consolidated financial statements also include
    Meadowbrook, Inc., Crest Financial Corporation, and their
    subsidiaries.



Pursuant to Financial Accounting Standards Board Interpretation
    Number (FIN) 46(R), the Company does not consolidate
    its subsidiaries, Meadowbrook Capital Trust I and II (the
    Trusts), as they are not variable interest entities
    and the Company is not the primary beneficiary of the Trusts.
    The consolidated financial statements, however, include the
    equity earnings of the Trusts. In addition and in accordance
    with FIN 46(R), the Company does not consolidate its
    subsidiary American Indemnity Insurance Company, Ltd.
    (American Indemnity). While the Company and its
    subsidiary Star are the common shareholders, they are not the
    primary beneficiaries of American Indemnity. The consolidated
    financial statements, however, include the equity earnings of
    American Indemnity.



In the opinion of management, the consolidated financial
    statements reflect all normal recurring adjustments necessary to
    present a fair statement of the results for the interim period.
    Preparation of financial statements under generally accepted
    accounting principles requires management to make estimates.
    Actual results could differ from those estimates. The results of
    operations for the three months and nine months ended
    September 30, 2006, are not necessarily indicative of the
    results expected for the full year.



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,
    as filed with the United States Securities and Exchange
    Commission, for the year ended December 31, 2005.



Certain amounts in the 2005 financial statements and notes to
    the consolidated financial statements have been reclassified to
    conform to the 2006 presentation.



Revenue
    Recognition



Premiums written, which include direct, assumed, and ceded are
    recognized as earned on a pro rata basis over the life of the
    policy term. Unearned premiums represent the portion of premiums
    written that are applicable to the unexpired terms of policies
    in force. Provisions for unearned premiums on reinsurance
    assumed from others are made on the basis of ceding reports when
    received and actuarial estimates.



For the nine months ending September 30, 2006, total
    assumed written premiums were $53.8 million, of which
    $45.1 million, relates to assumed business the Company
    manages directly, and therefore, no estimation is involved. The
    remaining $8.7 million of assumed written premiums includes
    $7.7 million related to residual markets.



For the three months ending September 30, 2006, total
    assumed written premiums were $19.1 million, of which
    $17.6 million, relates to assumed business the Company
    manages directly. The remaining $1.5 million of assumed
    written premiums includes $1.1 million related to residual
    markets.



Assumed premium estimates are specifically related to the
    mandatory assumed pool business from the National Council on
    Compensation Insurance (NCCI), or residual market
    business. The pool cedes workers compensation business to
    participating companies based upon the individual companys
    market share by state. The activity is reported from the NCCI to
    participating companies on a two quarter lag. To account for
    this lag, the Company estimates premium and loss activity based
    on historical and market based results. Historically, the
    Company has not experienced any material difficulties or
    disputes in collecting balances from NCCI; and therefore, no
    provision for doubtful accounts is recorded related to the
    assumed premium estimate.

8




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
            Earnings
    Per Share
        Recent
    Accounting Pronouncements
  Accounting
    for Certain Hybrid Financial Instruments.
 9




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
    Accounting for Servicing of Financial Assets. Accounting for Transfers and Servicing of Financial
    Assets and Extinguishments of Liabilities,
  Accounting for Uncertainty in Income Taxes 
    an interpretation of FASB Statement No. 109
  Fair Value Measurements,
  Employers Accounting for Defined Benefit Pension
    and Other Postretirement Plans, an amendment of FASB Statements
    No. 87, 88, 106, and 132(R).
  Note 2 
    Stock Options, Long Term Incentive Plan, and Deferred
    Compensation Plan
  Share-Based Payment, Accounting for Stock-Based Compensation 
    Transition and Disclosure  an amendment of FASB
    Statement No. 123.
   10




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##### Table of Contents



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


PriceOutstanding as of
    December 31, 2005


1,605,901


$
5.42Granted






Exercised


(731,366
)

$
3.35Forfeited


(408,955
)

$
7.16Outstanding as of
    September 30, 2006


465,580


$
7.15Exercisable as of
    September 30, 2006


396,343


$
7.27     Options Outstanding


Options ExercisableWeighted-


Weighted-





Weighted-Average


Average





AverageRange of




Remaining


Exercise





ExerciseExercise Prices

Options


Life (Years)


Price


Options


Price$2.173 to $3.066


321,859



1.6


$
2.69



272,979


$
2.61$3.507


17,000



1.2


$
3.51



17,000


$
3.51$6.48


1,500



3.7


$
6.48






$
6.48$10.91 to $30.45


125,221



2.0


$
19.63



106,364


$
19.31465,580



1.7


$
7.15



396,343


$
7.27    11




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
    For the NineMonths EndedSeptember 30, 2005Net income, as reported

$
12,985Add: Stock-based employee
    compensation expense included in reported income, net of related
    tax effects


21Deduct: Total stock-based employee
    compensation expense determined under
    fair-value-based
    methods for all awards, net of related tax effects


(161
)Pro forma net income

$
12,845Earnings per share:Basic  as reported

$
0.45Basic  pro forma

$
0.44Diluted  as reported

$
0.44Diluted  pro forma

$
0.44   For the ThreeMonths EndedSeptember 30, 2005Net income, as reported

$
4,662Add: Stock-based employee
    compensation expense included in reported income, net of related
    tax effects


6Deduct: Total stock-based employee
    compensation expense determined under
    fair-value-based
    methods for all awards, net of related tax effects


(40
)Pro forma net income

$
4,628Earnings per share:Basic  as reported

$
0.16Basic  pro forma

$
0.16Diluted  as reported

$
0.16Diluted  pro forma

$
0.16    12




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
      Note 3 
    Reinsurance
  excess-of-loss Accounting and Reporting for Reinsurance for
    Short-Duration and Long-Duration Contracts.
     13




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
      September 30,


December 31,2006


2005Gross exposure

$
14,711


$
14,046Collateral or other security


(3,477
)


(2,749
)Allowance


(9,391
)


(9,662
)Net exposure

$
1,843


$
1,635     excess-of-loss excess-of-loss excess-of-loss
       14




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
              Note 4 
    Debt
  Lines
    of Credit
         15




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
    Senior
    Debentures
        Junior
    Subordinated Debentures
  time-to-time,
      time-to-time,
   16




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
            Note 5 
    Derivative Instruments
  Accounting for Derivative
    Instruments and Hedging Activities,
  non-amortizing,
  non-amortizing,
     17




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
    Note 6 
    Shareholders Equity
      Note 7 
    Regulatory Matters and Rating Agencies
       18




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
        Note 8 
    Segment Information
    Specialty
    Risk Management Operations
   19




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
  Agency
    Operations
      For the Nine Months Ended September 30,2006


2005RevenuesNet earned premiums

$
191,326


$
187,356Management fees


14,320



12,624Claims fees


6,746



5,317Loss control fees


1,683



1,739Reinsurance placement


640



563Investment income


15,492



13,012Net realized gains (losses)


46



(52
)Specialty risk management


230,253



220,559Agency operations


9,540



8,859Miscellaneous income(2)


711



230Intersegment revenue


(1,330
)


(1,769
)Consolidated revenue

$
239,174


$
227,879Pre-tax income:Specialty risk management

$
27,977


$
21,942Agency operations(1)


2,462



2,669Non-allocated expenses


(7,230
)


(5,364
)Consolidated pre-tax income

$
23,209


$
19,247   20




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
  For the Three Months Ended September 30,2006


2005RevenuesNet earned premiums

$
63,688


$
63,205Management fees


4,699



4,328Claims fees


2,295



1,799Loss control fees


552



611Reinsurance placement


79



124Investment income


5,322



4,458Net realized gains


28



40Specialty risk management


76,663



74,565Agency operations


2,401



2,917Miscellaneous income(2)


262



134Intersegment revenue


(414
)


(579
)Consolidated revenue

$
78,912


$
77,037Pre-tax income:Specialty risk management

$
9,345


$
7,959Agency operations(1)


197



687Non-allocated expenses


(2,467
)


(1,923
)Consolidated pre-tax income

$
7,075


$
6,723     (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 nine months ended September 30,
    2006 and 2005, the allocation of corporate overhead to the
    agency operations segment was $2.3 million and
    $2.3 million, respectively. For the three months ended
    September 30, 2006 and 2005, the allocation of corporate
    overhead to the agency operations segment was $740,000 and
    $609,000, respectively.(2)
    
    The miscellaneous income included
    in the revenue relates to miscellaneous interest income within
    the holding company.    For the Nine Months Ended September 30,2006


2005Holding company expenses

$
(2,337
)

$
(2,560
)Amortization


(448
)


(277
)Interest expense


(4,445
)


(2,527
)$
(7,230
)

$
(5,364
)   For the Three Months Ended September 30,2006


2005Holding company expenses

$
(768
)

$
(882
)Amortization


(141
)


(93
)Interest expense


(1,558
)


(948
)$
(2,467
)

$
(1,923
)  21




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
  Note 9 
    Commitments and Contingencies
  Accounting for
    Contingencies,
 22




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##### Table of Contents



ITEM 2
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    For the Periods ended September 30, 2006 and 2005  Forward-Looking
    Statements
  This quarterly report may provide information including
    certain statements which constitute forward-looking statements
    within the meaning of Section 27A of the Securities Act of
    1933, as amended, and Section 21E of the Securities
    Exchange Act of 1934, as amended. These include statements
    regarding the intent, belief, or current expectations of
    management, including, but not limited to, those statements that
    use the words believes, expects,
    anticipates, estimates, or similar
    expressions. You are cautioned that any such forward-looking
    statements are not guarantees of future performance and involve
    a number of risks and uncertainties, and results could differ
    materially from those indicated by such forward-looking
    statements. Among the important factors that could cause actual
    results to differ materially from those indicated by such
    forward-looking statements are: the frequency and severity of
    claims; uncertainties inherent in reserve estimates;
    catastrophic events; a change in the demand for, pricing of,
    availability or collectibility of reinsurance; increased rate
    pressure on premiums; obtainment of certain rate increases in
    current market conditions; investment rate of return; changes in
    and adherence to insurance regulation; actions taken by
    regulators, rating agencies or lenders; obtainment of certain
    processing efficiencies; changing rates of inflation; general
    economic conditions and other risks identified in our reports
    and registration statements filed with the Securities and
    Exchange Commission. We are not under any obligation to (and
    expressly disclaim any such obligation to) update or alter our
    forward-looking statements whether as a result of new
    information, future events or otherwise.
  Description
    of Business
  rent-a-captives,
  Critical
    Accounting Estimates
  Form 10-K
  RESULTS
    OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006
    AND 2005
  Executive
    Overview
   23




---



##### Table of Contents



fee-for-service
    year-to-date
  Results
    of Operations
  fee-for-service
  fee-for-service
 24




---



##### Table of Contents



Specialty
    Risk Management Operations
    For the Nine Months Ended September 30,2006


2005Revenue:Net earned premiums

$
191,326


$
187,356Management fees


14,320



12,624Claims fees


6,746



5,317Loss control fees


1,683



1,739Reinsurance placement


640



563Investment income


15,492



13,012Net realized gains (losses)


46



(52
)Total revenue

$
230,253


$
220,559Pre-tax incomeSpecialty risk management
    operations

$
27,977


$
21,942              25




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##### Table of Contents



Other
    Items  Reserves
    Agency
    Operations
    For the NineMonths EndedSeptember 30,2006


2005Net commission

$
9,540


$
8,859Pre-tax income(1)

$
2,462


$
2,669     (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
    nine months ended September 30, 2006 and 2005, the
    allocation of corporate overhead to the agency operations
    segment was $2.3 million and $2.3 million,
    respectively.  Florida-based
   26




---



##### Table of Contents



Other
    Items
  Reserves
    Minimum


MaximumReserve


Reserve


SelectedLine of Business

Range


Range


ReservesWorkers Compensation(1)

$
150,483


$
168,748


$
160,293Commercial Multiple Peril/General
    Liability


54,314



63,000



58,677Commercial Automobile


50,292



57,164



54,792Other


20,387



24,257



22,687Total Net Reserves

$
275,476


$
313,169


$
296,449     (1)
    
    Includes Residual Markets     27




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##### Table of Contents



Reserves at


Incurred Losses


Paid Losses


Reserves atDecember 31,


Current


Prior


Total


Current


Prior





September 30,Line of Business

2005


Year


Years


Incurred


Year


Years


Total Paid


2006Workers Compensation

$
128,802


$
43,302


$
(803
)

$
42,499


$
4,374


$
32,465


$
36,839


$
134,462Residual Markets


24,440



8,131



(502
)


7,629



3,136



3,102



6,238



25,831Commercial Multiple
    Peril/General Liability


52,506



17,607



(989
)


16,618



1,111



9,336



10,447



58,677Commercial Automobile


44,382



29,097



1,397



30,494



5,432



14,652



20,084



54,792Other


21,293



13,620



(542
)


13,078



4,642



7,042



11,684



22,687Net Reserves


271,423


$
111,757


$
(1,439
)

$
110,318


$
18,695


$
66,597


$
85,292



296,449Reinsurance Recoverable


187,254



























197,192Consolidated

$
458,677


























$
493,641   Re-Estimated


DevelopmentReserves at


Reserves at


as a PercentageDecember 31,


September 30, 2006


of Prior YearLine of Business

2005


on Prior Years


ReservesWorkers Compensation

$
128,802


$
127,999



(0.6
)%Commercial Multiple Peril/General
    Liability


52,506



51,517



(1.9
)%Commercial Automobile


44,382



45,779



3.1
%Other


21,293



20,751



(2.5
)%Sub-total


246,983



246,046



(0.4
)%Residual Markets


24,440



23,938



(2.1
)%Total Net Reserves

$
271,423


$
269,984



(0.5
)%   Workers
    Compensation Excluding Residual Markets
    Commercial
    Multiple Peril/General Liability
   28




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##### Table of Contents



Commercial
    Automobile
    Other
    Residual
    Markets
    Salary
    and Employee Benefits and Other Administrative
    Expenses
        Interest
    Expense
  Liquidity and
    Capital Resources
 29




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##### Table of Contents



Income
    Taxes
    Other
    than Temporary Impairments
        September 30, 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

$
6,252


$
(21
)

$
27,717


$
(555
)

$
33,969


$
(576
)Obligations of states and
    political subdivisions


17,469



(71
)


76,304



(1,163
)


93,773



(1,234
)Corporate securities


7,753



(88
)


54,995



(1,461
)


62,748



(1,549
)Mortgage and asset backed
    securities


18,112



(76
)


64,104



(1,564
)


82,216



(1,640
)Totals

$
49,586


$
(256
)

$
223,120


$
(4,743
)

$
272,706


$
(4,999
)   30




---



##### Table of Contents



December 31, 2005Less 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

$
10,627


$
(155
)

$
24,328


$
(565
)

$
34,955


$
(720
)Obligations of states and
    political subdivisions


64,559



(877
)


24,818



(616
)


89,377



(1,493
)Corporate securities


33,820



(769
)


29,586



(953
)


63,406



(1,722
)Mortgage and asset backed
    securities


58,048



(953
)


20,667



(649
)


78,715



(1,602
)Totals

$
167,053


$
(2,754
)

$
99,399


$
(2,783
)

$
266,452


$
(5,537
)     RESULTS
    OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006
    AND 2005
  Results
    of Operations
  fee-for-service
  fee-for-service
 31




---



##### Table of Contents



Specialty
    Risk Management Operations
    For the Three Months Ended September 30,2006


2005Revenue:Net earned premiums

$
63,688


$
63,205Management fees


4,699



4,328Claims fees


2,295



1,799Loss control fees


552



611Reinsurance placement


79



124Investment income


5,322



4,458Net realized gains


28



40Total revenue

$
76,663


$
74,565Pre-tax incomeSpecialty risk management
    operations

$
9,345


$
7,959              32




---



##### Table of Contents



Agency
    Operations
    For the ThreeMonths EndedSeptember 30,2006


2005Net commission

$
2,401


$
2,917Pre-tax income(1)

$
197


$
687     (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 September 30, 2006 and 2005, the
    allocation of corporate overhead to the agency operations
    segment was $740,000 and $609,000, respectively.      Other
    Items
  Reserves
   33




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##### Table of Contents



Salary
    and Employee Benefits and Other Administrative
    Expenses
        Interest
    Expense
  Liquidity and Capital Resources
  Income
    Taxes
   34




---



##### Table of Contents



LIQUIDITY
    AND CAPITAL RESOURCES
    For the Nine MonthsEnded September 30,2006


2005Net income

$
16,093


$
12,985Regulated Subsidiaries:Net income

$
14,501


$
9,463Adjustments to reconcile net
    income to net cash provided by operating activities


2,440



2,634Changes in operating assets and
    liabilities


26,292



34,464Total adjustments


28,732



37,098Net cash provided by operating
    activities

$
43,233


$
46,561Non-regulated Subsidiaries:Net income

$
1,592


$
3,522Depreciation and amortization


2,209



2,129Interest


4,445



2,527Net income, excluding interest,
    depreciation, and amortization


8,247



8,178Adjustments to reconcile net
    income to net cash (used in) provided by operating activities


1,832



3,027Changes in operating assets and
    liabilities


(3,681
)


(4,411
)Total adjustments


(1,848
)


(1,384
)Depreciation and amortization


(2,209
)


(2,129
)Interest


(4,445
)


(2,527
)Net cash (used in) provided by
    operating activities

$
(256
)

$
2,138Consolidated total adjustments


26,884



35,714Consolidated net cash provided by
    operating activities

$
42,977


$
48,699   35




---



##### Table of Contents



For the Three MonthsEnded September 30,2006


2005Net income

$
5,093


$
4,662Regulated Subsidiaries:Net income

$
4,966


$
3,093Adjustments to reconcile net
    income to net cash provided by operating activities


1,383



1,141Changes in operating assets and
    liabilities


17,596



15,981Total adjustments


18,979



17,122Net cash provided by operating
    activities

$
23,945


$
20,215Non-regulated Subsidiaries:Net income

$
127


$
1,569Depreciation and amortization


781



697Interest


1,558



948Net income, excluding interest,
    depreciation, and amortization


2,466



3,214Adjustments to reconcile net
    income to net cash provided by operating activities


203



1,073Changes in operating assets and
    liabilities


1,652



2,821Total adjustments


1,855



3,894Depreciation and amortization


(781
)


(697
)Interest


(1,558
)


(948
)Net cash provided by operating
    activities

$
1,982


$
5,463Consolidated total adjustments


20,834



21,016Consolidated net cash provided by
    operating activities

$
25,927


$
25,678           Other
    Items
   36




---



##### Table of Contents



Accounting for Derivative Instruments and Hedging
    Activities,
  non-amortizing,
  non-amortizing,
 37




---



##### Table of Contents



38




---



##### Table of Contents



Contractual
    Obligations and Commitments
    Regulatory
    and Rating Issues
        Reinsurance
    Convertible
    Note
   39




---



##### Table of Contents



Recent
    Accounting Pronouncements
  Accounting for Certain Hybrid Financial
    Instruments.
  Accounting for Servicing of Financial Assets. Accounting for Transfers and Servicing of Financial
    Assets and Extinguishments of Liabilities,
  Accounting for Uncertainty in Income Taxes 
    an interpretation of FASB Statement No. 109
  Fair Value Measurements,
  Employers Accounting for Defined Benefit Pension
    and Other Postretirement Plans, an amendment of FASB Statements
    No. 87, 88, 106, and 132(R).
  Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk   40




---



##### Table of Contents



Rates Down


Rates


Rates Up100bps


Unchanged


100bpsMarket Value

$
495,530


$
476,665


$
457,759Yield to Maturity or Call


3.53
%


4.53
%


5.53
%Effective Duration


3.80



3.92



3.91       Accounting for Derivative
    Instruments and Hedging Activities,
   41




---



##### Table of Contents



Item 4.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures.
  Rule 13a-15(e) Form 10-Q,
    Changes
    in Internal Control over Financial Reporting
   PART II 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings  Commitments and Contingencies Form 10-Q
  Item 1A.
    Risk
    Factors  Form 10-K
  Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds    Form 10-K
 42




---



##### Table of Contents



Item 6.
    Exhibits    ExhibitNo.

Description31
.1

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

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

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

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




---



##### Table of Contents



SIGNATURES    Meadowbrook Insurance
    Group, Inc.
  By:
    /s/  Karen
    M. Spaun  Senior Vice President and
 Chief Financial Officer
   44




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.

Description31
.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.  45