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Exhibit 13

Managements Discussion
and Analysis of Financial


Condition and Results of
Operations


Description of Business

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

The agency segment was formed in 1955 as the Companys
original business. The insurance agency places principally
commercial insurance, as well as personal property, casualty,
life and accident and health insurance, with more than 50
insurance carriers from which it earns commission income. The
agency has grown to be one of the largest agencies in Michigan
and, with acquisitions, has expanded into Florida and California.

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

The Company categorizes its programs into four categories. In
managed programs, the Company usually assumes no insurance risk
and generates fee revenue through program management services. In
 fronted programs, the Company usually assumes 10% or less of the
 underwriting risk and generates fees which are accounted for as
a reduction of underwriting expenses. In risk-sharing programs,
the Company participates with the client or producing agent in
the operating results of the programs through a captive,
rent-a-captive or other such vehicles. In fully-insured programs,
 the Company provides traditional insurance without a
risk-sharing mechanism and derives revenue exclusively from
earned premiums and investment income. Fully-insured programs are
 developed only in response to a specific market opportunity and
generally when the Company believes there is potential to
transform into a risk-sharing program.

In recent years, the Company derived its revenue from the
following sources (in thousands):

|         |                      |                     |   |         |   |      |   |         |   |  |   |         |  
|-------- | -------------------- | ------------------- | - | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|         |                      |                    
|         |                      | For the Years Ended
|         |                      | December 31,       
|         |                      |                    
|         |                      | 1999                |   | 1998    |   | 1997
|         |                      |                    
|         |                      |                    
|Revenues |                      |                     |   |         |   |      |   |         |   |  |   |        
|         | Net earned premiums  |                     | $ | 124,906 |   |      | $ | 92,085  |   |  | $ | 68,493  |  
|         | Management fees      |                     |   | 22,878  |   |      |   | 18,121  |   |  |   | 15,786  |  
|         | Investment income    |                     |   | 11,319  |   |      |   | 9,620   |   |  |   | 8,248   |  
|         |                      |                    
|         | Program business     |                     |   | 159,103 |   |      |   | 119,826 |   |  |   | 92,527  |  
|         | Agency operations    |                     |   | 16,391  |   |      |   | 14,713  |   |  |   | 10,666  |  
|         | Reconciling items    |                     |   | 72      |   |      |   | 11      |   |  |   | 24      |  
|         | Intersegment revenue |                     |   | (572    | ) |      |   | (436    | ) |  |   | (2,092  | )
|         |                      |                    
|         | Consolidated revenue |                     | $ | 174,994 |   |      | $ | 134,114 |   |  | $ | 101,125 |  
|         |                      |                    





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Managements Discussion
and Analysis  continued






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Acquisitions and other business changes
items

On August 6, 1999, the Company acquired the assets of TPA
Associates, Inc., all the outstanding stock of TPA Insurance
Agency, Inc. and Preferred Insurance Agency, Inc. and
approximately 94% of the outstanding stock of Preferred Insurance
 Company, Ltd., (collectively, TPA) at a purchase
price of $16.2 million. This acquisition is not expected to
have a material impact on the Companys financial position
or results of operations. This transaction resulted in goodwill
of $12.9 million.

On April 30, 1998, the Company acquired the business of
Villari & Associates, Inc. (Villari), at a
purchase price of $5.6 million comprised of
$4.5 million in cash and 33,433 shares of common stock,
resulting in goodwill of $5.6 million. Villari is a
Florida-based insurance agency which offers professional
liability products and programs, group health and disability, and
 property and casualty products.

On July 31, 1998, the Company acquired Florida Preferred
Administrators, Inc. (Florida Preferred) and
Ameritrust Insurance Corporation (Ameritrust), at a
purchase price of $12.3 million, resulting in goodwill of
$7.0 million. Florida Preferred, a Florida based third party
administrator, provides a broad range of risk management services
 to purchasers of workers compensation insurance from
Ameritrust as well as other insurance carriers.

On July 1, 1997, the Company acquired Crest Financial
Corporation, (Crest), at a purchase price of $9.4
million, resulting in goodwill of $3.2 million. Crest is a
California based holding company which formerly owned
Williamsburg National Insurance Company
(Williamsburg), an insurance carrier, and Crest
Financial Services, a risk management service company. Crest
provides these services primarily to the trucking industry within
 California. Effective December 31, 1999, the Company
reorganized its holding structure, which resulted in Crest
assigning Williamsburg to Star Insurance Company
(Star).

In December of 1996, the Company entered into a five-year joint
underwriting agreement with Connecticut Surety Corporation. The
agreement provided for the transfer of the underwriting risk on
the majority of the Companys existing surety bond business.
 In addition, Star continues to write, on a progressively
diminishing basis, new surety business, utilizing its capital and
 licenses, and Connecticut Surety manages the operations and
assumes the risk.

Overview

1999 compared to 1998:

Results from operations, excluding the cumulative effect of
accounting change, decreased $13.7 million, or 233.7%, from
net income of $5.9 million in 1998 to a loss of
$7.8 million in 1999. The 1999 results reflect a
$6.8 million increase in adverse development on prior
accident years, a decrease in underwriting results of
$9.9 million relating to pricing pressure on the 1999
accident year, a $1.8 million increase in the provision for
uncollectible receivables, and establishment of a $300,000
liability for expense reduction actions taken in the fourth
quarter of 1999.

Revenues increased 30.5% to $175.0 million in 1999 from
$134.1 million in 1998. Excluding the impact of
acquisitions, revenues grew 10.6%. The remaining increase
reflects new and existing business growth.

The Companys number one priority for the Year 2000 is to
return to profitability. The Companys plans focus on
improving processing capabilities, integrating acquisitions,
increasing pricing and fees where appropriate, leveraging
e-commerce initiatives, and bringing operating costs into
alignment with revenues.

1998 compared to 1997:

Net income in 1998 decreased $7.1 million, or 55.0%, from
$13.0 million in 1997 to $5.9 million in 1998. The 1998
 results reflect a $7.0 million increase in adverse
development on prior accident years, a decrease in underwriting
results of $1.4 million relating to pricing pressure on the
1998 accident year, a





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Managements Discussion
and Analysis  continued






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Revenues increased 32.7% to $134.1 million in 1998 from
$101.1 million in 1997. This growth primarily reflected
recent acquisitions as well as growth from new and existing
business.

Results of Operations

Program Business

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

|                       |                     |                     |   |         |   |      |   |         |  |  |   |        | 
|---------------------- | ------------------- | ------------------- | - | ------- | - | ---- | - | ------- |  |  | - | ------ | 
|                       |                     |                    
|                       |                     | For the Years Ended
|                       |                     | December 31,       
|                       |                     |                    
|                       |                     | 1999                |   | 1998    |   | 1997
|                       |                     |                    
|                       |                     |                    
|Revenue:               |                     |                     |   |         |   |      |   |         |  |  |   |       
|                       | Net earned premiums |                     | $ | 124,906 |   |      | $ | 92,085  |  |  | $ | 68,493 | 
|                       | Management fees     |                     |   | 22,878  |   |      |   | 18,121  |  |  |   | 15,786 | 
|                       | Investment income   |                     |   | 11,319  |   |      |   | 9,620   |  |  |   | 8,248  | 
|                       |                     |                    
|                       | Total Revenue       |                     | $ | 159,103 |   |      | $ | 119,826 |  |  | $ | 92,527 | 
|                       |                     |                    
|Pre-tax (loss) income: |                     |                     |   |         |   |      |   |         |  |  |   |       
|                       | Program business    |                     | $ | (11,891 | ) |      | $ | 7,520   |  |  | $ | 16,778 | 

1999 compared to 1998:

Revenues from program business increased $39.3 million, or
32.8% to $159.1 million in 1999 from $119.8 million in 1998.
 The increase reflects 35.6% growth in net earned premiums to
$124.9 million in 1999 from $92.1 million in 1998. This
 increase reflects the acquisitions of Ameritrust and TPA, which
contributed $18.8 million. Excluding the impact of these
acquisitions, net earned premium increased 15.2% reflecting
growth in existing business primarily from programs initiated in
1998. Management fees grew $4.8 million, or 26.3% to
$22.9 million from $18.1 million. This increase
reflects the acquisitions of Florida Preferred and TPA. Excluding
 these acquisitions, management fees would be slightly down
reflecting a decrease in fees for claim services. The remaining
increase reflects a $1.7 million, or 17.7% increase in
investment income to $11.3 million in 1999 from
$9.6 million in 1998. This increase reflects a 15.7%
increase in average invested assets, primarily from the
acquisition of TPA.

Program business in 1999 generated a pre-tax loss of
$11.9 million, which compares to pre-tax income of
$7.5 million in 1998. The 1999 results reflect a
$6.8 million increase in adverse development on prior
accident years, a decrease in underwriting results of
$9.9 million relating to pricing pressure on the 1999
accident year, a $1.8 million increase in the provision for
uncollectible receivables, and establishment of a $300,000
liability for expense reduction actions taken in the fourth
quarter of 1999. The adverse development reflects the impact of
adopting a more conservative reserving philosophy that relies on
a line-of-business analysis to supplement the program specific
analysis. The majority of the development was in programs in
which the company has discontinued.

The Company initiated specific actions that focus on
profitability in 2000. These actions include reductions in
personnel and administrative costs in areas where full value was
not being realized, pricing and fee adjustments, and a
realignment of management which more closely aligns
responsibility and authority with operating results.





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Managements Discussion
and Analysis  continued






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1998 compared to 1997:

Revenues from program business increased $27.3 million, or
29.5% to $119.8 million in 1998 from $92.5 million in
1997. The increase reflects 34.4% growth in net earned premiums
to $92.1 million in 1998 from $68.5 million in 1998.
This increase reflects the acquisitions of Ameritrust and Crest,
which contributed $11.9 million. Excluding the impact of
these acquisitions, net earned premium increased 17.0% reflecting
 growth in existing business primarily from programs initiated in
 1998. Management fees grew $2.3 million, or 14.8% to
$18.1 million from $15.8 million. This increase
reflects the acquisitions of Florida Preferred and Crest.
Excluding these acquisitions, management fees increased slightly.
 The remaining increase reflects a $1.4 million, or 16.6%
increase in investment income to $9.6 million in 1998 from
$8.2 million in 1997. This increase reflects a 20.1%
increase in average invested assets, primarily from the
acquisition of Ameritrust.

Program business in 1998 generated a pre-tax income of
$7.5 million, which compares to pre-tax income of
$16.8 million in 1997. The 1998 results reflect a
$7.0 million increase in adverse development on prior
accident years, a decrease in underwriting results of
$1.4 million relating to pricing pressure on the 1998
accident year, a $0.6 million increase in the provision for
uncollectible receivables, and an increase in technology and
administrative costs. While actions were taken in 1998 to address
 profitability shortfalls, the 1998 / 1999 actions anticipated
growth from new business to absorb a portion of this shortfall.
With the increased competitive environment in 1999 and the
Companys increased selectivity, the actual growth fell
short of expectations and the expense controls were not
sufficient to cover this shortfall.

Agency operations

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

|               |  |                                  |        |      |  |      |        |  |  |   |        | 
|-------------- |  | -------------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|               |  |                                 
|               |  | For the Years Ended December 31,
|               |  |                                 
|               |  | 1999                             |        | 1998 |  | 1997
|               |  |                                 
|               |  |                                 
|Net commission |  | $                                | 16,391 |      |  | $    | 14,713 |  |  | $ | 10,666 | 
|Pre-tax income |  | $                                | 3,639  |      |  | $    | 2,757  |  |  | $ | 2,166  | 

1999 compared to 1998:

Agency commissions increased $1.7 million, or 11.4%, to
$16.4 million in 1999 from $14.7 million in 1998.
Agency operations generated pre-tax income of $3.6 million
in 1999 compared to $2.8 million in 1998. This increase
primarily reflects the full year impact of the acquisition of
Villari in 1998.

1998 compared to 1997:

Agency commissions increased $4.0 million, or 37.9%, to
$14.7 million in 1998 from $10.7 million in 1997.
Agency operations generated pre-tax income of $2.8 million
in 1998 compared to $2.2 million in 1997. This increase
primarily reflects the full year impact of the acquisition of
Crest and the 1998 acquisition of Villari.

Other items

Interest Expense

Interest expense for 1999, 1998 and 1997 was $3.6 million,
$2.0 million and $0.6 million, respectively. This
interest expense relates to the use of the Companys line of
 credit. The proceeds from the line of credit were used to fund
acquisitions, as well as the stock repurchases. This increasing
trend relates to an increase in average outstanding debt. The
average outstanding debt increased approximately 300% and 75%
from 1997 to 1998 and from 1998 to 1999, respectively.





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Managements Discussion
and Analysis  continued






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Amortization Expense

Amortization expense for 1999, 1998 and 1997 was
$1.6 million, $1.0 million and $0.4 million,
respectively. This increase reflects the acquisitions in 1997,
1998, and 1999.

Taxes

The provision for income taxes was a benefit of $6.2 million
 in 1999 with an effective tax rate of 44.2%. The provision for
income taxes was $0.8 million in 1998 and $4.3 million
in 1997, representing effective tax rates of 11.7% and 25.0% in
1998 and 1997, respectively. The tax rates were significantly
lower than the 34% corporate rate due to the Companys
heavily tax-exempt investment portfolio.

The decrease in the effective tax rate in 1998 reflects an
unusually low proportion of underwriting and fee-based income in
relation to net investment income. The fluctuations in the
effective tax rate reflect the change in proportion of
underwriting and risk management service income in relation to
net investment income, as well as any changes in the level of tax
 exempt interest. During 1999, to maximize after-tax cash flow,
the Company reduced its tax-exempt securities from 77.9% at
December 31, 1998 to 53.7% of total debt securities at
December 31, 1999.

At December 31, 1999, the Company had a deferred tax asset
of $2.3 million related to a net operating loss carryforward
 (NOL). The company believes this asset will be
recovered prior to the expiration of the NOL on December 31,
 2019.

Liquidity and Capital Resources

The principal sources of funds for the Company 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, and other operating expenses. In
addition, the Company has a high volume of intercompany
transactions due to the payment of management fees by the
insurance subsidiaries to the risk management subsidiaries. Such
fees are subject to regulatory approval by state insurance
departments.

Cash flow provided by operations for 1999 and 1998 was
$23.6 million and $10.3 million, respectively. This
compares to cash used by operations of $1.7 million in 1997.
 The increase in cash provided by operations in 1999 compared to
1998, reflects high cash outflow in the first half of 1998
relating to the payment of 1997 contingent commissions paid in
1998. The positive cash flow in relation to the 1999 net loss
reflects the strengthening of reserves that did not require cash
payments in 1999. The cash used in operations during 1997
reflects significant written, but uncollected, premiums in the
fourth quarter of 1997, the transfer of the surety bond program
to Connecticut Surety and the payment of claims associated with
the run-off of the surety bond program. The Company held
$23.7 million in cash and cash equivalents at
December 31, 1999.

The Company has one unsecured line of credit totaling
$60.0 million, of which $55.6 million was outstanding
at December 31, 1999. The line expires on August 1,
2002. The Company drew on this line of credit primarily to
consummate the acquisitions made during 1997, 1998 and 1999.

At December 31, 1999, the Company fell below the minimum
level of required net worth and the fixed charge coverage. The
Company has reached an agreement with the bank group to waive
these covenants. The Company has also reached agreement to amend
the line of credit to reflect the current operating environment.

In addition, a standby letter of credit of $10,015,000 had been
issued to an insurance subsidiary of the Company, under an
agreement expiring with extensions granted on a yearly basis.
This letter of credit is being used as security for the insurance
 subsidiarys obligations under a reinsurance agreement.





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Managements Discussion
and Analysis  continued






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In addition, a non-insurance subsidiary had a line of credit with
 a bank which permits borrowings up to 80% of the accounts
receivable which collateralize the line. The line will expire
March 31, 2000 and is automatically renewable each year.
This line bears interest at 1% under the prime rate (prime was
8.5% at December 31, 1999). At December 31, 1999,
$2,818,579 was outstanding under this line.

As of December 31, 1999 and 1998, the recorded values of the
 Companys investment portfolio, including cash and cash
equivalents, were $225.5 million and $201.0 million,
respectively. The investment portfolio, at December 31,
1999, was 98.1% invested in investment grade A or above bonds (as
 defined by S&P). During 1999, in line with expectations, the
 Company increased its position in equity securities by
$8.7 million. During 1999, to maximize after-tax cash flow,
the Company reduced its tax-exempt securities from 77.9% at
December 31, 1998 to 53.7% of total debt securities at
December 31, 1999.

Shareholders equity was $100.4 million, or $11.80 per
common share, at December 31, 1999, compared to
$119.6 million at December 31, 1998, or $13.80 per
common share. The decrease in shareholders equity during
1999 reflects the net loss, dividends, stock repurchases and
unrealized depreciation on available-for-sale securities of
$6.5 million. Changes in shareholders equity related
to the unrealized values of underlying portfolio investments will
 continue to be volatile as market prices of debt securities
fluctuate with changes in the interest rate environment.

A significant portion of the Companys consolidated assets
represents assets of the Companys insurance subsidiaries
that may not be transferable to the holding company in the form
of dividends, loans or advances. The restriction on the
transferability to the holding company from its insurance
subsidiaries is limited by Michigan regulatory guidelines which
are as follows: The maximum discretionary dividend that may be
declared, based on data from the preceding calendar year, is the
greater of the insurance companys net income (excluding
realized capital gains) OR 10% of the insurance companys
policyholders surplus (excluding unrealized gains). These
dividends are further limited by a clause in the Michigan law
which prohibits an insurer from declaring dividends except out of
 earned surplus earnings of the company. Earned surplus balances
are calculated on a quarterly basis. Since Star is the parent
insurance company, its maximum dividend calculation represents
the combined insurance companies. Based upon the 1999 statutory
financial statements of Star, as of January 1, 2000 Star may
 not pay any dividend to the Company, during the first quarter of
 2000, without prior approval of the Michigan Commissioner of
Insurance. The Company expects operating cash flow from
non-regulated subsidiaries to meet cash needs in the event that
dividends from the regulated subsidiaries are not available. On
December 23, 1998, the Commissioner approved payment of a
$5,000,000 dividend to the Company, which was used to increase
the paid in capital and surplus of Williamsburg. No dividends
were paid or returned in 1997.

The insurance subsidiaries are required to maintain certain
deposits with regulatory authorities which totaled
$45.4 million at December 31, 1999, and
$35.9 million at December 31, 1998.

Regulatory Issues

Insurance operations are subject to various leverage tests (e.g.
premium to statutory surplus ratios) which are evaluated by
regulators and rating agencies. The Companys target for
gross written premium to statutory surplus remains at or below 4
to 1. This target reflects the impact of both the fronting and
risk sharing program business in comparison to the composition of
 a traditional insurer which does not have significant fronting
nor risk sharing business. While traditional insurers tend to
drive industry standards, this target is consistent with the
Companys primary competitors in fronting and risk-sharing
segments. The Companys target for net written premium to
statutory surplus remains at or below 2 to 1. For 1999, premium
leverage ratios were 3.1 to 1 and 1.7 to 1 on a gross and net
premium written basis, 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 to be used as a tool to identify
 weakly capitalized companies. At December 31, 1999 and
1998, Star, the parent





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Managements Discussion
and Analysis  continued






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Reinsurance Considerations

The Company seeks to manage the risk exposure of its insurance
subsidiaries and its clients through the purchase of
excess-of-loss and quota share reinsurance. The Companys
reinsurance requirements are analyzed on a specific program basis
 to determine the appropriate retention levels and reinsurance
coverage limits. The Company secures this reinsurance based on
the availability, cost, and benefits of various reinsurance
alternatives.

Reinsurance does not legally discharge an insurer from its
primary liability for the full amount of risks assumed under
insurance policies it issues, but it does make the assuming
reinsurer liable to the insurer to the extent of the reinsurance
ceded. Therefore, the Company is subject to credit risk with
respect to the obligations of its reinsurers. In its selection of
 reinsurers, the Company evaluates the financial stability of its
 prospective reinsurers. To date, the Company has not experienced
 any material difficulties in collecting reinsurance
recoverables. No assurance can be given, however, regarding the
future ability of any of the Companys reinsurers to meet
their obligations. The following table sets forth information
relating to the Companys five largest reinsurers (other
than client captive quota-share reinsurers) as of
December 31, 1999:

|                                  |  |                           |        |           |  |  |           | 
|--------------------------------- |  | ------------------------- | ------ | --------- |  |  | --------- | 
|                                  |  | Reinsurance Premium Ceded |        | A.M. Best
|Reinsurer                         |  | December 31, 1999         |        | Rating   
|                                 
|                                 
|                                  |  | (In thousands)            |        |          
|Employers Reinsurance Corporation |  | $                         | 14,290 |           |  |  | A++       | 
|Connecticut Surety Group          |  |                           | 6,222  |           |  |  | Not Rated | 
|Terra Nova Insurance Company Ltd. |  |                           | 4,165  |           |  |  | Not Rated | 
|Hannover Ruck                     |  |                           | 3,517  |           |  |  | Not Rated | 
|Nac Reinsurance Corporation       |  |                           | 2,710  |           |  |  | A+        | 

In its risk-sharing programs, the Company is also subject to
credit risk with respect to the payment of claims by its
clients captive insurers on the portion of risk exposure
ceded to such captives. The capitalization and credit worthiness
of prospective captive insurers is one of the factors considered
by the Company in entering into and renewing risk-sharing
programs. The Company secures reinsurance balances due from its
non-admitted and not rated reinsurers through funds withheld
trusts or letters of credit.

Dependence on Key Programs

The Company provides alternative risk management programs and
services to certain large client groups and associations and then
 markets them to their individual members. In 1999 and 1998, the
Companys top four programs accounted for 26% and 38%,
respectively, of the Companys total revenue on an actual
basis. The loss or cancellation of any of the Companys
significant programs by the relevant client groups, or the
general availability of commercial market coverage to members of
such groups on more favorable terms than provided under the
Companys programs, could have a material adverse effect on
the Companys results of operations. The Company has
multiple year contracts with many of its clients.

Impact of Year 2000

The total cost of the required actions necessary to become Year
2000 compliant was $6.0 million.

Amounts spent in 1999 total about $2.2 million, including
about $1.1 million in outside vendor costs and another
$1.1 million in internal reprogramming and assessment costs.





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Managements Discussion
and Analysis  continued






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The Company did not experience any material disruption of its
business operations as a result of the Year 2000 issue and does
not anticipate any future material disruption of its business
operations as a result of the Year 2000 issue.

Qualitative and Quantitative Disclosures
 about Market Risk

Market risk is the risk of loss arising from adverse changes in
market rates and prices, such as interest rates as well as other
relevant market rate or price changes. The volatility and
liquidity in the markets in which the underlying assets are
traded directly influence market risk. The following is a
discussion of the Companys primary risk exposures and how
those exposures are currently managed as of December 31,
1999. The Companys market risk sensitive instruments are
limited to debt securities and equity securities which are
available for sale and not held for trading purposes.

Interest rate risk is managed within the context of asset and
liability management where the target duration of investment
portfolio is managed to approximate that of the liabilities as
determined by actuarial analysis.

The fair value of Companys investment portfolio was
$201.8 million, 91.6% of which is invested in debt
securities. The Companys market risk to the investment
portfolio is interest rate risk associated with debt securities.
The Companys exposure to equity price risk is not
significant. The Companys investment philosophy is one of
maximizing after-tax earnings and has historically included
significant investments in tax-exempt bonds. For the
Companys investment portfolio, there were no significant
changes in the Companys primary market risk exposures or in
 how those exposures are managed compared to the year ended
December 31, 1998. The Company does not anticipate
significant changes in the Companys primary market risk
exposures or in how those exposures are managed in future
reporting periods based upon what is known or expected to be in
effect in future reporting periods.

A sensitivity analysis is defined as the measurement of potential
 loss in future earnings, fair values or cash flows of market
sensitive instruments resulting from one or more selected
hypothetical changes in interest rates and other market rates or
prices over a selected period. In the Companys sensitivity
analysis model, a hypothetical change in market rates is selected
 that is expected to reflect reasonable possible near-term
changes in those rates. The term near term means a period of time
 going forward up to one year from the date of the consolidated
financial statements. In its sensitivity model, the Company uses
fair values to measure its potential loss of debt securities
assuming an upward parallel shift 100 basis point change in
interest rates to measure the hypothetical change in fair values.
 Based upon this sensitivity model, a 100 basis point change in
interest rates produces a loss in fair value of market sensitive
instruments of approximately $8.1 million. This loss in fair
 value only reflects the impact of interest rate increases on the
 fair value of the Companys debt securities, which
constitute 1.5% of total assets. The other financial instruments,
 which include cash and cash equivalents, equity securities,
premium receivables, reinsurance recoverables, line of credit and
 other assets and liabilities, when included in the sensitivity
model do not produce a material loss in fair values.

New Accounting Pronouncements

The Financial Accounting Standards Board (FASB) has
issued Statement of Financial Accounting Standards
(SFAS) No. 133 Accounting for Derivative
Instruments and Hedging Activities, which is effective for
fiscal quarters of all fiscal years beginning after June 15,
 2000 (as amended by SFAS No. 137). SFAS 133 requires
that all derivative instruments be recorded on the balance sheet
at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part
of a hedge transaction and, if it is, the type of hedge
transaction. As the Company does not use derivative instruments,
the management of the Company does not anticipate that the
adoption of SFAS 133 will have an effect on the results of
operations or financial position of the Company.





---



Managements Discussion
and Analysis  continued






---







---



In March 1998, NAIC voted to adopt its Codification of
Statutory Accounting Principles project (referred to hereafter as
 codification). Codification is a modified form of
statutory accounting principles that will result in change to the
 current NAIC Accounting Practices and Procedures Manual
applicable to insurance enterprises. Although adoption of
codification by all states is not a certainty, the NAIC has
recommended that all states enact codification as soon as
practicable with an effective date of January 1, 2001. It is
 currently anticipated that codification will become an NAIC
state accreditation requirement starting in 2002. In addition,
the American Institute of Certified Public Accountants and the
NAIC has agreed to continue to allow the use of certain permitted
 accounting practices when codification becomes effective in
2001. Any accounting differences from codification principles,
however, must be disclosed and quantified in the footnotes to the
 audited financial statements. Therefore, codification will
likely result in changes to what are currently considered
prescribed statutory insurance accounting practices.

Certain information included in the Managements
Discussion and Analysis of Financial Condition and Results of
Operations includes forward-looking statements. Actual results
may differ from those in the forward looking statements as a
result of the variability of market conditions. Statements
relating to the Companys future performance are based upon
managements interpretation of current market conditions.
Some of the factors that management includes in its
interpretation of market conditions are as follows: insurance
market conditions which historically have been subject to
significant variability due to premium rate competition, natural
disasters and other catastrophic events, judicial trends, changes
 in the investment and interest rate environment, regulation and
general economic conditions. Further information concerning
factors that could significantly impact expected results is
included in the business section of the Companys
Form 10-K that is filed with the SEC.





---





---







---



Selected Consolidated Financial
 Data


|                                                      |  |                                                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|----------------------------------------------------- |  | ----------------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                      |  |                                                
|                                                      |  | For the Years Ended December 31,               
|                                                      |  |                                                
|                                                      |  | 1999                                            |         | 1998 |  | 1997 |         | 1996 |  | 1995
|                                                      |  |                                                
|                                                      |  |                                                
|                                                      |  |                                                
|                                                      |  | (In thousands, except per share and ratio data)
|                                                     
|                                                     
|                                                     
|                                                     
|Income Statement Data:                                |  |                                                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Gross written premium                                 |  | $                                               | 230,474 |      |  | $    | 186,332 |      |  | $    | 146,739 |  |  | $ | 115,580 |  |  | $ | 123,119 | 
|Net written premium                                   |  |                                                 | 122,819 |      |  |      | 93,481  |      |  |      | 74,965  |  |  |   | 72,758  |  |  |   | 93,638  | 
|Net earned premium                                    |  |                                                 | 124,906 |      |  |      | 92,085  |      |  |      | 68,493  |  |  |   | 84,547  |  |  |   | 82,698  | 
|Net investment income                                 |  |                                                 | 11,608  |      |  |      | 9,579   |      |  |      | 8,128   |  |  |   | 8,002   |  |  |   | 5,325   | 
|Net realized gain (loss) on investments               |  |                                                 | (227    | )    |  |      | 52      |      |  |      | 134     |  |  |   | 26      |  |  |   | 45      | 
|Total revenue                                         |  |                                                 | 174,994 |      |  |      | 134,114 |      |  |      | 101,125 |  |  |   | 109,189 |  |  |   | 89,974  | 
|Net losses and LAE                                    |  |                                                 | 95,358  |      |  |      | 56,703  |      |  |      | 36,143  |  |  |   | 41,265  |  |  |   | 43,795  | 
|Policy acquisition and other expenses                 |  |                                                 | 47,583  |      |  |      | 31,931  |      |  |      | 19,531  |  |  |   | 32,079  |  |  |   | 33,721  | 
|Interest on notes payable                             |  |                                                 | 3,636   |      |  |      | 1,979   |      |  |      | 649     |  |  |   |        |  |  |   | 341     | 
|(Loss) income before income taxes                     |  |                                                 | (14,056 | )    |  |      | 6,645   |      |  |      | 17,386  |  |  |   | 10,868  |  |  |   | 9,488   | 
|Net (loss) income before cumulative effect            |  |                                                 | (7,847  | )    |  |      | 5,870   |      |  |      | 13,043  |  |  |   | 8,706   |  |  |   | 7,220   | 
|Net (loss) income                                     |  |                                                 | (9,553  | )    |  |      | 5,870   |      |  |      | 13,043  |  |  |   | 8,706   |  |  |   | 7,220   | 
|Earnings per share before cumulative effect  Diluted |  | $                                               | (0.91   | )    |  | $    | 0.65    |      |  | $    | 1.42    |  |  | $ | 0.95    |  |  | $ | 1.32    | 
|Earning per share  Diluted                           |  | $                                               | (1.11   | )    |  | $    | 0.65    |      |  | $    | 1.42    |  |  | $ | 0.95    |  |  | $ | 1.32    | 
|Dividends declared per share                          |  | $                                               | 0.12    |      |  | $    | 0.10    |      |  | $    | 0.08    |  |  | $ | 0.08    |  |  | $ |        | 
|                                                     
|                                                     
|                                                     
|                                                     
|Balance Sheet Data:                                   |  |                                                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Total investments and cash and cash equivalents       |  | $                                               | 225,523 |      |  | $    | 201,025 |      |  | $    | 167,292 |  |  | $ | 156,495 |  |  | $ | 148,977 | 
|Total assets                                          |  |                                                 | 551,977 |      |  |      | 440,075 |      |  |      | 328,642 |  |  |   | 265,035 |  |  |   | 241,764 | 
|Loss and LAE reserves                                 |  |                                                 | 229,244 |      |  |      | 148,844 |      |  |      | 98,979  |  |  |   | 92,390  |  |  |   | 86,986  | 
|Shareholders equity                                  |  |                                                 | 100,408 |      |  |      | 119,567 |      |  |      | 115,446 |  |  |   | 100,201 |  |  |   | 92,216  | 
|                                                     
|                                                     
|                                                     
|                                                     
|Other Data:                                           |  |                                                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|GAAP ratios (insurance companies only)                |  |                                                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Net loss and LAE ratio                                |  |                                                 | 79.0%   |      |  |      | 65.0%   |      |  |      | 55.7%   |  |  |   | 52.1%   |  |  |   | 53.2%   | 
|Expense ratio                                         |  |                                                 | 34.5%   |      |  |      | 30.6%   |      |  |      | 34.0%   |  |  |   | 45.0%   |  |  |   | 41.7%   | 
|Combined ratio                                        |  |                                                 | 113.5%  |      |  |      | 95.6%   |      |  |      | 89.7%   |  |  |   | 97.1%   |  |  |   | 94.9%   | 
|Statutory combined ratio                              |  |                                                 | 114.2%  |      |  |      | 98.7%   |      |  |      | 90.2%   |  |  |   | 98.1%   |  |  |   | 94.2%   | 
|Industry statutory combined ratio                     |  |                                                 | *107.5% |      |  |      | 105.0%  |      |  |      | 101.6%  |  |  |   | 105.8%  |  |  |   | 106.4%  | 



|  |          
|- | ---------
|* | Estimated





---





---







---



Report of Management and
Independent Accountants


Management is responsible for the accompanying consolidated
financial statements and all other financial information
contained in the Annual Report. The financial statements have
been prepared in conformity with generally accepted accounting
principles and include amounts which of necessity are based on
managements best estimates and informed judgments under
existing circumstances.

The Company maintains a system of internal controls designed to
provide reasonable assurance, at appropriate costs, that assets
are safeguarded, transactions are properly authorized and
recorded, and that the financial records provide a reliable basis
 for the preparation of financial statements that are free of
material misstatement.

The financial statements have been audited by the independent
auditors PricewaterhouseCoopers LLP. Their role is to render an
independent professional opinion on managements financial
statements based upon performance of procedures they deem
appropriate under generally accepted auditing standards. As part
of their audit, they evaluate the Companys internal control
 structure to the extent they consider necessary to express their
 opinion on the consolidated financial statements.

The Audit Committee of the Board of Directors, composed of
directors who are not officers or employees of the Company, meets
 periodically with management, the Companys chief internal
auditor, and with its independent auditors to discuss their
evaluation of internal accounting controls and the quality of
financial reporting. Both the independent auditors and the
internal auditors have free access to the Audit Committee to
discuss the results of audits.

/s/ Merton J. Segal















To the Board of Directors and Shareholders



In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, comprehensive
income, shareholders equity, and cash flows present fairly,
 in all material respects, the financial position of Meadowbrook
Insurance Group, Inc. and Subsidiaries at December 31, 1999
and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial
statements are the responsibility of the Companys
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits
 of these statements in accordance with auditing standards
generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.



| |                               
| | ------------------------------
| | /s/ PricewaterhouseCoopers LLP
| | PricewaterhouseCoopers LLP    

Detroit, Michigan







---





---







---



Consolidated Balance Sheet


|                                        |                                                                                                                        |                           |                                                                                                                                                                         |                                                 |         |        |         |         |        |       |         | 
|--------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------- | ------ | ------- | ------- | ------ | ----- | ------- | 
|                                        |                                                                                                                        |                          
|                                        |                                                                                                                        | December 31,             
|                                        |                                                                                                                        |                          
|                                        |                                                                                                                        | 1999                      |                                                                                                                                                                         | 1998                                           
|                                        |                                                                                                                        |                          
|                                        |                                                                                                                        |                          
|                                        |                                                                                                                        |                          
|                                        |                                                                                                                        | (In thousands, except per
|                                        |                                                                                                                        | share and ratio data)    
|                                       
|                                       
|                                       
|                                       
|ASSETS                                  |                                                                                                                        |                           |                                                                                                                                                                         |                                                 |         |        |         |        
|Investments                             |                                                                                                                        |                           |                                                                                                                                                                         |                                                 |         |        |         |        
|                                        | Debt securities available for sale, at fair value (cost of
	$188,755 and $167,163 in 1999 and 1998, respectively)      |                           | $                                                                                                                                                                       | 185,241                                         |         |        | $       | 172,617 |       
|                                        | Equity securities available for sale, at fair value (cost of
	$17,087 and $7,585 in 1999 and 1998, respectively)       |                           |                                                                                                                                                                         | 16,569                                          |         |        |         | 7,898   |       
|                                        | Cash and cash equivalents                                                                                              |                           |                                                                                                                                                                         | 23,713                                          |         |        |         | 20,510  |       
|                                        |                                                                                                                        |                          
|                                        |                                                                                                                        |                           |                                                                                                                                                                         | Total investments and cash and cash equivalents |         |        | 225,523 |         |        |       | 201,025 | 
|                                        | Accrued investment income                                                                                              |                           |                                                                                                                                                                         | 2,759                                           |         |        |         | 2,359   |       
|                                        | Premiums and agent balances receivable (net of allowance of
	$2,225 and $579 in 1999 and 1998, respectively)           |                           |                                                                                                                                                                         | 85,707                                          |         |        |         | 63,487  |       
|                                       
|                                       
|                                       
|                                       
|                                        | Reinsurance recoverable on:                                                                                            |                           |                                                                                                                                                                         |                                                 |         |        |         |         |       
|                                        |                                                                                                                        | Paid losses               |                                                                                                                                                                         |                                                 | 14,051  |        |         |         | 10,912 |      
|                                        |                                                                                                                        | Unpaid losses             |                                                                                                                                                                         |                                                 | 101,744 |        |         |         | 64,590 |      
|                                        | Prepaid reinsurance premiums                                                                                           |                           |                                                                                                                                                                         | 42,073                                          |         |        |         | 36,336  |       
|                                        | Deferred policy acquisition costs                                                                                      |                           |                                                                                                                                                                         | 10,030                                          |         |        |         | 8,900   |       
|                                        | Deferred federal income taxes                                                                                          |                           |                                                                                                                                                                         | 14,729                                          |         |        |         | 4,144   |       
|                                        | Federal income taxes recoverable                                                                                       |                           |                                                                                                                                                                         | 1,180                                           |         |        |         | 2,095   |       
|                                        | Intangible assets (less accumulated amortization of $3,396 and
	$1,775 in 1999 and 1998, respectively)                 |                           |                                                                                                                                                                         | 33,859                                          |         |        |         | 22,055  |       
|                                        | Other assets                                                                                                           |                           |                                                                                                                                                                         | 20,322                                          |         |        |         | 24,172  |       
|                                        |                                                                                                                        |                          
|                                        |                                                                                                                        |                           |                                                                                                                                                                         | Total assets                                    |         | $      | 551,977 |         |        | $     | 440,075 | 
|                                        |                                                                                                                        |                          
|LIABILITIES AND SHAREHOLDERS EQUITY    |                                                                                                                        |                           |                                                                                                                                                                         |                                                 |         |        |         |        
|Liabilities                             |                                                                                                                        |                           |                                                                                                                                                                         |                                                 |         |        |         |        
|                                        | Reserve for losses and loss adjustment expenses                                                                        |                           | $                                                                                                                                                                       | 229,244                                         |         |        | $       | 148,844 |       
|                                        | Unearned premiums                                                                                                      |                           |                                                                                                                                                                         | 90,095                                          |         |        |         | 77,948  |       
|                                        | Payable to insurance companies                                                                                         |                           |                                                                                                                                                                         | 23,732                                          |         |        |         | 13,747  |       
|                                        | Accounts payable and accrued expenses                                                                                  |                           |                                                                                                                                                                         | 15,814                                          |         |        |         | 12,076  |       
|                                        | Reinsurance funds held and balances payable                                                                            |                           |                                                                                                                                                                         | 29,571                                          |         |        |         | 20,352  |       
|                                        | Other liabilities                                                                                                      |                           |                                                                                                                                                                         | 4,650                                           |         |        |         | 6,588   |       
|                                        | Line of credit                                                                                                         |                           |                                                                                                                                                                         | 58,463                                          |         |        |         | 40,953  |       
|                                        |                                                                                                                        |                          
|                                        |                                                                                                                        |                           |                                                                                                                                                                         | Total liabilities                               |         |        | 451,569 |         |        |       | 320,508 | 
|                                        |                                                                                                                        |                          
|Commitments and contingencies (note 12) |                                                                                                                        |                           |                                                                                                                                                                         |                                                 |         |        |         |        
|Shareholders Equity                    |                                                                                                                        |                           |                                                                                                                                                                         |                                                 |         |        |         |        
|                                        | Common stock, $0.01 stated value; authorized 20,000,000 shares;
	8,511,655 and 8,663,434 shares issued and outstanding |                           |                                                                                                                                                                         | 85                                              |         |        |         | 87      |       
|                                        | Additional paid-in capital                                                                                             |                           |                                                                                                                                                                         | 67,907                                          |         |        |         | 71,190  |       
|                                        | Retained earnings                                                                                                      |                           |                                                                                                                                                                         | 35,809                                          |         |        |         | 45,105  |       
|                                        | Note receivable from officer                                                                                           |                           |                                                                                                                                                                         | (720                                            | )       |        |         | (661    | )     
|                                       
|                                       
|                                       
|                                       
|                                        | Accumulated other comprehensive income:                                                                                |                           |                                                                                                                                                                         |                                                 |         |        |         |         |       
|                                        |                                                                                                                        |                           | Unrealized (depreciation) appreciation on available for sale
	 securities, net of deferred tax (benefit) expense of
	($1,359) and $1,921 in 1999 and 1998, respectively |                                                 |         | (2,673 | )       |         |        | 3,846 |        
|                                        |                                                                                                                        |                          
|                                        |                                                                                                                        |                           |                                                                                                                                                                         | Total shareholders equity                      |         |        | 100,408 |         |        |       | 119,567 | 
|                                        |                                                                                                                        |                          
|                                        |                                                                                                                        |                           |                                                                                                                                                                         | Total liabilities and shareholders equity      |         | $      | 551,977 |         |        | $     | 440,075 | 
|                                        |                                                                                                                        |                          

The accompanying notes are an integral part of the Consolidated
Financial Statements.





---





---







---



Consolidated Statement of
Income


|                   |                                                                                           |                                                                  |  |         |           |      |  |         |           |   |  |         |           |  
|------------------ | ----------------------------------------------------------------------------------------- | ---------------------------------------------------------------- |  | ------- | --------- | ---- |  | ------- | --------- | - |  | ------- | --------- | -
|                   |                                                                                           |                                                                 
|                   |                                                                                           | For the Years Ended                                             
|                   |                                                                                           | December 31,                                                    
|                   |                                                                                           |                                                                 
|                   |                                                                                           | 1999                                                             |  | 1998    |           | 1997
|                   |                                                                                           |                                                                 
|                   |                                                                                           |                                                                 
|                   |                                                                                           |                                                                 
|                   |                                                                                           | (In thousands, except per                                       
|                   |                                                                                           | share and ratio data)                                           
|                  
|                  
|                  
|                  
|Revenues           |                                                                                           |                                                                  |  |         |           |      |  |         |           |   |  |        
|                   | Premiums earned                                                                           |                                                                  |  |         |           |      |  |         |           |   |  |         |          
|                   |                                                                                           | Gross                                                            |  | $       | 236,620   |      |  | $       | 176,242   |   |  | $       | 133,314   |  
|                   |                                                                                           | Ceded                                                            |  |         | (111,714  | )    |  |         | (84,157   | ) |  |         | (64,821   | )
|                   |                                                                                           |                                                                 
|                   | Net earned                                                                                |                                                                  |  | 124,906 |           |      |  | 92,085  |           |   |  | 68,493  |          
|                   | Net commissions and fees                                                                  |                                                                  |  | 38,697  |           |      |  | 32,398  |           |   |  | 24,360  |          
|                   | Net investment income                                                                     |                                                                  |  | 11,608  |           |      |  | 9,579   |           |   |  | 8,128   |          
|                   | Net realized (losses) gains on disposition of investments                                 |                                                                  |  | (227    | )         |      |  | 52      |           |   |  | 134     |          
|                   | Miscellaneous income                                                                      |                                                                  |  | 10      |           |      |  |        |           |   |  | 10      |          
|                   |                                                                                           |                                                                 
|                   |                                                                                           | Total Revenues                                                   |  |         | 174,994   |      |  |         | 134,114   |   |  |         | 101,125   |  
|                   |                                                                                           |                                                                 
|Expenses           |                                                                                           |                                                                  |  |         |           |      |  |         |           |   |  |        
|                   | Losses and loss adjustment expenses                                                       |                                                                  |  | 189,084 |           |      |  | 118,676 |           |   |  | 69,289  |          
|                   | Reinsurance recoveries                                                                    |                                                                  |  | (93,726 | )         |      |  | (61,973 | )         |   |  | (33,146 | )        
|                   |                                                                                           |                                                                 
|                   | Net losses and loss adjustment expenses                                                   |                                                                  |  | 95,358  |           |      |  | 56,703  |           |   |  | 36,143  |          
|                   | Salaries and employee benefits                                                            |                                                                  |  | 42,473  |           |      |  | 36,856  |           |   |  | 27,416  |          
|                   | Other operating expenses                                                                  |                                                                  |  | 47,583  |           |      |  | 31,931  |           |   |  | 19,531  |          
|                   | Interest on notes payable                                                                 |                                                                  |  | 3,636   |           |      |  | 1,979   |           |   |  | 649     |          
|                   |                                                                                           |                                                                 
|                   |                                                                                           | Total Expenses                                                   |  |         | 189,050   |      |  |         | 127,469   |   |  |         | 83,739    |  
|                   |                                                                                           |                                                                 
|                   |                                                                                           | (Loss) income before taxes                                       |  |         | (14,056   | )    |  |         | 6,645     |   |  |         | 17,386    |  
|                   |                                                                                           |                                                                 
|                   | Federal income tax (benefit) expense                                                      |                                                                  |  | (6,209  | )         |      |  | 775     |           |   |  | 4,343   |          
|                   |                                                                                           |                                                                 
|                   |                                                                                           | Net (loss) income before cumulative effect of accounting
	change |  |         | (7,847    | )    |  |         | 5,870     |   |  |         | 13,043    |  
|                   |                                                                                           |                                                                 
|                   | Cumulative effect of accounting for insurance related
	assessments, net of deferred taxes |                                                                  |  | (1,706  | )         |      |  |        |           |   |  |        |          
|                   |                                                                                           |                                                                 
|                   |                                                                                           | Net (loss) income                                                |  | $       | (9,553    | )    |  | $       | 5,870     |   |  | $       | 13,043    |  
|                   |                                                                                           |                                                                 
|Earnings Per Share |                                                                                           |                                                                  |  |         |           |      |  |         |           |   |  |        
|                   | Basic                                                                                     |                                                                  |  |         |           |      |  |         |           |   |  |         |          
|                   |                                                                                           | Before cumulative effect of accounting change                    |  | $       | (0.91     | )    |  | $       | 0.67      |   |  | $       | 1.51      |  
|                   |                                                                                           | Cumulative effect of accounting change                           |  | $       | (0.20     | )    |  | $       |          |   |  | $       |          |  
|                   |                                                                                           | Net (loss) income                                                |  | $       | (1.11     | )    |  | $       | 0.67      |   |  | $       | 1.51      |  
|                   | Diluted                                                                                   |                                                                  |  |         |           |      |  |         |           |   |  |         |          
|                   |                                                                                           | Before cumulative effect of accounting change                    |  | $       | (0.91     | )    |  | $       | 0.65      |   |  | $       | 1.42      |  
|                   |                                                                                           | Cumulative effect of accounting change                           |  | $       | (0.20     | )    |  | $       |          |   |  | $       |          |  
|                   |                                                                                           | Net (loss) income                                                |  | $       | (1.11     | )    |  | $       | 0.65      |   |  | $       | 1.42      |  
|                   | Weighted average number of common shares                                                  |                                                                  |  |         |           |      |  |         |           |   |  |         |          
|                   |                                                                                           | Basic                                                            |  |         | 8,588,216 |      |  |         | 8,702,768 |   |  |         | 8,657,677 |  
|                   |                                                                                           | Diluted                                                          |  |         | 8,588,216 |      |  |         | 9,026,180 |   |  |         | 9,176,754 |  

The accompanying notes are an integral part of the Consolidated
Financial Statements.





---





---







---



Consolidated Statement of
Comprehensive Income


|                  |                                                |                                                                              |        |         |        |      |       |       |     |   |        |        |       |  
|----------------- | ---------------------------------------------- | ---------------------------------------------------------------------------- | ------ | ------- | ------ | ---- | ----- | ----- | --- | - | ------ | ------ | ----- | -
|                  |                                                |                                                                             
|                  |                                                | For the Years Ended                                                         
|                  |                                                | December 31,                                                                
|                  |                                                |                                                                             
|                  |                                                | 1999                                                                         |        | 1998    |        | 1997
|                  |                                                |                                                                             
|                  |                                                |                                                                             
|                  |                                                |                                                                             
|                  |                                                | (in thousands)                                                              
|Net (loss) income |                                                | $                                                                            | (9,553 | )       |        | $    | 5,870 |       |     | $ | 13,043 |       
|                 
|                 
|                 
|                 
|                  | Other comprehensive (loss) income, net of tax: |                                                                              |        |         |        |      |       |       |     |   |        |        |      
|                  |                                                | Unrealized (losses) gains on securities                                      |        |         | (6,746 | )    |       |       | 920 |   |        |        | 3,252 |  
|                  |                                                | Less: reclassification adjustment for gains (losses) included in
	net income |        |         | 227    |      |       |       | (52 | ) |        |        | (134  | )
|                  |                                                |                                                                             
|                  | Other comprehensive (loss) income              |                                                                              |        | (6,519  | )      |      |       | 868   |     |   |        | 3,118  |      
|                  |                                                |                                                                             
|                  | Comprehensive (loss) income                    |                                                                              | $      | (16,072 | )      |      | $     | 6,738 |     |   | $      | 16,161 |      
|                  |                                                |                                                                             

The accompanying notes are an integral part of the Consolidated
Financial Statements.





---





---







---



Consolidated Statement of
Shareholders Equity


|                                                         |  |                                                      |    |             |  |          |        |              |  |               |        |               |  |   |      |   |  |   |        |   |  |   |         |  
|-------------------------------------------------------- |  | ---------------------------------------------------- | -- | ----------- |  | -------- | ------ | ------------ |  | ------------- | ------ | ------------- |  | - | ---- | - |  | - | ------ | - |  | - | ------- | -
|                                                         |  |                                                     
|                                                         |  | For the Years ended December 31, 1999, 1998 and 1997
|                                                         |  |                                                     
|                                                         |  |                                                      |    | Accumulated |  |         
|                                                         |  |                                                      |    | Additional  |  |          |        | Note         |  | Other         |        | Total        
|                                                         |  | Common                                               |    | Paid-in     |  | Retained |        | Receivable   |  | Comprehensive |        | Shareholders
|                                                         |  | Stock                                                |    | Capital     |  | Earnings |        | from Officer |  | Income        |        | Equity       
|                                                         |  |                                                     
|                                                         |  |                                                     
|                                                         |  |                                                     
|                                                         |  | (In thousands, except per share data)               
|Balances January 1, 1997                                 |  | $                                                    | 87 |             |  | $        | 72,873 |              |  | $             | 27,381 |               |  | $ |     |   |  | $ | (140   | ) |  | $ | 100,201 |  
|Unrealized appreciation on available for sale securities |  |                                                      |   |             |  |          |       |              |  |               |       |               |  |   |     |   |  |   | 3,118  |   |  |   | 3,118   |  
|Dividends declared at $0.08 per share                    |  |                                                      |   |             |  |          |       |              |  |               | (693   | )             |  |   |     |   |  |   |       |   |  |   | (693    | )
|Issuance of 35,409 shares of common stock                |  |                                                      |   |             |  |          | 241    |              |  |               |       |               |  |   |     |   |  |   |       |   |  |   | 241     |  
|Retirement of 24,591 shares of common stock              |  |                                                      |   |             |  |          | (575   | )            |  |               |       |               |  |   |     |   |  |   |       |   |  |   | (575    | )
|Tax benefit of stock option exercises                    |  |                                                      |   |             |  |          | 111    |              |  |               |       |               |  |   |     |   |  |   |       |   |  |   | 111     |  
|Net income                                               |  |                                                      |   |             |  |          |       |              |  |               | 13,043 |               |  |   |     |   |  |   |       |   |  |   | 13,043  |  
|                                                         |  |                                                     
|Balances December 31, 1997                               |  |                                                      | 87 |             |  |          | 72,650 |              |  |               | 39,731 |               |  |   |     |   |  |   | 2,978  |   |  |   | 115,446 |  
|Unrealized appreciation on available for sale securities |  |                                                      |   |             |  |          |       |              |  |               |       |               |  |   |     |   |  |   | 868    |   |  |   | 868     |  
|Dividends declared at $0.10 per share                    |  |                                                      |   |             |  |          |       |              |  |               | (871   | )             |  |   |     |   |  |   |       |   |  |   | (871    | )
|Issuance of 202,266 shares of common stock               |  |                                                      | 2  |             |  |          | 2,077  |              |  |               |       |               |  |   |     |   |  |   |       |   |  |   | 2,079   |  
|Retirement of 198,996 shares of common stock             |  |                                                      | (2 | )           |  |          | (4,546 | )            |  |               | 375    |               |  |   |     |   |  |   |       |   |  |   | (4,173  | )
|Tax benefit of stock option exercises                    |  |                                                      |   |             |  |          | 1,009  |              |  |               |       |               |  |   |     |   |  |   |       |   |  |   | 1,009   |  
|Note receivable from officer                             |  |                                                      |   |             |  |          |       |              |  |               |       |               |  |   | (661 | ) |  |   |       |   |  |   | (661    | )
|Net income                                               |  |                                                      |   |             |  |          |       |              |  |               | 5,870  |               |  |   |     |   |  |   |       |   |  |   | 5,870   |  
|                                                         |  |                                                     
|Balances December 31, 1998                               |  |                                                      | 87 |             |  |          | 71,190 |              |  |               | 45,105 |               |  |   | (661 | ) |  |   | 3,846  |   |  |   | 119,567 |  
|Unrealized depreciation on available for sale securities |  |                                                      |   |             |  |          |       |              |  |               |       |               |  |   |     |   |  |   | (6,519 | ) |  |   | (6,519  | )
|Dividends declared at $0.12 per share                    |  |                                                      |   |             |  |          |       |              |  |               | (1,031 | )             |  |   |     |   |  |   |       |   |  |   | (1,031  | )
|Issuance of 13,945 shares of common stock                |  |                                                      |   |             |  |          | 93     |              |  |               |       |               |  |   |     |   |  |   |       |   |  |   | 93      |  
|Retirement of 165,724 shares of common stock             |  |                                                      | (2 | )           |  |          | (3,414 | )            |  |               | 1,288  |               |  |   |     |   |  |   |       |   |  |   | (2,128  | )
|Tax benefit of stock option exercises                    |  |                                                      |   |             |  |          | 38     |              |  |               |       |               |  |   |     |   |  |   |       |   |  |   | 38      |  
|Note receivable from an officer                          |  |                                                      |   |             |  |          |       |              |  |               |       |               |  |   | (59  | ) |  |   |       |   |  |   | (59     | )
|Net loss                                                 |  |                                                      |   |             |  |          |       |              |  |               | (9,553 | )             |  |   |     |   |  |   |       |   |  |   | (9,553  | )
|                                                         |  |                                                     
|Balances December 31, 1999                               |  | $                                                    | 85 |             |  | $        | 67,907 |              |  | $             | 35,809 |               |  | $ | (720 | ) |  | $ | (2,673 | ) |  | $ | 100,408 |  
|                                                         |  |                                                     

The accompanying notes are an integral part of the Consolidated
Financial Statements.





---





---







---



Consolidated Statement of Cash
Flows


|                                                                         |                                                                                    |                                                     |                   |         |         |        |       |         |         |       |        |         |         |         |  
|------------------------------------------------------------------------ | ---------------------------------------------------------------------------------- | --------------------------------------------------- | ----------------- | ------- | ------- | ------ | ----- | ------- | ------- | ----- | ------ | ------- | ------- | ------- | -
|                                                                         |                                                                                    |                                                    
|                                                                         |                                                                                    | For the Years Ended                                
|                                                                         |                                                                                    | December 31,                                       
|                                                                         |                                                                                    |                                                    
|                                                                         |                                                                                    | 1999                                                |                   | 1998    |         | 1997  
|                                                                         |                                                                                    |                                                    
|                                                                         |                                                                                    |                                                    
|                                                                         |                                                                                    |                                                    
|                                                                         |                                                                                    | (In thousands)                                     
|Net (Loss) Income                                                        |                                                                                    | $                                                   | (9,553            | )       |         | $      | 5,870 |         |         | $     | 13,043 |        
|                                                                         |                                                                                    |                                                    
|                                                                         | Adjustments to reconcile net income to net cash provided by
	operating activities: |                                                     |                   |         |         |        |       |         |         |       |        |         |        
|                                                                         |                                                                                    | Amortization of intangible assets                   |                   |         | 1,621   |        |       |         | 1,039   |       |        |         | 423     |        
|                                                                         |                                                                                    | Depreciation of furniture and equipment             |                   |         | 3,172   |        |       |         | 2,332   |       |        |         | 2,391   |        
|                                                                         |                                                                                    | Net accretion of discount on bonds                  |                   |         | 31      |        |       |         | (85     | )     |        |         | (192    | )      
|                                                                         |                                                                                    | Loss (gain) on sale of investments                  |                   |         | 227     |        |       |         | (52     | )     |        |         | (493    | )      
|                                                                         |                                                                                    | Deferred income tax (benefit) expense               |                   |         | (6,724  | )      |       |         | (897    | )     |        |         | 2,229   |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Changes in operating assets and liabilities:                                       |                                                     |                   |         |         |        |       |         |         |       |        |         |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Decrease (increase) in:                                                            |                                                     |                   |         |         |        |       |         |         |       |        |         |        
|                                                                         |                                                                                    | Accrued investment income                           |                   |         | (248    | )      |       |         | (593    | )     |        |         | 44      |        
|                                                                         |                                                                                    | Premiums and agent balances receivable              |                   |         | (16,509 | )      |       |         | (5,204  | )     |        |         | (22,723 | )      
|                                                                         |                                                                                    | Reinsurance recoverable on paid and unpaid losses   |                   |         | (40,293 | )      |       |         | (26,644 | )     |        |         | (14,793 | )      
|                                                                         |                                                                                    | Prepaid reinsurance premiums                        |                   |         | (5,737  | )      |       |         | (9,105  | )     |        |         | (6,960  | )      
|                                                                         |                                                                                    | Deferred policy acquisition costs                   |                   |         | (1,130  | )      |       |         | (1,191  | )     |        |         | (1,866  | )      
|                                                                         |                                                                                    | Federal income taxes recoverable                    |                   |         | 1,229   |        |       |         | (1,029  | )     |        |         | (1,591  | )      
|                                                                         |                                                                                    | Other assets                                        |                   |         | 2,778   |        |       |         | (2,265  | )     |        |         | 1,000   |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Increase (decrease) in:                                                            |                                                     |                   |         |         |        |       |         |         |       |        |         |        
|                                                                         |                                                                                    | Losses and loss adjustment expenses                 |                   |         | 71,448  |        |       |         | 36,587  |       |        |         | 5,036   |        
|                                                                         |                                                                                    | Unearned premiums                                   |                   |         | 8,225   |        |       |         | 10,770  |       |        |         | 12,956  |        
|                                                                         |                                                                                    | Accounts payable and accrued expenses               |                   |         | 2,469   |        |       |         | 2,980   |       |        |         | 24      |        
|                                                                         |                                                                                    | Insurance company payable                           |                   |         | 7,086   |        |       |         | 2,809   |       |        |         | 2,382   |        
|                                                                         |                                                                                    | Reinsurance funds held and balances payable         |                   |         | 9,219   |        |       |         | 189     |       |        |         | 17,091  |        
|                                                                         |                                                                                    | Other liabilities                                   |                   |         | (3,678  | )      |       |         | (5,195  | )     |        |         | (9,734  | )      
|                                                                         |                                                                                    |                                                    
|                                                                         |                                                                                    |                                                     | Total Adjustments |         |         | 33,186 |       |         |         | 4,446 |        |         |         | (14,776 | )
|                                                                         |                                                                                    |                                                    
|                                                                         |                                                                                    | Net cash provided by (used in) operating activities |                   |         | 23,633  |        |       |         | 10,316  |       |        |         | (1,733  | )      
|                                                                         |                                                                                    |                                                    
|Cash Flows From Investing Activities                                     |                                                                                    |                                                     |                   |         |         |        |       |         |         |       |        |        
|                                                                         | Purchase of equity securities available for sale                                   |                                                     |                   | (10,858 | )       |        |       | (3,139  | )       |       |        | (3,866  | )      
|                                                                         | Purchase of debt securities available for sale                                     |                                                     |                   | (74,297 | )       |        |       | (61,763 | )       |       |        | (25,927 | )      
|                                                                         | Proceeds from sale of equity securities available for sale                         |                                                     |                   | 1,362   |         |        |       | 473     |         |       |        | 461     |        
|                                                                         | Proceeds from sales and maturities of debt securities available
	for sale          |                                                     |                   | 63,589  |         |        |       | 32,382  |         |       |        | 28,367  |        
|                                                                         | Proceeds from maturity of securities held to maturity                              |                                                     |                   |        |         |        |       |        |         |       |        | 4,611   |        
|                                                                         | Capital expenditures                                                               |                                                     |                   | (3,656  | )       |        |       | (8,058  | )       |       |        | (3,428  | )      
|                                                                         | Purchase of subsidiaries                                                           |                                                     |                   | (16,776 | )       |        |       | (18,921 | )       |       |        | (7,821  | )      
|                                                                         | Net cash of acquired subsidiaries                                                  |                                                     |                   | 3,795   |         |        |       | 23,019  |         |       |        |        |        
|                                                                         |                                                                                    |                                                    
|                                                                         |                                                                                    | Net cash used in investing activities               |                   |         | (36,841 | )      |       |         | (36,007 | )     |        |         | (7,603  | )      
|                                                                         |                                                                                    |                                                    
|Cash Flows From Financing Activities                                     |                                                                                    |                                                     |                   |         |         |        |       |         |         |       |        |        
|                                                                         | Proceeds from lines of credit                                                      |                                                     |                   | 107,703 |         |        |       | 51,947  |         |       |        | 30,410  |        
|                                                                         | Payment of lines of credit                                                         |                                                     |                   | (90,193 | )       |        |       | (22,459 | )       |       |        | (18,946 | )      
|                                                                         | Book overdraft                                                                     |                                                     |                   | 2,031   |         |        |       |        |         |       |        |        |        
|                                                                         | Dividend paid on common stock                                                      |                                                     |                   | (1,037  | )       |        |       | (782    | )       |       |        | (692    | )      
|                                                                         | Retirement of common stock                                                         |                                                     |                   | (2,093  | )       |        |       | (2,720  | )       |       |        | (223    | )      
|                                                                         |                                                                                    |                                                    
|                                                                         |                                                                                    | Net cash provided by financing activities           |                   |         | 16,411  |        |       |         | 25,986  |       |        |         | 10,549  |        
|                                                                         |                                                                                    |                                                    
|                                                                         | Increase in cash and cash equivalents                                              |                                                     |                   | 3,203   |         |        |       | 295     |         |       |        | 1,213   |        
|                                                                         | Cash and cash equivalents, beginning of year                                       |                                                     |                   | 20,510  |         |        |       | 20,215  |         |       |        | 19,002  |        
|                                                                         |                                                                                    |                                                    
|                                                                         | Cash and cash equivalents, end of year                                             |                                                     | $                 | 23,713  |         |        | $     | 20,510  |         |       | $      | 20,215  |        
|                                                                         |                                                                                    |                                                    
|Supplemental Disclosure of Cash Flow Information:                        |                                                                                    |                                                     |                   |         |         |        |       |         |         |       |        |        
|                                                                         | Interest paid                                                                      |                                                     | $                 | 3,636   |         |        | $     | 1,979   |         |       | $      | 644     |        
|                                                                         | Income taxes (received) paid, net of refund                                        |                                                     | $                 | (1,639  | )       |        | $     | 2,430   |         |       | $      | 3,705   |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Supplemental Disclosure of Non Cash Investing and Financing
	Activities: |                                                                                    |                                                     |                   |         |         |        |       |         |         |       |        |        
|                                                                         | Common stock issued for net non cash assets of acquired
	subsidiaries              |                                                     |                   |        |         |        | $     | 1,120   |         |       |        |        |        
|                                                                         | Tax benefit from stock options                                                     |                                                     | $                 | 38      |         |        | $     | 1,009   |         |       | $      | 111     |        
|                                                                         | Note receivable from offer for issuance of stock                                   |                                                     |                   |        |         |        | $     | 330     |         |       |        |        |        

The accompanying notes are an integral part of the Consolidated
Financial Statements.





---





---







---



Notes to Consolidated Financial
 Statements


1.  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

Basis of Financial Presentation

The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles (GAAP), which differ from statutory
accounting practices prescribed or permitted for insurance
companies by regulatory authorities. Prescribed statutory
accounting practices include a variety of publications of the
National Association of Insurance Commissioners
(NAIC), as well as state laws, regulations and
general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed.

Principles of Consolidation

The financial statements consolidate the accounts and operations
of Meadowbrook Insurance Group, Inc. (the Company)
and its subsidiaries, all of which are wholly owned, after
elimination of all intercompany accounts and transactions.

Business

The Company, through its subsidiaries, is engaged primarily in
developing and managing alternative risk management programs for
defined client groups and their members. This includes providing
services, such as reinsurance brokering, risk management
consulting, claims handling, administrative services, along with
various types of property and casualty insurance coverage,
including workers compensation, general liability and
commercial multiple peril. The Company also operates insurance
agencies, which primarily places principally commercial insurance
 as well as personal property, casualty, life and accident and
health insurance with multiple insurance carriers. The Company
does not have significant exposures to environmental/asbestos and
 catastrophic coverages. Insurance coverage is primarily provided
 to associations or similar groups of members, commonly referred
to as programs. Four programs accounted for 25.9%, 37.7%, and
46.0% of the Companys premium revenue in 1999, 1998 and
1997, respectively. The net earned premium of the largest program
 in each respective year represented 7.6%, 12.3% and 14.7% of the
 Companys premium revenues in 1999, 1998 and 1997,
respectively.

Use of Estimates

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
 liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Investments

The Companys investment securities at December 31,
1999 and 1998 are classified as available for sale. Investments
classified as available for sale securities are available to be
sold in the future in response to the Companys liquidity
needs, changes in market interest rates, and asset-liability
management strategies, among other reasons. Available for sale
securities are reported at fair value, with unrealized gains and
losses reported in accumulated other comprehensive income
component of shareholders equity, net of deferred taxes.

Realized gains or losses on sale or maturity of investments are
determined on the basis of specific costs of the investments.
Discount or premium on debt securities purchased at other than
par value is amortized using the constant yield method.
Investments with other than temporary declines in fair value are
written down to estimated fair value and the related realized
losses recognized in income. There were no investments written
down in 1999, 1998 and 1997.





---



Notes to Consolidated Financial
 Statements






---







---



Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand and highly liquid
 short-term investments. The Company considers all short-term
investments purchased with a maturity of three months or less at
the time of acquisition to be cash equivalents.

Deferred Policy Acquisition Costs

Commissions and other costs of acquiring insurance business that
vary with and are primarily related to the production of new and
renewal business are deferred and amortized over the terms of the
 policies or reinsurance treaties to which they relate.
Investment earnings are anticipated in determining the
recoverability of such deferred amounts.

Furniture and Equipment

Furniture and equipment are stated at cost and are depreciated
using both accelerated and straight-line methods over the
estimated useful lives of the assets, generally five to ten
years. Upon sale or retirement, the cost of the asset and related
 accumulated depreciation are eliminated from their respective
accounts, and the resulting gain or loss is included in income.
Repairs and maintenance are charged to operations when incurred.

Intangible Assets

Goodwill resulting from acquisitions is amortized on a
straight-line basis over 20 years. Other intangibles are
amortized on a straight-line basis over 3 to 7 years.

Annually, the Company evaluates the net carrying value of
goodwill to determine if there has been any impairment in value.
The methodology used for this evaluation entails review of annual
 operating performance along with anticipated results for the
ensuing year based on operating budgets. At December 31,
1999 the Company concluded that there had been no impairment in
the net carrying value of goodwill.

Losses and Loss Adjustment Expenses

The liability for losses and loss adjustment expenses
(LAE) represents (1) case basis estimates of
reported losses and LAE on direct business, (2) estimates
received from ceding reinsurers on assumed business and
(3) actuarial estimates of incurred but not reported losses
and LAE. Such liabilities, by necessity, are based upon estimates
 and, while management believes that the amount accrued is
adequate, the ultimate liability may be greater or less than the
amount provided. The methods for making such estimates and for
establishing the resulting reserves are continually reviewed and
updated.

Revenue Recognition

Premiums written are recognized as earned on a pro rata basis
over the life of the policy term. Unearned premiums represent the
 portion of premiums written which 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. Certain premiums are subject to
 retrospective premium adjustments. The estimated ultimate
premium is recognized over the term of the insurance contract.

Commission and fee income is recorded on the later of the
effective date or the billing date of the policies on which it
was earned.

The Company occasionally guarantees the financing of policies it
writes. No material premium financing guarantees were in effect
at December 31, 1999.





---



Notes to Consolidated Financial
 Statements






---







---



The majority of claims processing fees are recognized as revenue
over the estimated life of the claims. For those contracts that
provide services beyond the contractually defined termination
date of the related contracts, fees are deferred in an amount
equal to managements estimate of the Companys
obligation to continue to provide services.

The Company reviews, on an ongoing basis, the collectibility of
its receivables and establishes an allowance for estimated
uncollectible accounts.

Income Taxes

The Company accounts for its income taxes under Statement of
Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, which requires the asset
 and liability method of recording income taxes. Under the asset
and liability method, deferred federal income taxes are
recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates to
differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities.

Stock Options

Compensation expense, if any, resulting from stock options
granted by the Company is determined based on the difference
between the exercise price and the fair market value of the
underlying common stock at the date of grant.

Earnings Per Share

Basic earnings per share are based on the weighted average number
 of common shares outstanding during the year while diluted
earnings per share included the weighted average number of common
 shares and potential dilution from shares issuable pursuant to
stock options using the treasury stock method. Shares issuable
pursuant to stock options included in diluted earnings per share
are 323,412 and 519,077 for the years ended December 31,
1998, and 1997, respectively. There are no shares issuable
pursuant to stock options included in diluted earnings per share
for 1999 as they were anti-dilutive. In addition, stock options
were outstanding to purchase 60,770 shares in 1998 and 63,280
shares in 1997 at a weighted average price per share of $30.45.
These shares were not included in the computation of diluted
earnings per share as they were anti-dilutive.

Cumulative Effect of Accounting Change

As described in our 1998 Annual Report, the Accounting Standards
Executive Committee of the American Institute of Certified Public
 Accountants issued Statement of Position 97-3,
Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments (SOP 97-3).
SOP 97-3 provides guidance for determining when an entity
should recognize a liability for guaranty-fund and other
insurance-related assessments, how to measure that liability, and
 when an asset may be recognized for the recovery of such
assessments through premium tax offsets or policy surcharges. As
required, the Company adopted SOP 97-3 in the quarter ended
March 31, 1999. The adoption of SOP 97-3 resulted in a
non-cash after-tax $1.7 million (net of tax of $879,064), or
 $0.20 per share, cumulative effect accounting charge.

The current year impact of adopting SOP 97-3 was a pre-tax
benefit of $144,112, which had no impact on earnings per share.

Reclassifications

Certain amounts in the 1998 and 1997 financial statements and
notes to consolidated financial statements have been reclassified
 to conform with the 1999 presentation.





---



Notes to Consolidated Financial
 Statements






---







---



2.  INVESTMENTS AND OTHER FINANCIAL
 INSTRUMENTS

The estimated fair value of investments in securities is
determined based on published market quotations. Due to the
short-term nature of other financial instruments such as cash
equivalents, accrued investment income, premiums and agent
balances receivable, reinsurance receivables and payables and
other accounts payable, carrying value approximates fair value.
Based on the borrowing rates available to the Company, the
carrying value of the line of credit approximated fair value as
of December 31, 1999 and 1998. The cost or amortized cost
and estimated fair values of investments in securities at
December 31, 1999 and 1998 are as follows (in thousands):

|                                                          |                                            |                                     |         |            |         |            |     |           |       |   |        |        |        |   |         |         |         | 
|--------------------------------------------------------- | ------------------------------------------ | ----------------------------------- | ------- | ---------- | ------- | ---------- | --- | --------- | ----- | - | ------ | ------ | ------ | - | ------- | ------- | ------- | 
|                                                          |                                            |                                    
|                                                          |                                            | December 31, 1999                  
|                                                          |                                            |                                    
|                                                          |                                            | Cost or                             |         | Gross      |         | Gross      |     | Estimated
|                                                          |                                            | Amortized                           |         | Unrealized |         | Unrealized |     | Fair     
|Securities Available For Sale                             |                                            | Cost                                |         | Gains      |         | Losses     |     | Value    
|                                                         
|                                                         
|Debt Securities:                                          |                                            |                                     |         |            |         |            |     |           |       |   |        |        |        |   |         |        
|Debt securities issued by the U.S government and agencies |                                            | $                                   | 34,669  |            |         | $          | 62  |           |       | $ | (255   | )      |        | $ | 34,476  |        
|Obligations of states and political subdivisions          |                                            |                                     | 122,248 |            |         |            | 753 |           |       |   | (3,279 | )      |        |   | 119,722 |        
|Corporate securities                                      |                                            |                                     | 11,668  |            |         |            | 3   |           |       |   | (416   | )      |        |   | 11,255  |        
|Mortgage-backed securities                                |                                            |                                     | 20,170  |            |         |            |    |           |       |   | (382   | )      |        |   | 19,788  |        
|                                                          |                                            |                                    
|                                                          | Total Debt Securities available for sale   |                                     |         | 188,755    |         |            |     | 818       |       |   |        | (4,332 | )      |   |         | 185,241 |        
|                                                         
|                                                         
|                                                         
|                                                         
|Equity Securities:                                        |                                            |                                     |         |            |         |            |     |           |       |   |        |        |        |   |         |        
|Preferred Stocks                                          |                                            |                                     | 5,128   |            |         |            | 114 |           |       |   | (29    | )      |        |   | 5,213   |        
|Common Stocks                                             |                                            |                                     | 11,959  |            |         |            | 852 |           |       |   | (1,455 | )      |        |   | 11,356  |        
|                                                          |                                            |                                    
|                                                          | Total Equity securities available for sale |                                     |         | 17,087     |         |            |     | 966       |       |   |        | (1,484 | )      |   |         | 16,569  |        
|                                                          |                                            |                                    
|                                                          |                                            | Total Securities available for sale |         | $          | 205,842 |            |     | $         | 1,784 |   |        | $      | (5,816 | ) |         | $       | 201,810 | 
|                                                          |                                            |                                    

|                                                          |                                            |                                     |         |            |         |            |       |           |       |   |      |      |      |   |         |         |         | 
|--------------------------------------------------------- | ------------------------------------------ | ----------------------------------- | ------- | ---------- | ------- | ---------- | ----- | --------- | ----- | - | ---- | ---- | ---- | - | ------- | ------- | ------- | 
|                                                          |                                            |                                    
|                                                          |                                            | December 31, 1998                  
|                                                          |                                            |                                    
|                                                          |                                            | Cost or                             |         | Gross      |         | Gross      |       | Estimated
|                                                          |                                            | Amortized                           |         | Unrealized |         | Unrealized |       | Fair     
|Securities Available For Sale                             |                                            | Cost                                |         | Gains      |         | Losses     |       | Value    
|                                                         
|                                                         
|Debt Securities:                                          |                                            |                                     |         |            |         |            |       |           |       |   |      |      |      |   |         |        
|Debt securities issued by the U.S government and agencies |                                            | $                                   | 5,572   |            |         | $          | 388   |           |       | $ | (6   | )    |      | $ | 5,954   |        
|Obligations of states and political subdivisions          |                                            |                                     | 150,989 |            |         |            | 5,245 |           |       |   | (251 | )    |      |   | 155,983 |        
|Corporate securities                                      |                                            |                                     | 5,438   |            |         |            | 53    |           |       |   | (56  | )    |      |   | 5,435   |        
|Mortgage-backed securities                                |                                            |                                     | 5,164   |            |         |            | 86    |           |       |   | (5   | )    |      |   | 5,245   |        
|                                                          |                                            |                                    
|                                                          | Total Debt Securities available for sale   |                                     |         | 167,163    |         |            |       | 5,772     |       |   |      | (318 | )    |   |         | 172,617 |        
|                                                         
|                                                         
|                                                         
|                                                         
|Equity Securities:                                        |                                            |                                     |         |            |         |            |       |           |       |   |      |      |      |   |         |        
|Preferred Stocks                                          |                                            |                                     | 6,222   |            |         |            | 269   |           |       |   | (1   | )    |      |   | 6,490   |        
|Common Stocks                                             |                                            |                                     | 1,363   |            |         |            | 89    |           |       |   | (44  | )    |      |   | 1,408   |        
|                                                          |                                            |                                    
|                                                          | Total Equity securities available for sale |                                     |         | 7,585      |         |            |       | 358       |       |   |      | (45  | )    |   |         | 7,898   |        
|                                                          |                                            |                                    
|                                                          |                                            | Total Securities available for sale |         | $          | 174,748 |            |       | $         | 6,130 |   |      | $    | (363 | ) |         | $       | 180,515 | 
|                                                          |                                            |                                    





---



Notes to Consolidated Financial
 Statements






---







---



Gross unrealized appreciation and depreciation on available for
sale securities were as follows (in thousands):

|                                           |                                                                                                   |              |        |        |   |   |        |       | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------- | ------------ | ------ | ------ | - | - | ------ | ----- | 
|                                           |                                                                                                   |             
|                                           |                                                                                                   | December 31,
|                                           |                                                                                                   |             
|                                           |                                                                                                   | 1999         |        | 1998  
|                                           |                                                                                                   |             
|                                           |                                                                                                   |             
|Unrealized appreciation                    |                                                                                                   | $            | 1,784  |        |   | $ | 6,130  |      
|Unrealized depreciation                    |                                                                                                   |              | (5,816 | )      |   |   | (363   | )    
|                                           |                                                                                                   |             
|Net unrealized (depreciation) appreciation |                                                                                                   |              | (4,032 | )      |   |   | 5,767  |      
|Deferred federal income taxes              |                                                                                                   |              | 1,359  |        |   |   | (1,921 | )    
|                                           |                                                                                                   |             
|                                           | Net unrealized (depreciation) appreciation on investments, net of
	 deferred federal income taxes |              | $      | (2,673 | ) |   | $      | 3,846 | 
|                                           |                                                                                                   |             

The gross change, before tax (expense)/benefit, in unrealized
appreciation/(depreciation) on available for sale debt securities
 was ($8,967,833) for 1999, $1,726,947 for 1998, and $3,922,161
for 1997. The gross change in unrealized
appreciation/(depreciation) on available for sale equity
securities was ($830,915), ($472,877), and $802,712 in 1999, 1998
 and 1997, respectively.

The realized gains (losses) on the sale of available for
sale debt securities and equity securities for the year ended
December 31, 1999 were ($232,860) and $5,659, respectively.
The proceeds from these sales were $53.7 million and
$1.4 million, respectively.

The realized gains (losses) on the sale of available for sale
debt securities and equity securities for the year ended
December 31, 1998 were $103,964 and ($52,356), respectively.
 The proceeds from these sales were $17.6 million and
$0.5 million, respectively.

The realized gains (losses) on the sale of available for sale
debt securities and equity securities for the year ended
December 31, 1997 were $510,659 and ($377,110),
respectively. The proceeds from these sales were
$19.4 million and $0.5 million, respectively.

The amortized cost and estimated fair value of available for sale
 debt securities at December 31, 1999, by contractual
maturity, are shown below. Expected maturities may differ from
contractual maturities because certain borrowers may have the
right to call or prepay obligations with or without call or
prepayment penalties (in thousands):

|                                       |  |                    |         |            |  |   |         | 
|-------------------------------------- |  | ------------------ | ------- | ---------- |  | - | ------- | 
|                                       |  |                   
|                                       |  | Available for Sale
|                                       |  |                   
|                                       |  | Amortized          |         | Estimated 
|                                       |  | Cost               |         | Fair Value
|                                       |  |                   
|                                       |  |                   
|Due in one year or less                |  | $                  | 10,840  |            |  | $ | 10,848  | 
|Due after one year through five years  |  |                    | 65,741  |            |  |   | 65,864  | 
|Due after five years through ten years |  |                    | 57,916  |            |  |   | 56,671  | 
|Due after ten years                    |  |                    | 34,088  |            |  |   | 32,070  | 
|Mortgage-backed securities             |  |                    | 20,170  |            |  |   | 19,788  | 
|                                       |  |                   
|                                       |  | $                  | 188,755 |            |  | $ | 185,241 | 
|                                       |  |                   





---



Notes to Consolidated Financial
 Statements






---







---



Net investment income for the last three years ended
December 31 was as follows (in thousands):

|                              |  |      |        |      |  |      |       |  |  |   |       | 
|----------------------------- |  | ---- | ------ | ---- |  | ---- | ----- |  |  | - | ----- | 
|                              |  | 1999 |        | 1998 |  | 1997
|                              |  |     
|                              |  |     
|Investment Income On:         |  |      |        |      |  |      |       |  |  |   |       | 
|Debt securities               |  | $    | 9,190  |      |  | $    | 7,658 |  |  | $ | 7,154 | 
|Equity securities             |  |      | 734    |      |  |      | 295   |  |  |   | 246   | 
|Cash and cash equivalents     |  |      | 1,932  |      |  |      | 1,998 |  |  |   | 1,070 | 
|                              |  |     
|Total gross investment income |  |      | 11,856 |      |  |      | 9,951 |  |  |   | 8,470 | 
|Less investment expenses      |  |      | 248    |      |  |      | 372   |  |  |   | 342   | 
|                              |  |     
|Net investment income         |  | $    | 11,608 |      |  | $    | 9,579 |  |  | $ | 8,128 | 
|                              |  |     

United States government obligations, municipal bonds, and bank
certificates of deposit aggregating $45,414,505 and $35,912,497
were on deposit with state regulatory authorities as required by
law at December 31, 1999 and 1998, respectively.

3.  LIABILITY FOR LOSSES AND LOSS
ADJUSTMENT EXPENSES

The Company regularly updates its reserve estimates as new
information becomes available and further events occur which may
impact the resolution of unsettled claims. Changes in prior
reserve estimates are reflected in results of operations in the
year such changes are determined to be needed and recorded.
Activity in the reserves for losses and loss adjustment expenses
is summarized as follows (in thousands):

|                               |                               |                     |         |         |  |      |         |        |  |   |        |        | 
|------------------------------ | ----------------------------- | ------------------- | ------- | ------- |  | ---- | ------- | ------ |  | - | ------ | ------ | 
|                               |                               |                    
|                               |                               | For the Years Ended
|                               |                               | December 31,       
|                               |                               |                    
|                               |                               | 1999                |         | 1998    |  | 1997
|                               |                               |                    
|                               |                               |                    
|Balance, beginning of year     |                               | $                   | 148,844 |         |  | $    | 98,979  |        |  | $ | 92,390 |       
|Less reinsurance recoverables  |                               |                     | 64,590  |         |  |      | 38,193  |        |  |   | 26,615 |       
|                               |                               |                    
|Net balance, beginning of year |                               |                     | 84,254  |         |  |      | 60,786  |        |  |   | 65,775 |       
|                               |                               |                    
|Total acquired reserves        |                               |                     | 7,784   |         |  |      | 13,277  |        |  |   | 1,552  |       
|                              
|                              
|                              
|                              
|Incurred related to:           |                               |                     |         |         |  |      |         |        |  |   |        |       
|                               | Current year                  |                     |         | 80,296  |  |      |         | 48,477 |  |   |        | 34,908 | 
|                               | Prior years                   |                     |         | 15,062  |  |      |         | 8,226  |  |   |        | 1,235  | 
|                               |                               |                    
|Total incurred                 |                               |                     | 95,358  |         |  |      | 56,703  |        |  |   | 36,143 |       
|                               |                               |                    
|Paid related to:               |                               |                     |         |         |  |      |         |        |  |   |        |       
|                               | Current year                  |                     |         | 20,362  |  |      |         | 15,144 |  |   |        | 11,058 | 
|                               | Prior years                   |                     |         | 39,534  |  |      |         | 31,368 |  |   |        | 31,626 | 
|                               |                               |                    
|Total paid                     |                               |                     | 59,896  |         |  |      | 46,512  |        |  |   | 42,684 |       
|                               |                               |                    
|Net balance, end of year       |                               |                     | 127,500 |         |  |      | 84,254  |        |  |   | 60,786 |       
|                               | Plus reinsurance recoverables |                     |         | 101,744 |  |      |         | 64,590 |  |   |        | 38,193 | 
|                               |                               |                    
|Balance, end of year           |                               | $                   | 229,244 |         |  | $    | 148,844 |        |  | $ | 98,979 |       
|                               |                               |                    

As a result of unfavorable development in estimates of prior
accident years reserves, the provision for losses and loss
adjustment expenses increased by $15,062,000, $8,226,000, and
$1,235,000 in 1999, 1998, and 1997, respectively.

Significant periods of time often elapse between the occurrence
of an insured loss, the reporting of the loss to the Company, and
 the Companys payment of that loss. To recognize
liabilities for unpaid losses, the





---



Notes to Consolidated Financial
 Statements






---







---





The $15.0 million of adverse development in 1999 reflects
the impact of adopting a more conservative reserving philosophy
that relies on a line-of-business analysis to supplement the
program specific analysis. The majority of this development
related to programs the Company has discontinued.

The $8.2 million of adverse development in 1998 reflects the
 impact of isolated programs including professional liability for
 two distinct professions and two workers compensation
programs.

4.  REINSURANCE

The insurance company subsidiaries cede insurance to other
insurers under pro rata and excess-of-loss contracts. These
reinsurance arrangements diversify the Companys business
and minimize its losses arising from large risks or from hazards
of an unusual nature. The ceding of insurance does not discharge
the original insurer from its primary liability to its
policyholder, and 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.

The Company receives ceding commissions in conjunction with
reinsurance activities. These ceding commissions are offset
against the related underwriting expenses and were $33,235,206,
$33,288,731 and $22,168,969 in 1999, 1998, and 1997,
respectively.

The Company has a recoverable for paid and unpaid losses of
$115,795,000. The Company secures reinsurance balances due from
non-admitted reinsurers through Funds Withheld Trust or Letters
of Credit. The largest unsecured reinsurance recoverable is due
from a reinsurer with an A++ A.M. Best rating and
accounts for 17.5% of the total recoverable for paid and unpaid
losses.

Reconciliations of direct to net premiums, on both written and
earned bases, for 1999, 1998, and 1997 are as follows (in
thousands):

|        |  |         |          |        |  |         |          |        |  |         |         |        |  |   |         |   |  |   |         |   |  |   |         |  
|------- |  | ------- | -------- | ------ |  | ------- | -------- | ------ |  | ------- | ------- | ------ |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|        |  |         |          |        |  |        
|        |  | 1999    |          | 1998   |  | 1997   
|        |  |         |          |        |  |        
|        |  | Written |          | Earned |  | Written |          | Earned |  | Written |         | Earned
|        |  |        
|        |  |        
|Direct  |  | $       | 215,333  |        |  | $       | 207,552  |        |  | $       | 168,729 |        |  | $ | 160,155 |   |  | $ | 133,477 |   |  | $ | 118,980 |  
|Assumed |  |         | 15,141   |        |  |         | 29,068   |        |  |         | 17,603  |        |  |   | 16,087  |   |  |   | 13,262  |   |  |   | 14,334  |  
|Ceded   |  |         | (107,655 | )      |  |         | (111,714 | )      |  |         | (92,851 | )      |  |   | (84,157 | ) |  |   | (71,774 | ) |  |   | (64,821 | )
|        |  |        
|Net     |  | $       | 122,819  |        |  | $       | 124,906  |        |  | $       | 93,481  |        |  | $ | 92,085  |   |  | $ | 74,965  |   |  | $ | 68,493  |  
|        |  |        

One reinsurer accounts for 13.3% of ceded premiums in 1999.





---



Notes to Consolidated Financial
 Statements






---







---



5.  DEFERRED POLICY ACQUISITION
COSTS

The following reflects the amounts of policy acquisition costs
deferred and amortized (in thousands):

|                                       |  |                                  |         |      |  |      |        |   |  |   |        |  
|-------------------------------------- |  | -------------------------------- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                       |  |                                 
|                                       |  | For the Years Ended December 31:
|                                       |  |                                 
|                                       |  | 1999                             |         | 1998 |  | 1997
|                                       |  |                                 
|                                       |  |                                 
|Balance, beginning of period           |  | $                                | 8,900   |      |  | $    | 6,609  |   |  | $ | 4,265  |  
|Acquisition costs deferred             |  |                                  | 13,670  |      |  |      | 10,673 |   |  |   | 8,374  |  
|Amortized to expense during the period |  |                                  | (12,540 | )    |  |      | (8,382 | ) |  |   | (6,030 | )
|                                       |  |                                 
|Balance, end of period                 |  | $                                | 10,030  |      |  | $    | 8,900  |   |  | $ | 6,609  |  
|                                       |  |                                 

6.  INCOME TAXES

The provision for income taxes consists of the following
(in thousands):

|                                 |  |                                  |        |      |  |      |       |   |  |   |       | 
|-------------------------------- |  | -------------------------------- | ------ | ---- |  | ---- | ----- | - |  | - | ----- | 
|                                 |  |                                 
|                                 |  | For the Years Ended December 31:
|                                 |  |                                 
|                                 |  | 1999                             |        | 1998 |  | 1997
|                                 |  |                                 
|                                 |  |                                 
|Current tax (benefit) expense    |  | $                                | (364   | )    |  | $    | 1,227 |   |  | $ | 2,114 | 
|Deferred tax (benefit) expense   |  |                                  | (5,845 | )    |  |      | (452  | ) |  |   | 2,229 | 
|                                 |  |                                 
|Total provision for income taxes |  | $                                | (6,209 | )    |  | $    | 775   |   |  | $ | 4,343 | 
|                                 |  |                                 

A reconciliation of the Companys tax provision on income
from operations to the U.S. federal income tax rate of 34%
in 1999, 1998, and 1997 is as follows (in thousands):

|                                     |                     |                                 |        |        |   |      |       |        |   |   |       |        |  
|------------------------------------ | ------------------- | ------------------------------- | ------ | ------ | - | ---- | ----- | ------ | - | - | ----- | ------ | -
|                                     |                     |                                
|                                     |                     | For the Years Ended December 31
|                                     |                     |                                
|                                     |                     | 1999                            |        | 1998   |   | 1997
|                                     |                     |                                
|                                     |                     |                                
|Tax provision at statutory rate      |                     | $                               | (4,779 | )      |   | $    | 2,259 |        |   | $ | 5,911 |       
|                                    
|                                    
|                                    
|                                    
|Tax effect of:                       |                     |                                 |        |        |   |      |       |        |   |   |       |       
|                                     | Tax exempt interest |                                 |        | (2,104 | ) |      |       | (1,814 | ) |   |       | (1,658 | )
|                                     | Other, net          |                                 |        | 674    |   |      |       | 330    |   |   |       | 90     |  
|                                     |                     |                                
|Federal income tax (benefit) expense |                     | $                               | (6,209 | )      |   | $    | 775   |        |   | $ | 4,343 |       
|                                     |                     |                                
|Effective tax rate                   |                     |                                 | 44.2%  |        |   |      | 11.7% |        |   |   | 25.0% |       
|                                     |                     |                                

Deferred federal income taxes, under SFAS No. 109, reflect
the estimated future tax effect of temporary differences between
the bases of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws and
regulations.





---



Notes to Consolidated Financial
 Statements






---







---



The components of deferred tax assets and liabilities as of
December 31, 1999 and 1998 are as follows
(in thousands):

|                                           |                         |          |       |             |  |          |       |             |  |   |       |       |  |   |       |       | 
|------------------------------------------ | ----------------------- | -------- | ----- | ----------- |  | -------- | ----- | ----------- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                                           |                         |          |       |            
|                                           |                         | 1999     |       | 1998       
|                                           |                         |          |       |            
|                                           |                         | Deferred |       | Deferred    |  | Deferred |       | Deferred   
|                                           |                         | Tax      |       | Tax         |  | Tax      |       | Tax        
|                                           |                         | Assets   |       | Liabilities |  | Assets   |       | Liabilities
|                                           |                         |          |       |            
|                                           |                         |          |       |            
|Unpaid losses and loss adjustment expenses |                         | $        | 7,349 |             |  | $        |      |             |  | $ | 5,532 |       |  | $ |      |      
|Unearned premium reserves                  |                         |          | 3,001 |             |  |          |      |             |  |   | 2,628 |       |  |   |      |      
|Unrealized gains on investments            |                         |          | 1,359 |             |  |          |      |             |  |   |      |       |  |   | 1,921 |      
|Deferred policy acquisition expense        |                         |          |      |             |  |          | 3,369 |             |  |   |      |       |  |   | 3,001 |      
|Deferred compensation                      |                         |          | 377   |             |  |          |      |             |  |   | 422   |       |  |   |      |      
|Deferred fee recognition                   |                         |          | 204   |             |  |          |      |             |  |   | 406   |       |  |   |      |      
|Alternate minimum tax credit               |                         |          | 2,149 |             |  |          |      |             |  |   | 578   |       |  |   |      |      
|Net operating loss carryforward            |                         |          | 2,344 |             |  |          |      |             |  |   |      |       |  |   |      |      
|Other                                      |                         |          | 2,059 |             |  |          | 744   |             |  |   | 303   |       |  |   | 803   |      
|                                           |                         |          |       |            
|                                           | Total deferred taxes    |          |       | 18,842      |  |          |       | 4,113       |  |   |       | 9,869 |  |   |       | 5,725 | 
|                                           |                         |          |       |            
|                                           | Net deferred tax assets |          | $     | 14,729      |  |          |       |             |  |   | $     | 4,144 |  |   |       |       | 
|                                           |                         |          |       |             |  |          |       |             |  |   |       |       |  |   |       |      

Realization of the deferred tax asset is dependent on generating
sufficient taxable income prior to expiration of any net
operating loss carryforwards (NOLs). Although realization is not
assured, management believes it is more likely than not that the
recorded deferred tax asset will be realized. The NOLs expire in
2019.

7.  LINES OF CREDIT

At December 31, 1999 and 1998, the Company had one unsecured
 bank line of credit which permits borrowings up to $60,000,000
and $50,000,000, respectively, and expires on and is payable by
August 1, 2002. This line bears interest at the prime rate
(prime was 8.5% at December 31, 1999 and 7.75% at
December 31, 1998). The Company also has the option to elect
 a eurodollar based rate in place of prime. At December 31,
1999 and 1998, $55,644,456 and $38,082,357, respectively, was
outstanding under this line.

The Companys unsecured bank line of credit contains various
 covenants, which, among other things, require the maintenance of
 certain financial ratios related to fixed charge coverage,
minimum levels of net worth and debt to capital. At
December 31, 1999, the Company fell below the minimum level
of required net worth and the fixed charge coverage. The Company
has reached an agreement with the bank group to waive these
covenants. The Company has also reached agreement to amend the
line of credit to reflect the current operating environment.

In addition, a non-insurance subsidiary had a line of credit with
 a bank, which permits borrowings up to 80% of the accounts
receivable which collateralize the line. The line will expire
March 31, 2000 and is automatically renewable each year.
This line bears interest at 1% under the prime rate (prime was
8.5% at December 31, 1999 and 7.75% at December 31,
1998). At December 31, 1999 and 1998, $2,818,579 and
$2,869,969, respectively, was outstanding under this line.

8.  SHAREHOLDERS EQUITY

A significant portion of the Companys consolidated assets
represents assets of the Companys insurance subsidiaries
that may not be transferable to the holding company in the form
of dividends, loans or advances. The restriction on the
transferability to the holding company from its insurance
subsidiaries is





---



Notes to Consolidated Financial
 Statements






---







---





Summarized 1999 and 1998 statutory basis information for the
primary insurance subsidiaries, which differs from generally
accepted accounting principles, follows (in thousands):

|                                      |  |      |         |        |  |              |        |            |  |      |        |        |  |              |       |            |  |   |        |   |  |   |        |  |  |   |        |  |  |   |       | 
|------------------------------------- |  | ---- | ------- | ------ |  | ------------ | ------ | ---------- |  | ---- | ------ | ------ |  | ------------ | ----- | ---------- |  | - | ------ | - |  | - | ------ |  |  | - | ------ |  |  | - | ----- | 
|                                      |  |      |         |       
|                                      |  | 1999 |         | 1998  
|                                      |  |      |         |       
|                                      |  | Star |         | Savers |  | Williamsburg |        | Ameritrust |  | Star |        | Savers |  | Williamsburg |       | Ameritrust
|                                      |  |     
|                                      |  |     
|Statutory capital and surplus         |  | $    | 70,158  |        |  | $            | 28,503 |            |  | $    | 11,532 |        |  | $            | 8,494 |            |  | $ | 68,691 |   |  | $ | 26,175 |  |  | $ | 10,880 |  |  | $ | 9,984 | 
|Minimum statutory capital and surplus |  |      | 5,000   |        |  |              | 20,000 |            |  |      | 2,600  |        |  |              | 5,000 |            |  |   | 5,000  |   |  |   | 20,000 |  |  |   | 2,600  |  |  |   | 5,000 | 
|Statutory net (loss) income           |  |      | (11,017 | )      |  |              | 2,499  |            |  |      | 682    |        |  |              | 2,958 |            |  |   | (2,492 | ) |  |   | 3,173  |  |  |   | 2,008  |  |  |   | 4,148 | 
|Net investment income                 |  |      | 8,039   |        |  |              | 3,027  |            |  |      | 499    |        |  |              | 1,416 |            |  |   | 4,366  |   |  |   | 2,986  |  |  |   | 514    |  |  |   | 533   | 

The net investment income and statutory net income in 1997 for
Star were $6,760,010 and $8,274,148, respectively, and for Savers
 were $2,978,421 and $4,175,272 respectively.

The net investment income and statutory net income in 1997 since
the date of acquisition July 1, 1997 for Williamsburg were
$257,914 and $400,884, respectively.

The statutory capital and surplus, at December 31, 1998 and
net investment income and statutory net income since the date of
acquisition July 31, 1998 for Ameritrust were $9,984,045,
$533,276 and $4,148,418, respectively.

In March 1998, NAIC voted to adopt its Codification of Statutory
Accounting Principles project (referred to hereafter as
codification). Codification is a modified form of
statutory accounting principles that will result in change to the
 current NAIC Accounting Practices and Procedures Manual
applicable to insurance enterprises. Although adoption of
codification by all states is not a certainty, the NAIC has
recommended that all states enact codification as soon as
practicable with an effective date of January 1, 2001. It is
 currently anticipated that codification will become a NAIC State
 accreditation requirement starting in 2002. In addition, the
American Institute of Certified Public Accountants and the NAIC
has agreed to continue to allow the use of certain permitted
accounting practices when codification becomes effective in 2001.
 Any accounting differences from codification principles,
however, must be disclosed and quantified in the footnotes to the
 audited financial statements. Therefore, codification will
likely result in changes to what are currently considered
prescribed statutory insurance accounting practices.

The Company has a subsidiary that issues redeemable non-voting
preferred shares to third parties. Redemption of the preferred
share may occur on January 1 of each year upon the request by the
 shareholder. The redemption amount varies based upon the
subsidiarys performance. At December 31, 1999 and
1998, $1,136,000 and $741,000, respectively, of preferred shares
were included in other





---



Notes to Consolidated Financial
 Statements






---







---





9.  STOCK OPTIONS

The Company, through its 1995 Stock Option Plan (the
Plan), may grant options to key executives and other
management of the Company and its subsidiaries of up to 2,000,000
 shares of the Companys common stock. The Plan is
administered by the Compensation Committee (the
Committee) appointed by the Board of Directors.
Option shares may be exercised subject to the terms of the Plan
and the terms prescribed by the Committee at the time of grant.
Currently, the Plans options have either five or ten year
terms and are exercisable/vest in equal increments over the
option term.

The Company measures compensation expense under APB No. 25
and has adopted the disclosure requirements of SFAS No. 123.
 If compensation cost for stock option grants had been determined
 based on a fair value method, net income (loss) and
earnings per share on a pro forma basis for 1999, 1998 and 1997
would be as follows (in thousands):

|                                               |                               |      |         |       |   |      |       |      |  |   |        |      | 
|---------------------------------------------- | ----------------------------- | ---- | ------- | ----- | - | ---- | ----- | ---- |  | - | ------ | ---- | 
|                                               |                               | 1999 |         | 1998  |   | 1997
|                                               |                               |     
|                                               |                               |     
|Reported net (loss)income                      |                               | $    | (9,553  | )     |   | $    | 5,870 |      |  | $ | 13,043 |     
|Pro forma net (loss)income, using SFAS No. 123 |                               | $    | (10,041 | )     |   | $    | 5,529 |      |  | $ | 12,785 |     
|                                              
|                                              
|                                              
|                                              
|Earnings per share, diluted:                   |                               |      |         |       |   |      |       |      |  |   |        |     
|                                               | Reported                      |      | $       | (1.11 | ) |      | $     | 0.65 |  |   | $      | 1.42 | 
|                                               | Pro forma, using SFAS No. 123 |      | $       | (1.17 | ) |      | $     | 0.61 |  |   | $      | 1.39 | 

The Black-Scholes valuation model utilized the following
annualized assumptions for all applicable years: Risk-free
interest rate of 4.75%, 5.25% and 6.25% for 1999, 1998 and 1997,
respectively. The dividend yield was $0.12 per share in 1999 and
1998. The dividend yield was $0.08 per share in 1997. The
volatility factor for the expected market price of the
Companys common stock of 0.337, 0.323 and 0.243 in 1999,
1998 and 1997, respectively. The weighted-average expected life
of options for the 1999, 1998 and 1997 grants is 7.5.

The following is a summary of the Companys stock option
activity and related information for the years ended
December 31:

|                                                               |  |         |           |           |  |         |       |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 
|-------------------------------------------------------------- |  | ------- | --------- | --------- |  | ------- | ----- | --------- |  | ------- | --------- | --------- |  | - | ----- |  |  | - | --------- | - |  | - | ----- | 
|                                                               |  |         |           |           |  |        
|                                                               |  | 1999    |           | 1998      |  | 1997   
|                                                               |  |         |           |           |  |        
|                                                               |  |         |           | Weighted- |  |         |       | Weighted- |  |         |           | Weighted-
|                                                               |  |         |           | Average   |  |         |       | Average   |  |         |           | Average  
|                                                               |  |         |           | Exercise  |  |         |       | Exercise  |  |         |           | Exercise 
|                                                               |  | Options |           | Price     |  | Options |       | Price     |  | Options |           | Price    
|                                                               |  |        
|                                                               |  |        
|Outstanding  beginning of year                                |  |         | 1,036,280 |           |  | $       | 16.38 |           |  |         | 1,020,144 |           |  | $ | 13.04 |  |  |   | 953,799   |   |  | $ | 11.78 | 
|Exchange of existing options                                   |  |         |          |           |  |         |      |           |  |         |          |           |  |   |      |  |  |   |          |   |  |   |      | 
|Granted                                                        |  |         | 297,700   |           |  |         | 15.74 |           |  |         | 203,800   |           |  |   | 24.69 |  |  |   | 101,754   |   |  |   | 22.71 | 
|Exercised                                                      |  |         | (13,945   | )         |  |         | 5.15  |           |  |         | (168,833  | )         |  |   | 5.68  |  |  |   | (35,409   | ) |  |   | 6.82  | 
|Forfeited                                                      |  |         | (32,621   | )         |  |         | 21.74 |           |  |         | (18,831   | )         |  |   | 24.70 |  |  |   |          |   |  |   |       | 
|                                                               |  |        
|Outstanding  end of year                                      |  |         | 1,287,414 |           |  | $       | 16.22 |           |  |         | 1,036,280 |           |  | $ | 16.38 |  |  |   | 1,020,144 |   |  | $ | 13.04 | 
|                                                               |  |        
|Exercisable at end of year                                     |  |         | 550,705   |           |  | $       | 15.62 |           |  |         | 396,956   |           |  | $ | 14.68 |  |  |   | 442,829   |   |  | $ | 10.65 | 
|Weighted-average fair value of options granted during the year |  | $       | 6.06      |           |  |         |      |           |  | $       | 9.77      |           |  |   |      |  |  | $ | 7.30      |   |  |   |      | 





---



Notes to Consolidated Financial
 Statements






---







---



The following table summarizes information about stock options
outstanding at December 31, 1999:

|                 |  |                     |           |                     |  |           |     |         |  |           |       |  |  |  |         |  |  |   |       | 
|---------------- |  | ------------------- | --------- | ------------------- |  | --------- | --- | ------- |  | --------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                 |  |                     |           |                    
|                 |  | Options Outstanding |           | Options Exercisable
|                 |  |                     |           |                    
|                 |  |                     |           | Weighted-           |  | Weighted- |     |         |  | Weighted-
|                 |  |                     |           | Average             |  | Average   |     |         |  | Average  
|Range of         |  |                     |           | Remaining           |  | Exercise  |     |         |  | Exercise 
|Exercise Prices  |  | Options             |           | Life (Years)        |  | Price     |     | Options |  | Price    
|                
|                
|$5.10 to $8.11   |  |                     | 339,854   |                     |  |           | 3.9 |         |  | $         | 6.79  |  |  |  | 179,427 |  |  | $ | 6.56  | 
|$10.25 to $16.26 |  |                     | 416,601   |                     |  |           | 8.7 |         |  |           | 14.34 |  |  |  | 109,603 |  |  |   | 12.76 | 
|$21.00 to $30.45 |  |                     | 530,959   |                     |  |           | 7.4 |         |  |           | 23.72 |  |  |  | 261,648 |  |  |   | 23.04 | 
|                 |  |                    
|                 |  |                     | 1,287,414 |                     |  |           | 7.6 |         |  | $         | 16.22 |  |  |  | 550,705 |  |  | $ | 15.62 | 
|                 |  |                    

No compensation cost has been recorded for stock option grants
issued during 1999, 1998 and 1997, as the market value equaled
the exercise price at the date of grant.

10.  ACQUISITIONS

The Company has completed several acquisitions, all of which have
 been accounted for as a purchase.

On August 6, 1999, the Company acquired the assets of TPA
Associates, Inc., all the outstanding stock of TPA Insurance
Agency, Inc. and Preferred Insurance Agency, Inc. and
approximately 94% of the outstanding stock of Preferred Insurance
 Company, Ltd., (collectively, TPA) at a purchase
price of $16.2 million. This acquisition is not expected to have
a material impact on the Companys financial position or
results of operations. This transaction resulted in goodwill of
$12.9 million.

On April 30, 1998, the Company acquired the business of
Villari & Associates, Inc. (Villari), at a
purchase price of $5.6 million comprised of $4.5 million in
cash and 33,433 shares of common stock, resulting in goodwill of
$5.6 million. Villari is a Florida-based insurance agency
which offers professional liability products and programs, group
health and disability, and property and casualty products.

On July 31, 1998, the Company acquired Florida Preferred
Administrators, Inc. (Florida Preferred) and
Ameritrust Insurance Corporation (Ameritrust), at a
purchase price of $12.3 million, resulting in goodwill of
$7.0 million. Florida Preferred, a Florida based third party
administrator, provides a broad range of risk management services
 to purchasers of workers compensation insurance from
Ameritrust as well as other insurance carriers.

On July 1, 1997, the Company acquired Crest Financial
Corporation (Crest), at a purchase price of
$9.4 million, resulting in $3.2 million of goodwill.
Crest is a California based holding company, which formerly owned
 Williamsburg National Insurance Company
(Williamsburg), an insurance carrier, and Crest
Financial Services, a risk management service company. Crest
provides these services primarily to the trucking industry within
 California. Effective December 31, 1999, the Company
reorganized its holding structure which resulted in Crest
assigning Williamsburg to Star.





---



Notes to Consolidated Financial
 Statements






---







---



The following pro forma financial information reflects the 1999,
1998 and 1997 acquisitions as if they had been completed as of
the beginning of the previous year (unaudited).

|                                                                            |  |                                      |         |      |  |      |         |  |  |   |         | 
|--------------------------------------------------------------------------- |  | ------------------------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                                            |  |                                     
|                                                                            |  | For Years Ended December 31,        
|                                                                            |  |                                     
|                                                                            |  | 1999                                 |         | 1998 |  | 1997
|                                                                            |  |                                     
|                                                                            |  |                                     
|                                                                            |  |                                     
|                                                                            |  | (in thousands except per share data)
|Revenues                                                                    |  | $                                    | 183,099 |      |  | $    | 163,543 |  |  | $ | 125,700 | 
|Net (loss) income before cumulative effect of accounting change             |  |                                      | (7,836  | )    |  |      | 6,824   |  |  |   | 13,492  | 
|Earnings per share before cumulative effect of accounting change,
	 diluted |  | $                                    | (0.91   | )    |  | $    | 0.76    |  |  | $ | 1.47    | 

Certain of these acquisitions is subject to contingent earn-out
provisions based upon achieving certain performance measures. To
date, the Company has not been required to make any significant
payments under these agreements. At December 31, 1999, the
Company anticipates that approximately $4.0 million may be
required to be paid under these agreements in 2000.

11.  EMPLOYEE BENEFIT PLANS

Company employees over the age of 21 who have completed
12 months of service and worked at least 1,000 hours during
those 12 months are eligible for participation in
Meadowbrooks 401(k) Profit Sharing Plan (the
Plan). The Plan provides for discretionary matching
contributions and/or profit sharing contributions at the
discretion of the Board of Directors. In 1999, 1998 and 1997, the
 matching contributions were $421,278, $381,532 and $357,542,
respectively. There were no profit sharing contributions in 1999,
 1998 and 1997.

12.  COMMITMENTS AND CONTINGENCIES

The Company has certain operating lease agreements for its
offices and equipment. At December 31, 1999, future minimum
rental payments required under non-cancelable long-term operating
 leases are as follows (in thousands):

|           |                                 |   |       |        | 
|---------- | ------------------------------- | - | ----- | ------ | 
|2000       |                                 | $ | 3,399 |       
|2001       |                                 |   | 2,620 |       
|2002       |                                 |   | 2,003 |       
|2003       |                                 |   | 1,701 |       
|2004       |                                 |   | 1,145 |       
|Thereafter |                                 |   |      |       
|           |                                 |   |       |       
|           | Total minimum lease commitments |   | $     | 10,868 | 
|           |                                 |   |       |       

Rent expense for the year ended December 31, 1999, 1998, and
 1997 amounted to $2,851,954, $2,536,713, and $1,972,044,
respectively.

On June 26, 1995, two shareholders and an officer of a
former agent (the Primary Plaintiffs) of Star, and a
former spouse of one shareholder and an employee of the former
agent (the Individual Plaintiffs) initiated legal
proceedings against, among others, Star and Meadowbrook in the
District Court for Washoe County, Reno, Nevada. All of the
plaintiffs requested injunctive relief, compensatory damages,
punitive and exemplary damages, and attorneys fees in an
unspecified amount. The Nevada Insurance Department revoked the
license of one of the Primary Plaintiffs and one of the
Individual Plaintiffs and denied further licensing of the other
Primary Plaintiffs.

Meadowbrook and Star vigorously defended themselves and filed
counterclaims against the Primary and Individual Plaintiffs. On
April 1, 1998, the Court issued an Order dismissing all
claims of the Primary Plaintiffs with prejudice.





---



Notes to Consolidated Financial
 Statements






---







---



On January 12, 1999, the remaining claims of the Individual
Plaintiffs and the counterclaims of Meadowbrook and Star against
the Primary and Individual Plaintiffs were tried. On
February 2, 1999, the jury returned a verdict in favor of
Meadowbrook and Star against the Primary and Individual
Plaintiffs. In addition, the jury found against the Individual
Plaintiffs and in favor of Meadowbrook and Star on their
remaining claims. On April 21, 1999, the Court found in
favor of Meadowbrook and Star and against the Primary and
Individual Plaintiffs on all outstanding claims for equitable
relief. It is not expected that the outcome of this litigation
will have a material impact on the financial statements of the
Company.

A Final Judgment has been entered with the Court. All plaintiffs
have filed an appeal with the Nevada Supreme Court.

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

13.  LETTERS OF CREDIT

As of December 31, 1999, a standby letter of credit of
$10,015,000 had been issued by a bank to an insurance subsidiary
of the Company, under an agreement expiring June 30, 2000,
with extensions granted on a yearly basis. This letter of credit
is being utilized as security for a surety bond filed with one
state. This bond was filed as a requirement for writing workers
compensation business in that state. The letter of credit is
collateralized by specifically identified marketable securities
of the subsidiary, with a total fair market value of 110% of the
$10,015,000 letter of credit.

As of December 31, 1999, a standby letter of credit of
$6,385,000 had been issued by a bank to an insurance subsidiary
of the Company, under an agreement expiring June 30, 2000,
with extensions granted on a yearly basis. This letter of credit
is being utilized as security for a surety bond filed with one
state. This bond was filed as a requirement for writing workers
compensation business in that state. The letter of credit is
collateralized by specifically identified marketable securities
of the subsidiary, with a total fair market value of 110% of the
$6,385,000 letter of credit.

In addition, one subsidiary had a standby letter of credit of
$10,700,000 issued by a bank, under an agreement expiring
October 31, 2000, with extensions granted on a yearly basis.
 This letter of credit is being utilized as security for the
insurance subsidiarys obligations under a reinsurance
agreement. This letter of credit is collateralized by
specifically identified treasury bills of the subsidiary, with a
total fair market value of 110% of the $10,700,000 letter of
credit.

14.  RELATED PARTY TRANSACTIONS:

At December 31, 1999 and 1998, respectively, the Company
held a $720,462 and $661,000 note receivable, including $59,462
of accrued interest at December 31, 1999, from an
officer/director. There was no accrued interest at
December 31, 1998. This note arose from a transaction in
late 1998 whereby the Company loaned the officer/director funds
to exercise 64,718 common stock options to cover the exercise
price and associated tax withholdings. The note provided for
interest at the Companys borrowing rate which was 8.5% and
7.75% at December 31, 1999 and 1998, respectively. The note
is due on demand on or after January 1, 2002. The loan is
collateralized by 64,718 shares of the Companys common
stock, pursuant to a stock pledge agreement.

15.  SEGMENT INFORMATION:

The Company defines its operations as agency operations and
program business operations based upon differences in products
and services. The separate financial information of these
segments is consistent with





---



Notes to Consolidated Financial
 Statements






---







---





Agency Operations

The agency segment was formed in 1955 as Meadowbrooks
original business. The insurance agency primarily places
commercial insurance, as well as personal property, casualty,
life and accident and health insurance, with more than 50
insurance carriers from which it earns commission income. The
agency has grown to be one of the largest agencies in Michigan
and, with recent acquisitions, expanded into Florida and
California.

Program Business

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

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

|               |                                    |                     |   |         |   |      |   |         |   |  |   |         |  
|-------------- | ---------------------------------- | ------------------- | - | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|               |                                    |                    
|               |                                    | For the Years Ended
|               |                                    | December 31,       
|               |                                    |                    
|               |                                    | 1999                |   | 1998    |   | 1997
|               |                                    |                    
|               |                                    |                    
|Revenues       |                                    |                     |   |         |   |      |   |         |   |  |   |        
|               | Net earned premiums                |                     | $ | 124,906 |   |      | $ | 92,085  |   |  | $ | 68,493  |  
|               | Management fees                    |                     |   | 22,878  |   |      |   | 18,121  |   |  |   | 15,786  |  
|               | Investment income                  |                     |   | 11,319  |   |      |   | 9,620   |   |  |   | 8,248   |  
|               |                                    |                    
|               | Program business                   |                     |   | 159,103 |   |      |   | 119,826 |   |  |   | 92,527  |  
|               | Agency operations                  |                     |   | 16,391  |   |      |   | 14,713  |   |  |   | 10,666  |  
|               | Reconciling items                  |                     |   | 72      |   |      |   | 11      |   |  |   | 24      |  
|               | Intersegment revenue               |                     |   | (572    | ) |      |   | (436    | ) |  |   | (2,092  | )
|               |                                    |                    
|               | Consolidated revenue               |                     |   | 174,994 |   |      |   | 134,114 |   |  |   | 101,125 |  
|               |                                    |                    
|Pre-tax income |                                    |                     |   |         |   |      |   |         |   |  |   |        
|               | Program business                   |                     |   | (11,891 | ) |      |   | 7,520   |   |  |   | 16,778  |  
|               | Agency operations                  |                     |   | 3,639   |   |      |   | 2,757   |   |  |   | 2,166   |  
|               | Reconciling items                  |                     |   | (5,804  | ) |      |   | (3,632  | ) |  |   | (1,558  | )
|               |                                    |                    
|               | Consolidated pre-tax (loss) income |                     |   | (14,056 | ) |      |   | 6,645   |   |  |   | 17,386  |  
|               |                                    |                    

The pre-tax income reconciling items represent other expenses
relating to the holding company, amortization and interest
expense, which are not allocated among the segments.





---



Notes to Consolidated Financial
 Statements






---







---



16.  QUARTERLY FINANCIAL DATA
(Unaudited)

The following is a summary of unaudited quarterly results of
operations for 1999 and 1998 (in thousands, except per share and
ratio data):

|                                                |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|----------------------------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ | - |  | - | ------ | -
|                                                |  | 1st     |        | 2nd     |  | 3rd     |        | 4th    
|                                                |  | Quarter |        | Quarter |  | Quarter |        | Quarter
|                                                |  |        
|                                                |  |        
|1999:                                           |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|Gross written premium                           |  | $       | 58,761 |         |  | $       | 54,548 |         |  | $ | 55,197 |   |  | $ | 61,968 |  
|Net written premium                             |  |         | 31,324 |         |  |         | 28,818 |         |  |   | 30,699 |   |  |   | 31,978 |  
|Net earned premium                              |  |         | 26,159 |         |  |         | 29,782 |         |  |   | 32,541 |   |  |   | 36,424 |  
|Net commissions and fees                        |  |         | 9,048  |         |  |         | 9,148  |         |  |   | 9,307  |   |  |   | 11,194 |  
|Net investment income and realized gains/losses |  |         | 2,709  |         |  |         | 2,768  |         |  |   | 2,863  |   |  |   | 3,051  |  
|Net losses and LAE incurred                     |  |         | 20,791 |         |  |         | 20,912 |         |  |   | 23,984 |   |  |   | 29,671 |  
|Policy acquisition and other expenses           |  |         | 9,167  |         |  |         | 8,402  |         |  |   | 13,797 |   |  |   | 16,217 |  
|Interest on notes payable                       |  |         | 840    |         |  |         | 621    |         |  |   | 1,037  |   |  |   | 1,138  |  
|Net (loss) income before cumulative effect      |  |         | (1,438 | )       |  |         | 1,632  |         |  |   | (3,856 | ) |  |   | (4,185 | )
|Net (loss) income                               |  |         | (3,144 | )       |  |         | 1,632  |         |  |   | (3,856 | ) |  |   | (4,185 | )
|Earnings per share before cumulative effect     |  | $       | (0.16  | )       |  | $       | 0.19   |         |  | $ | (0.45  | ) |  | $ | (0.49  | )
|Earnings per share                              |  | $       | (0.35  | )       |  | $       | 0.19   |         |  | $ | (0.45  | ) |  | $ | (0.49  | )
|Dividends declared per share                    |  | $       | 0.03   |         |  | $       | 0.03   |         |  | $ | 0.03   |   |  | $ | 0.03   |  
|GAAP combined ratio                             |  |         | 116.1% |         |  |         | 100.6% |         |  |   | 115.5% |   |  |   | 120.4% |  
|                                               
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|1998:                                           |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|Gross written premium                           |  | $       | 41,883 |         |  | $       | 51,072 |         |  | $ | 42,528 |   |  | $ | 50,849 |  
|Net written premium                             |  |         | 21,144 |         |  |         | 20,790 |         |  |   | 22,690 |   |  |   | 28,857 |  
|Net earned premium                              |  |         | 19,063 |         |  |         | 20,950 |         |  |   | 23,785 |   |  |   | 28,287 |  
|Net commissions and fees                        |  |         | 7,758  |         |  |         | 8,521  |         |  |   | 7,460  |   |  |   | 8,659  |  
|Net investment income and realized gains/losses |  |         | 2,115  |         |  |         | 2,370  |         |  |   | 2,531  |   |  |   | 2,615  |  
|Net losses and LAE incurred                     |  |         | 10,367 |         |  |         | 11,133 |         |  |   | 19,574 |   |  |   | 15,629 |  
|Policy acquisition and other expenses           |  |         | 6,258  |         |  |         | 6,723  |         |  |   | 10,306 |   |  |   | 10,623 |  
|Net income (loss)                               |  |         | 3,284  |         |  |         | 3,862  |         |  |   | (3,566 | ) |  |   | 2,290  |  
|Earnings per share                              |  | $       | 0.36   |         |  | $       | 0.42   |         |  | $ | (0.39  | ) |  | $ | 0.26   |  
|Dividends declared per share                    |  | $       | 0.02   |         |  | $       | 0.02   |         |  | $ | 0.03   |   |  | $ | 0.03   |  
|GAAP combined ratio                             |  |         | 91.7%  |         |  |         | 90.0%  |         |  |   | 120.4% |   |  |   | 90.0%  |