##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31, 2005                                                 
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-14094





Meadowbrook Insurance Group, Inc.


(Exact name of Registrant as specified in its charter)


|                                         |  |                                  
|---------------------------------------- |  | ---------------------------------
|Michigan                                 |  | 38-2626206                       
|(State of Incorporation)                 |  | (IRS Employer Identification No.)
|                                        
|26255 American Drive, Southfield, MI     |  | 48034-6112                       
|(Address of principal executive offices) |  | (Zip Code)                       

Registrants telephone number, including area code:
(248) 358-1100


Securities registered pursuant to Section 12(b) of the
Act:


|                                       |  |                                     
|-------------------------------------- |  | ------------------------------------
|Title of Each Class                    |  | Name of Exchange on Which Registered
|                                       |  |                                     
|Common Stock, $.01 par value per share |  | New York Stock Exchange             

Securities registered pursuant to Section 12(g) of the
Act: None


o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2


| |                                                                                                | 
| | ---------------------------------------------------------------------------------------------- | 
| | Large accelerated
    filer      o     Accelerated
    filer þ     Non-accelerated
    filer o | 

12b-2 o þ




Documents Incorporated by Reference












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##### 



MEADOWBROOK INSURANCE GROUP, INC.




PART I




|        |         
|------- | --------
|Item 1. | Business

The Company






Significant Acquisitions




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | November 1, 2005, we acquired the business of Insurance
    & Benefit Consultants (IBC) of Sarasota,
    Florida. IBC is a retail agency specializing in group and
    individual health insurance products and personal financial
    planning services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | September 16, 2005, Meadowbrook Capital Trust II
    (Trust II), a Delaware trust, was formed and in turn
    issued $20.0 million of mandatorily redeemable trust
    preferred securities to a trust formed by an institutional
    investor. Pursuant to Financial Accounting Standards Board
    Interpretation Number (FIN) 46(R), we do not
    consolidate the Trust II as it is not a variable interest entity
    and we are not the primary beneficiary. The consolidated
    financial statements, however, include the equity earnings of
    the Trust II.                                                                                                                                                                                                                                    
|
| |  | Effective January 1, 2004, our rent-a-captive subsidiary,
    American Indemnity, which was acquired in 1994, was
    deconsolidated due to the adoption of FIN 46(R). In accordance
    with FIN 46(R), we performed an evaluation of our business
    relationships and determined American Indemnity did not satisfy
    the tests for consolidation. Although we and our subsidiary Star
    are the common shareholders, we are not the primary
    beneficiaries of American Indemnity. The preferred shareholders
    of American Indemnity bear the risk of loss, and therefore are
    the primary beneficiaries. The consolidated financial
    statements, however, include the equity earnings of American
    Indemnity. The deconsolidation did not have a material impact on
    our financials.
|
| |  | In September 2003, Meadowbrook Capital Trust I (Trust
    I), a Delaware trust, was formed and in turn issued
    $10.0 million of mandatorily redeemable trust preferred
    securities to a trust formed by an institutional investor.
    Pursuant to FIN 46(R), we do not consolidate the Trust I as it
    is not a variable interest entity and we are not the primary
    beneficiary. The consolidated financial statements, however,
    include the equity earnings of the Trust I.                                                                                                                                                                                                                                                                                                                
|
| |  | In August 1999, we acquired the assets of TPA Associates, Inc.,
    all the outstanding stock of TPA Insurance Agency, Inc., and
    Preferred Insurance Agency, Inc., and approximately ninety-four
    percent of the outstanding stock of Preferred Insurance Company,
    Ltd. (PICL) (collectively, TPA). TPA is
    a program-oriented risk management company that provides risk
    management services to self-insured clients, manages alternative
    risk management programs, and performs underwriting, policy
    issuance and loss control services for an unaffiliated insurance
    company. In January 2002, we purchased the remaining six percent
    minority interest of PICL for $288,000.                                                                                         

2



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##### 



MEADOWBROOK INSURANCE GROUP, INC.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In July 1998, we acquired Florida Preferred Administrators, Inc.
    (Florida Preferred), a third party administrator,
    and Southeastern Holding Corporation, a holding company for
    Ameritrust Insurance Corporation (Ameritrust), both
    of which are domiciled in Sarasota, Florida. In December 2002,
    Southeastern Holding Corporation was dissolved and Ameritrust
    became a wholly owned subsidiary of Star. Florida Preferred
    provides a broad range of risk management services for
    Ameritrust.
|
| |  | In July 1997, we acquired Crest Financial Corporation
    (Crest), a California-based holding company, which
    formerly owned Williamsburg National Insurance Company
    (Williamsburg). Crest provides risk management
    services primarily to Williamsburg. On December 31, 1999,
    Williamsburg became a wholly owned subsidiary of Star.                                                                                                                                                                           
|
| |  | In November 1996, we acquired Association Self Insurance
    Services, Inc. (ASI) of Montgomery, Alabama, which
    is a full service risk management operation focused on insurance
    pools and trust funds whose services include claims
    administration and handling, loss control and prevention,
    managed care, and policy issuance. ASIs operations were
    consolidated with Meadowbrooks existing operations in
    Montgomery, Alabama.                                                                     
|
| |  | In July 1990, we acquired Savers Property and Casualty Insurance
    Company (Savers).                                                                                                                                                                                                                                                                                                                                                                                                                                          

Employees


Insurance Operations


Overview










3



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts






| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | program and product design;                                                                                                                                                        
|
| |  | underwriting, risk selection, and policy issuance;                                                                                                                                 
|
| |  | sales, marketing, and public relations to members of groups;                                                                                                                       
|
| |  | administration of risk-bearing entities, such as mutual
    insurance companies, captives, rent-a-captives, public entity
    pools, and risk retention and risk purchasing groups;
|
| |  | claims handling and administration;                                                                                                                                                
|
| |  | loss prevention and control;                                                                                                                                                       
|
| |  | reinsurance placement;                                                                                                                                                             
|
| |  | risk analysis and identification;                                                                                                                                                  
|
| |  | actuarial and loss reserve analysis;                                                                                                                                               
|
| |  | information technology and processing;                                                                                                                                             
|
| |  | feasibility studies;                                                                                                                                                               
|
| |  | litigation management;                                                                                                                                                             
|
| |  | accounting and financial statement preparation;                                                                                                                                    
|
| |  | regulatory compliance; and                                                                                                                                                         
|
| |  | audit support.                                                                                                                                                                     



Company Segments




| |                  
| | -----------------
| | Agency Operations





4



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##### 



MEADOWBROOK INSURANCE GROUP, INC.




| |                                     
| | ------------------------------------
| | Specialty Risk Management Operations







| |   |                          
| | - | -------------------------
| |  | Workers Compensation    
|
| |  | Commercial Multiple Peril
|
| |  | General Liability        









| |   |                               
| | - | ------------------------------
| |  | Employment Practices Liability
|
| |  | Professional Liability        









| |   |                    
| | - | -------------------
| |  | Inland Marine      
|
| |  | Product Liability  
|
| |  | Excess Reinsurance 
|
| |  | Commercial Property



| |                                                  
| | -------------------------------------------------
| | Description of Specialty Risk Management Programs



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managed Programs: With a managed program, we earn
    fee-for-service revenue by providing management and other
    services to a clients risk-bearing entity, but generally
    do not share in the operating results of the program. We believe
    our managed programs provide a consistent source of revenue, as
    well as opportunities for revenue growth without a proportionate
    increase in capital. Revenue growth may occur through the sale
    of existing products to additional members of the group, the
    expansion of coverages and services provided to existing
    programs and the creation of programs for new client groups.





| |   |                                
| | - | -------------------------------
| |  | program design and development;
|
| |  | underwriting;                  
|
| |  | reinsurance placement;         

5



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##### 



MEADOWBROOK INSURANCE GROUP, INC.




| |   |                                                 
| | - | ------------------------------------------------
| |  | policy administration;                          
|
| |  | loss prevention and control;                    
|
| |  | claims administration and handling;             
|
| |  | litigation management;                          
|
| |  | information technology and processing;          
|
| |  | accounting functions; and                       
|
| |  | general management and oversight of the program.







| |                       
| | ----------------------
| | Risk-Sharing Programs:

Client Risk-Sharing. Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts.






6



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##### 



MEADOWBROOK INSURANCE GROUP, INC.




CAPTIVE RISK-SHARING STRUCTURE










|    |                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We account for transactions with these risk-sharing clients as
    reinsurance under the provisions of SFAS No. 113
    Accounting and Reporting for Reinsurance of
    Short-Duration and Long-Duration Clients.











7



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


Related Party Disclosures,












Fully-Insured Programs:




| |                                                        
| | -------------------------------------------------------
| | Description of Major Specialty Risk Management Services



Program and Product Design.


8



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


Underwriting Risk Selection and Policy Issuance.


Claims Administration and Handling.


Loss Prevention and Control.


Administration of Risk-Bearing Entities.


Reinsurance Placement.


Sales, Marketing, and Public Relations.


tm


tm tm


9



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


Insurance Operations


















10



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##### 



MEADOWBROOK INSURANCE GROUP, INC.






|                                |       |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |  |   |         |         | 
|------------------------------- | ----- | ---- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|Gross Written Premiums          |       | 2005 |         |         | 2004 |   |         | 2003    |  |   | 2002    |         |  | 2001 |        
|                                |       |      |         |         |      |   |         |         |  |   |         |         |  |      |        
|Workers Compensation           |       | $    | 133,732 |         |      | $ | 146,982 |         |  | $ | 141,456 |         |  | $    | 104,822 |         |  | $ | 147,654 |        
|Commercial Multiple Peril       |       |      | 85,978  |         |      |   | 71,715  |         |  |   | 48,091  |         |  |      | 33,072  |         |  |   | 44,513  |        
|Inland Marine                   |       |      | 12,467  |         |      |   | 10,925  |         |  |   | 9,758   |         |  |      | 8,886   |         |  |   | 12,048  |        
|Other Liability                 |       |      | 16,167  |         |      |   | 15,248  |         |  |   | 10,473  |         |  |      | 10,442  |         |  |   | 28,856  |        
|Other Commercial Auto Liability |       |      | 59,144  |         |      |   | 48,070  |         |  |   | 26,902  |         |  |      | 9,894   |         |  |   | 38,191  |        
|Surety Bonds                    |       |      | 89      |         |      |   | 42      |         |  |   | 5       |         |  |      | 2,998   |         |  |   | 7,377   |        
|All Other Lines                 |       |      | 24,632  |         |      |   | 20,511  |         |  |   | 16,595  |         |  |      | 13,523  |         |  |   | 20,465  |        
|                                |       |      |         |         |      |   |         |         |  |   |         |         |  |      |        
|                                | Total |      | $       | 332,209 |      |   | $       | 313,493 |  |   | $       | 253,280 |  |      | $       | 183,637 |  |   | $       | 299,104 | 
|                                |       |      |         |         |      |   |         |         |  |   |         |         |  |      |        

|                                |       |      |         |         |      |   |         |         |  |   |         |         |  |      |        |         |  |   |        |         | 
|------------------------------- | ----- | ---- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | ---- | ------ | ------- |  | - | ------ | ------- | 
|Net Written Premiums            |       | 2005 |         |         | 2004 |   |         | 2003    |  |   | 2002    |         |  | 2001 |       
|                                |       |      |         |         |      |   |         |         |  |   |         |         |  |      |       
|Workers Compensation           |       | $    | 117,287 |         |      | $ | 122,896 |         |  | $ | 111,572 |         |  | $    | 90,979 |         |  | $ | 80,232 |        
|Commercial Multiple Peril       |       |      | 59,870  |         |      |   | 46,351  |         |  |   | 36,628  |         |  |      | 22,375 |         |  |   | 31,019 |        
|Inland Marine                   |       |      | 1,690   |         |      |   | 1,630   |         |  |   | 1,500   |         |  |      | 1,587  |         |  |   | 3,783  |        
|Other Liability                 |       |      | 8,004   |         |      |   | 7,568   |         |  |   | 6,278   |         |  |      | 4,296  |         |  |   | 19,982 |        
|Other Commercial Auto Liability |       |      | 49,122  |         |      |   | 37,762  |         |  |   | 19,599  |         |  |      | 9,125  |         |  |   | 35,502 |        
|Surety Bonds                    |       |      | 30      |         |      |   | 11      |         |  |   | 73      |         |  |      | 119    |         |  |   | 180    |        
|All Other Lines                 |       |      | 22,191  |         |      |   | 17,743  |         |  |   | 14,177  |         |  |      | 11,314 |         |  |   | 15,385 |        
|                                |       |      |         |         |      |   |         |         |  |   |         |         |  |      |       
|                                | Total |      | $       | 258,194 |      |   | $       | 233,961 |  |   | $       | 189,827 |  |      | $      | 139,795 |  |   | $      | 186,083 | 
|                                |       |      |         |         |      |   |         |         |  |   |         |         |  |      |       

|                                |       |      |         |         |      |   |         |         |  |   |        |         |  |      |        |         |  |   |        |         | 
|------------------------------- | ----- | ---- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------ | ------- |  | ---- | ------ | ------- |  | - | ------ | ------- | 
|Net Earned Premiums             |       | 2005 |         |         | 2004 |   |         | 2003    |  |   | 2002   |         |  | 2001 |       
|                                |       |      |         |         |      |   |         |         |  |   |        |         |  |      |       
|Workers Compensation           |       | $    | 119,423 |         |      | $ | 117,914 |         |  | $ | 93,324 |         |  | $    | 80,795 |         |  | $ | 69,360 |        
|Commercial Multiple Peril       |       |      | 54,829  |         |      |   | 43,701  |         |  |   | 26,075 |         |  |      | 23,462 |         |  |   | 27,004 |        
|Inland Marine                   |       |      | 1,727   |         |      |   | 1,628   |         |  |   | 1,556  |         |  |      | 1,716  |         |  |   | 3,782  |        
|Other Liability                 |       |      | 8,072   |         |      |   | 6,416   |         |  |   | 4,849  |         |  |      | 9,325  |         |  |   | 22,539 |        
|Other Commercial Auto Liability |       |      | 45,373  |         |      |   | 29,274  |         |  |   | 12,940 |         |  |      | 17,548 |         |  |   | 27,535 |        
|Surety Bonds                    |       |      | 5       |         |      |   | 38      |         |  |   | 73     |         |  |      | 97     |         |  |   | 173    |        
|All Other Lines                 |       |      | 20,530  |         |      |   | 15,522  |         |  |   | 12,388 |         |  |      | 12,440 |         |  |   | 13,272 |        
|                                |       |      |         |         |      |   |         |         |  |   |        |         |  |      |       
|                                | Total |      | $       | 249,959 |      |   | $       | 214,493 |  |   | $      | 151,205 |  |      | $      | 145,383 |  |   | $      | 163,665 | 
|                                |       |      |         |         |      |   |         |         |  |   |        |         |  |      |       

Reserves


Losses and Loss Adjustment Expenses and
Reinsurance Recoverables Summary of Significant Accounting Policies Liability for Losses and Loss
Adjustment Expenses Critical Accounting
Estimates Reserves


11



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##### 



MEADOWBROOK INSURANCE GROUP, INC.






Analysis of Loss and Loss Adjustment Expense
Development(1)


|                                                      |               |                          |         |         |      |   |         |         |    |   |         |         |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         |  | 
|----------------------------------------------------- | ------------- | ------------------------ | ------- | ------- | ---- | - | ------- | ------- | -- | - | ------- | ------- | -- | ---- | -------- | ------- | ---- | - | -------- | ------- | -- | - | ------- | ------- | -- | ---- | ------- | ------- | ---- | - | ------- | ------- | -- | - | ------- | ------- | -- | - | ------- |  | 
|                                                      |               | Years Ended December 31, |        
|                                                      |               |                          |        
|                                                      |               | 1996                     |         |         | 1997 |   |         | 1998    |    |   | 1999    |         |    | 2000 |          |         | 2001 |   |          | 2002    |    |   | 2003    |         |    | 2004 |         |         | 2005 |  
|                                                      |               |                          |         |         |      |   |         |         |    |   |         |         |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |  
|                                                      |               | (In thousands)           |        
|Reserves for losses and LAE at end of period          |               | $                        | 65,775  |         |      | $ | 60,786  |         |    | $ | 84,254  |         |    | $    | 127,500  |         |      | $ | 172,862  |         |    | $ | 198,653 |         |    | $    | 193,116 |         |      | $ | 192,019 |         |    | $ | 226,996 |         |    | $ | 271,423 | 
|Deconsolidation of subsidiary                         |               |                          |         |         |      |   |         |         |    |   | (147    | )       |    |      | (1,425   | )       |      |   | (3,744   | )       |    |   | (5,572  | )       |    |      | (2,973  | )       |      |   | (2,989  | )       |    |   |         |         |    |   |         | 
|Adjusted reserves for losses and LAE at end of period |               | $                        | 65,775  |         |      | $ | 60,786  |         |    | $ | 84,107  |         |    | $    | 126,075  |         |      | $ | 169,118  |         |    | $ | 193,081 |         |    | $    | 190,143 |         |      | $ | 189,030 |         |    | $ | 226,996 |         |    | $ | 271,423 | 
|Cumulative paid as of                                 |               |                          |         |         |      |   |         |         |    |   |         |         |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         | 
|                                                      | 1 year        |                          |         | 31,626  |      |   |         | 31,368  |    |   |         | 39,195  |    |      |          | 54,928  |      |   |          | 70,952  |    |   |         | 77,038  |    |      |         | 78,023  |      |   |         | 71,427  |    |   |         | 79,056  |    |   |         |  | 
|                                                      | 2 years later |                          |         | 49,930  |      |   |         | 47,313  |    |   |         | 56,763  |    |      |          | 90,416  |      |   |          | 115,669 |    |   |         | 130,816 |    |      |         | 122,180 |      |   |         | 118,729 |    |   |         |         |    |   |         |  | 
|                                                      | 3 years later |                          |         | 58,362  |      |   |         | 56,848  |    |   |         | 76,776  |    |      |          | 116,001 |      |   |          | 146,548 |    |   |         | 157,663 |    |      |         | 151,720 |      |   |         |         |    |   |         |         |    |   |         |  | 
|                                                      | 4 years later |                          |         | 64,018  |      |   |         | 65,517  |    |   |         | 85,447  |    |      |          | 132,995 |      |   |          | 160,673 |    |   |         | 176,172 |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         |  | 
|                                                      | 5 years later |                          |         | 67,928  |      |   |         | 68,138  |    |   |         | 93,009  |    |      |          | 139,939 |      |   |          | 171,992 |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         |  | 
|                                                      | 6 years later |                          |         | 69,503  |      |   |         | 72,063  |    |   |         | 96,739  |    |      |          | 146,997 |      |   |          |         |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         |  | 
|                                                      | 7 years later |                          |         | 72,337  |      |   |         | 74,002  |    |   |         | 101,433 |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         |  | 
|                                                      | 8 years later |                          |         | 73,992  |      |   |         | 76,421  |    |   |         |         |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         |  | 
|                                                      | 9 years later |                          |         | 75,831  |      |   |         |         |    |   |         |         |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         |  | 
|Reserves re-estimated as of end of year:              |               |                          |         |         |      |   |         |         |    |   |         |         |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         | 
|                                                      | 1 year        |                          |         | 67,010  |      |   |         | 69,012  |    |   |         | 98,587  |    |      |          | 146,213 |      |   |          | 182,976 |    |   |         | 199,171 |    |      |         | 193,532 |      |   |         | 193,559 |    |   |         | 231,880 |    |   |         |  | 
|                                                      | 2 years later |                          |         | 69,536  |      |   |         | 73,591  |    |   |         | 106,487 |    |      |          | 144,453 |      |   |          | 186,191 |    |   |         | 205,017 |    |      |         | 196,448 |      |   |         | 203,394 |    |   |         |         |    |   |         |  | 
|                                                      | 3 years later |                          |         | 74,796  |      |   |         | 74,009  |    |   |         | 102,075 |    |      |          | 152,630 |      |   |          | 189,632 |    |   |         | 207,379 |    |      |         | 202,126 |      |   |         |         |    |   |         |         |    |   |         |  | 
|                                                      | 4 years later |                          |         | 74,439  |      |   |         | 77,771  |    |   |         | 104,017 |    |      |          | 156,997 |      |   |          | 190,305 |    |   |         | 211,394 |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         |  | 
|                                                      | 5 years later |                          |         | 76,025  |      |   |         | 78,490  |    |   |         | 106,668 |    |      |          | 158,287 |      |   |          | 196,158 |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         |  | 
|                                                      | 6 years later |                          |         | 77,239  |      |   |         | 80,084  |    |   |         | 109,038 |    |      |          | 159,449 |      |   |          |         |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         |  | 
|                                                      | 7 years later |                          |         | 79,142  |      |   |         | 80,626  |    |   |         | 110,541 |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         |  | 
|                                                      | 8 years later |                          |         | 79,580  |      |   |         | 81,282  |    |   |         |         |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         |  | 
|                                                      | 9 years later |                          |         | 80,017  |      |   |         |         |    |   |         |         |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         |  | 
|Net cumulative deficiency:                            |               |                          |         |         |      |   |         |         |    |   |         |         |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |   |         |         |    |   |         |         |    |   |         | 
|                                                      | Dollars       |                          | $       | (14,242 | )    |   | $       | (20,496 | )  |   | $       | (26,434 | )  |      | $        | (33,374 | )    |   | $        | (27,040 | )  |   | $       | (18,313 | )  |      | $       | (11,983 | )    |   | $       | (14,364 | )  |   | $       | (4,884  | )  |   |         |  | 
|                                                      | Percentage    |                          |         | (21.7   | )%   |   |         | (33.7   | )% |   |         | (31.4   | )% |      |          | (26.5   | )%   |   |          | (16.0   | )% |   |         | (9.5    | )% |      |         | (6.3    | )%   |   |         | (7.6    | )% |   |         | (2.2    | )% |   |         |  | 
|Net reserves                                          |               |                          | 65,775  |         |      |   | 60,786  |         |    |   | 84,107  |         |    |      | 126,075  |         |      |   | 169,118  |         |    |   | 193,081 |         |    |      | 190,143 |         |      |   | 189,030 |         |    |   | 226,996 |         |    |   | 271,423 | 
|Ceded reserves                                        |               |                          | 26,615  |         |      |   | 38,193  |         |    |   | 64,590  |         |    |      | 101,744  |         |      |   | 168,962  |         |    |   | 195,943 |         |    |      | 181,817 |         |      |   | 147,446 |         |    |   | 151,161 |         |    |   | 187,254 | 
|Gross reserves                                        |               |                          | 92,390  |         |      |   | 98,979  |         |    |   | 148,697 |         |    |      | 227,819  |         |      |   | 338,080  |         |    |   | 389,024 |         |    |      | 371,960 |         |      |   | 336,476 |         |    |   | 378,157 |         |    |   | 458,677 | 
|                                                      |               |                          |         |         |      |   |         |         |    |   |         |         |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |  
|Net re-estimated                                      |               |                          | 80,017  |         |      |   | 81,282  |         |    |   | 110,541 |         |    |      | 159,449  |         |      |   | 196,158  |         |    |   | 211,394 |         |    |      | 202,126 |         |      |   | 203,394 |         |    |   | 231,880 |         |    |   |         | 
|Ceded re-estimated                                    |               |                          | 43,892  |         |      |   | 60,716  |         |    |   | 104,304 |         |    |      | 175,586  |         |      |   | 253,659  |         |    |   | 272,647 |         |    |      | 242,215 |         |      |   | 231,282 |         |    |   | 187,650 |         |    |   |         | 
|Gross re-estimated                                    |               |                          | 123,909 |         |      |   | 141,998 |         |    |   | 214,845 |         |    |      | 335,035  |         |      |   | 449,817  |         |    |   | 484,041 |         |    |      | 444,341 |         |      |   | 434,676 |         |    |   | 419,530 |         |    |   |         | 
|                                                      |               |                          |         |         |      |   |         |         |    |   |         |         |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |  
|Gross cumulative deficiency                           |               | $                        | (31,519 | )       |      | $ | (43,019 | )       |    | $ | (66,148 | )       |    | $    | (107,216 | )       |      | $ | (111,737 | )       |    | $ | (95,017 | )       |    | $    | (72,381 | )       |      | $ | (98,200 | )       |    | $ | (41,373 | )       |    |   |         | 
|                                                      |               |                          |         |         |      |   |         |         |    |   |         |         |    |      |          |         |      |   |          |         |    |   |         |         |    |      |         |         |      |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In accordance with FIN 46(R), we performed an evaluation of
    our business relationships and determined that our wholly owned
    subsidiary, American Indemnity, did not meet the tests for
    consolidation, as neither us, nor our subsidiary Star, are the
    primary beneficiaries of American Indemnity. Therefore,
    effective January 1, 2004, we deconsolidated American
    Indemnity on a prospective basis in accordance with the
    provisions of FIN 46(R). Accordingly, we have adjusted the
    reserves and development within the above table. The adoption of
    FIN 46(R) and the deconsolidation of American Indemnity did
    not have a material impact on our consolidated balance sheet or
    consolidated statement of income.

12



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MEADOWBROOK INSURANCE GROUP, INC.




|                                                    |  |      |          |   |      |   |          |  
|--------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                                    |  | 2005 |          |   | 2004 |  
|                                                    |  |      |          |   |      |  
|GAAP reserves for losses and LAE                    |  | $    | 458,677  |   |      | $ | 378,157  |  
|Reinsurance recoverables for unpaid losses          |  |      | (187,254 | ) |      |   | (151,161 | )
|Allowances against reinsurance recoverables**       |  |      | (1,080   | ) |      |   | (1,479   | )
|Non-regulated foreign insurance subsidiary; PICL*** |  |      | (1,230   | ) |      |   | (1,800   | )
|                                                    |  |      |          |   |      |  
|Statutory reserves for losses and LAE               |  | $    | 269,113  |   |      | $ | 223,717  |  
|                                                    |  |      |          |   |      |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | For the year ended December 31, 2005, we reported an
    increase of $41.4 million in gross ultimate loss estimates
    for accident years 2004 and prior, or 10.9% of
    $378.2 million of gross losses and LAE reserves at
    January 1, 2005. We reported a $4.9 million increase
    in net ultimate losses and LAE estimates for accident years 2004
    and prior, or 2.2% of $227.0 million. The change in gross
    ultimate loss estimates for accident years 2004 and prior is
    greater than the change in net ultimate loss estimates as a
    result of gross development on a small number of large
    workers compensation claims.
|   
|**  | The GAAP allowance for reinsurance recoverables is reported as a
    Schedule F penalty or a non-admitted asset for statutory
    accounting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|*** | PICL is a foreign captive, which offers clients captive or
    rent-a-captive options. It is not a domestic insurance company
    and, therefore, is not included in the combined statutory
    financial statements filed with the National Association of
    Insurance Commissioners and state regulators.                                                                                                                                                                                                                                                                                                                                          



Investments


Investments Investments


Competition and Pricing






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MEADOWBROOK INSURANCE GROUP, INC.




Regulation




| |                             
| | ----------------------------
| | Insurance Company Regulation





| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | prior approval of the acquisition of control of an insurance
    company or of any company controlling an insurance company;          
|
| |  | regulation of certain transactions entered into by an insurance
    company with any of its affiliates;                               
|
| |  | approval of premium rates, forms and policies used for many
    lines of insurance;                                                   
|
| |  | standards of solvency and minimum amounts of capital and surplus
    which must be maintained;                                        
|
| |  | establishment of reserves required to be maintained for unearned
    premium, loss and loss adjustment expense, or for other purposes;
|
| |  | limitations on types and amounts of investments;                                                                                      
|
| |  | restrictions on the size of risks that may be insured by a
    single company;                                                        
|
| |  | licensing of insurers and agents;                                                                                                     
|
| |  | deposits of securities for the benefit of policyholders; and                                                                          
|
| |  | the filing of periodic reports with respect to financial
    condition and other matters.                                             





| |                                
| | -------------------------------
| | Holding Company Regulatory Acts





| |                                     
| | ------------------------------------
| | Various State and Federal Regulation



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MEADOWBROOK INSURANCE GROUP, INC.






| |                         
| | ------------------------
| | Reinsurance Intermediary





| |                               
| | ------------------------------
| | Licensing and Agency Contracts





Insurance Regulation Concerning Change or Acquisition of
Control








Membership in Insolvency Funds and Associations and Mandatory
Pools




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MEADOWBROOK INSURANCE GROUP, INC.






Restrictions on Dividends and Risk-Based Capital


Regulatory Matters and
Rating Issues Regulatory and Rating Issues


Effect of Federal Legislation




NAIC-IRIS Ratios


Regulatory and
Rating Issues


Available Information


www.meadowbrook.com. 10-K, 10-Q, 8-K, www.sec.gov.


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##### 



MEADOWBROOK INSURANCE GROUP, INC.




Item 1A.     Risk Factors




| |                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our reserves for losses and loss adjustment expenses
    are not adequate, we will have to increase our reserves, which
    would result in reductions in net income, retained earnings, and
    statutory surplus, along with ability to pay dividends.





| |   |                                              
| | - | ---------------------------------------------
| |  | the amounts of claims settlements and awards;
|
| |  | legislative activity; and                    
|
| |  | changes in inflation and economic conditions.





| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | Our performance is dependent on the continued services and
    performance of our senior management and other key
    personnel.







| |                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If market conditions cause our reinsurance to be more
    costly or unavailable, we may be required to bear increased
    risks or reduce the level of our underwriting
    commitments.



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MEADOWBROOK INSURANCE GROUP, INC.




| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | We cannot guarantee that our reinsurers will pay in a
    timely fashion, if at all, and, as a result, we could experience
    losses.





| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Our results may fluctuate as a result of many factors,
    including cyclical changes in the insurance industry.





| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | rising levels of actual costs that are not known by companies at
    the time they price their products;                                                                                                           
|
| |  | volatile and unpredictable developments, including man-made,
    weather-related and other natural catastrophes or terrorist
    attacks;                                                                          
|
| |  | changes in loss reserves resulting from the general claims and
    legal environments as different types of claims arise and
    judicial interpretations relating to the scope of insurers
    liability develop;
|
| |  | fluctuations in interest rates, inflationary pressures and other
    changes in the investment environment, which affect returns on
    invested assets and may impact the ultimate payout of losses; and          
|
| |  | increase in medical costs beyond historic or expected annual
    inflationary levels.                                                                                                                              





| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | We face competitive pressures in our business that could
    cause demand for our products to fall and adversely affect our
    profitability.







| |   |                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the formation of new insurers and an influx of new capital in
    the marketplace as existing companies attempt to expand their
    business as a result of better pricing and/or terms;
|
| |  | programs in which state-sponsored entities provide property
    insurance in catastrophe-prone areas or other alternative market
    types of coverage; and                             
|
| |  | changing practices created by the internet, which has increased
    competition within the insurance business.                                                                          

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MEADOWBROOK INSURANCE GROUP, INC.






| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Because we are heavily regulated by the states in which we
    operate, we may be limited in the way we operate.





| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | standards of solvency, including risk-based capital measurements;                                                                                                                                          
|
| |  | restrictions on the nature, quality and concentration of
    investments;                                                                                                                                  
|
| |  | restrictions on the types of terms that we can include in the
    insurance policies we offer;                                                                                                             
|
| |  | required methods of accounting;                                                                                                                                                                            
|
| |  | reserves for unearned premiums, losses and other purposes; and                                                                                                                                             
|
| |  | potential assessments for the provision of funds necessary for
    the settlement of covered claims under certain insurance
    policies provided by impaired, insolvent or failed insurance
    companies.





| |                                                                               
| | ------------------------------------------------------------------------------
| | We could be forced to sell investments to meet our
    liquidity requirements.





| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because our investment portfolio consists primarily of
    fixed income securities, our investment income could suffer as a
    result of fluctuations in interest rates.



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MEADOWBROOK INSURANCE GROUP, INC.






| |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to credit risk with respect to the
    obligations of our reinsurers and the payment of claims by our
    clients captive, rent-a-captive, large deductible
    programs, indemnification agreements, or on the portion of risk
    either ceded to the captives, or retained by our clients. The
    inability of our risk-sharing partners to meet their obligations
    could adversely affect our profitability.







| |                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Provisions of the Michigan Business Corporation Act, our
    articles of incorporation and other corporate governing
    documents and the insurance laws of Michigan, Missouri,
    California, and Florida may discourage takeover attempts.







20



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##### 



MEADOWBROOK INSURANCE GROUP, INC.




| |                                                                                 
| | --------------------------------------------------------------------------------
| | If our financial strength ratings are reduced, we may be
    adversely impacted.







| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | Most states assess our Insurance Company Subsidiaries to
    provide funds for failing insurance companies and those
    assessments could be material.





| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | We rely on our information technology and
    telecommunications systems to conduct our business.





|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments



Item 2.     Properties




21



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##### 



MEADOWBROOK INSURANCE GROUP, INC.








Item 3.     Legal
Proceedings


Accounting for
Contingencies


Item 4.     Submission of
Matters to a Vote of Security Holders




22



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##### 



MEADOWBROOK INSURANCE GROUP, INC.




PART II




|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters, and Issuer Purchase of Equity
    Securities

|                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                      |  |                                                                                                                                                                             
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Shareholder Information
    Corporate Headquarters26255 American Drive
    Southfield, MI 48034-6112
    Phone: (248) 358-1100Independent Registered
    Public Accounting FirmErnst & Young LLP
    Detroit, MICorporate CounselHoward & Howard Attorneys, P.C.
    Bloomfield Hills, MI |  | Transfer Agent & RegistrarLaSalle Bank National Association
    Shareholder Services Division
    135 South LaSalle Street,
    Suite 1811
    Chicago, IL 60603Stock ListingNew York Stock Exchange
    Symbol: MIG |  | Annual MeetingThe Annual Meeting of
    Meadowbrook Shareholders
    will be held at:2:00 p.m.
    May 10, 2006Corporate Headquarters26255 American Drive
    Southfield, MI

Shareholder Relations and
Form 10-K


10-K,




| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | Karen M. Spaun, Senior Vice President and Chief Financial
    Officer 

    (248) 204-8178    karen.spaun@meadowbrook.com
|
| | Holly Moltane, Director of External Financial Reporting 

    (248) 204-8590    holly.moltane@meadowbrook.com            

Direct Investment Plan




1-800-246-5761,


Share Price and Dividend Information




|                  |  |      |      |  |     |   |      |           |  |  |   | 
|----------------- |  | ---- | ---- |  | --- | - | ---- | --------- |  |  | - | 
|December 31, 2005 |  | High |      |  | Low |   |      | Dividends | 
|                  |  |      |      |  |     |   |      |           | 
|First Quarter     |  | $    | 5.89 |  |     | $ | 4.98 |           |  |  |  | 
|Second Quarter    |  | $    | 5.53 |  |     | $ | 5.02 |           |  |  |  | 
|Third Quarter     |  | $    | 5.72 |  |     | $ | 5.05 |           |  |  |  | 
|Fourth Quarter    |  | $    | 6.77 |  |     | $ | 5.31 |           |  |  |  | 

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##### 



MEADOWBROOK INSURANCE GROUP, INC.


|                  |  |      |      |  |     |   |      |           |  |  |   | 
|----------------- |  | ---- | ---- |  | --- | - | ---- | --------- |  |  | - | 
|December 31, 2004 |  | High |      |  | Low |   |      | Dividends | 
|                  |  |      |      |  |     |   |      |           | 
|First Quarter     |  | $    | 5.35 |  |     | $ | 4.15 |           |  |  |  | 
|Second Quarter    |  | $    | 5.86 |  |     | $ | 4.90 |           |  |  |  | 
|Third Quarter     |  | $    | 5.50 |  |     | $ | 4.34 |           |  |  |  | 
|Fourth Quarter    |  | $    | 5.24 |  |     | $ | 4.32 |           |  |  |  | 

Liquidity and Capital Resources






Issuer Repurchases of Common Stock




|                              |  |           |         |  |            |                  |      |           |                 |  |           |  |  |  |         | 
|----------------------------- |  | --------- | ------- |  | ---------- | ---------------- | ---- | --------- | --------------- |  | --------- |  |  |  | ------- | 
|                              |  |           |         |  |            |                  |      | Maximum   |                
|                              |  |           |         |  |            | Total Number     |      |           | Number of       | 
|                              |  |           |         |  |            | of Shares        |      |           | Shares that may | 
|                              |  |           |         |  |            | Purchased as     |      |           | yet be          | 
|                              |  |           |         |  |            | Part of Publicly |      |           | Repurchased     | 
|                              |  | Total     |         |  | Average    |                  |      | Announced |                 |  | Under the | 
|                              |  | Number of |         |  | Price Paid |                  |      | Plans or  |                 |  | Plans or  | 
|Period                        |  | Shares    |         |  | Per Share  |                  |      | Programs  |                 |  | Programs  | 
|                              |  |           |         |  |            |                  |      |           |                 |  |           | 
|October  1- October 31,2005   |  |           | 75,000  |  |            | $                | 5.50 |           |                 |  | 75,000    |  |  |  | 290,100 | 
|November 1 - November 30,2005 |  |           | 25,000  |  |            | $                | 5.98 |           |                 |  | 25,000    |  |  |  | 975,000 | 
|December 1 - December 31,2005 |  |           | 38,000  |  |            | $                | 5.77 |           |                 |  | 38,000    |  |  |  | 937,000 | 
|                              |  |           |         |  |            |                  |      |           |                 |  |           | 
|Total                         |  |           | 138,000 |  |            | $                | 5.85 |           |                 |  | 138,000   |  |  |  |         | 
|                              |  |           |         |  |            |                  |      |           |                 |  |           | 



24



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##### 



MEADOWBROOK INSURANCE GROUP, INC.




Item 6.     Selected Financial
Data


Selected Consolidated Financial Data


|                                                      |                        |                                                 |         |      |      |   |         |       |   |   |         |       |   |      |         |       |   |   |         |       |  
|----------------------------------------------------- | ---------------------- | ----------------------------------------------- | ------- | ---- | ---- | - | ------- | ----- | - | - | ------- | ----- | - | ---- | ------- | ----- | - | - | ------- | ----- | -
|                                                      |                        | For the Years Ended December 31,                |        
|                                                      |                        |                                                 |        
|                                                      |                        | 2005                                            |         |      | 2004 |   |         | 2003  |   |   | 2002    |       |   | 2001 |        
|                                                      |                        |                                                 |         |      |      |   |         |       |   |   |         |       |   |      |        
|                                                      |                        | (In thousands, except per share and ratio data) |        
|Income Statement Data:                                |                        |                                                 |         |      |      |   |         |       |   |   |         |       |   |      |         |       |   |   |         |      
|Gross written premiums                                |                        | $                                               | 332,209 |      |      | $ | 313,493 |       |   | $ | 253,280 |       |   | $    | 183,637 |       |   | $ | 299,104 |      
|Net written premiums                                  |                        |                                                 | 258,134 |      |      |   | 233,961 |       |   |   | 189,827 |       |   |      | 139,795 |       |   |   | 186,083 |      
|Net earned premiums                                   |                        |                                                 | 249,959 |      |      |   | 214,493 |       |   |   | 151,205 |       |   |      | 145,383 |       |   |   | 163,665 |      
|Net commissions and fees                              |                        |                                                 | 35,916  |      |      |   | 40,535  |       |   |   | 45,291  |       |   |      | 37,581  |       |   |   | 40,675  |      
|Net investment income                                 |                        |                                                 | 17,975  |      |      |   | 14,911  |       |   |   | 13,484  |       |   |      | 13,958  |       |   |   | 14,228  |      
|Net realized gains                                    |                        |                                                 | 167     |      |      |   | 339     |       |   |   | 823     |       |   |      | 666     |       |   |   | 735     |      
|Gain (loss) of sale of subsidiary                     |                        |                                                 |        |      |      |   |        |       |   |   |        |       |   |      | 199     |       |   |   | (1,097  | )    
|Total revenue                                         |                        |                                                 | 304,017 |      |      |   | 270,278 |       |   |   | 210,803 |       |   |      | 197,787 |       |   |   | 218,206 |      
|Net losses and LAE(1)                                 |                        |                                                 | 151,542 |      |      |   | 135,938 |       |   |   | 98,472  |       |   |      | 98,734  |       |   |   | 125,183 |      
|Policy acquisition and other underwriting expenses(1) |                        |                                                 | 44,439  |      |      |   | 33,424  |       |   |   | 23,606  |       |   |      | 33,573  |       |   |   | 31,216  |      
|Other administrative expenses                         |                        |                                                 | 27,183  |      |      |   | 25,964  |       |   |   | 23,232  |       |   |      | 22,612  |       |   |   | 23,531  |      
|Salaries and employee benefits                        |                        |                                                 | 51,331  |      |      |   | 52,297  |       |   |   | 48,238  |       |   |      | 37,659  |       |   |   | 44,179  |      
|Interest expense                                      |                        |                                                 | 3,856   |      |      |   | 2,281   |       |   |   | 977     |       |   |      | 3,021   |       |   |   | 4,516   |      
|Gain on debt reduction                                |                        |                                                 |        |      |      |   |        |       |   |   |        |       |   |      | (359    | )     |   |   |        |      
|Income (loss) before income taxes and equity earnings |                        |                                                 | 25,666  |      |      |   | 20,374  |       |   |   | 16,278  |       |   |      | 2,547   |       |   |   | (10,419 | )    
|Equity earnings of affiliates                         |                        |                                                 | 1       |      |      |   | 39      |       |   |   | 3       |       |   |      |        |       |   |   |        |      
|Net income (loss)                                     |                        |                                                 | 17,910  |      |      |   | 14,061  |       |   |   | 10,099  |       |   |      | 1,650   |       |   |   | (6,510  | )    
|Earnings per share  Diluted                          |                        | $                                               | 0.60    |      |      | $ | 0.48    |       |   | $ | 0.35    |       |   | $    | 0.08    |       |   | $ | (0.76   | )    
|Dividends declared per share                          |                        | $                                               |        |      |      | $ |        |       |   | $ |        |       |   | $    |        |       |   | $ | 0.09    |      
|Balance Sheet Data:                                   |                        |                                                 |         |      |      |   |         |       |   |   |         |       |   |      |         |       |   |   |         |      
|Total investments and cash and cash equivalents       |                        | $                                               | 460,233 |      |      | $ | 402,156 |       |   | $ | 324,235 |       |   | $    | 286,050 |       |   | $ | 233,723 |      
|Total assets                                          |                        |                                                 | 901,344 |      |      |   | 801,696 |       |   |   | 692,266 |       |   |      | 674,839 |       |   |   | 687,888 |      
|Loss and LAE reserves                                 |                        |                                                 | 458,677 |      |      |   | 378,157 |       |   |   | 339,465 |       |   |      | 374,933 |       |   |   | 394,596 |      
|Debt                                                  |                        |                                                 | 7,000   |      |      |   | 12,144  |       |   |   | 17,506  |       |   |      | 32,497  |       |   |   | 54,741  |      
|Debentures                                            |                        |                                                 | 55,930  |      |      |   | 35,310  |       |   |   | 10,310  |       |   |      |        |       |   |   |        |      
|Shareholders equity                                  |                        |                                                 | 177,365 |      |      |   | 167,510 |       |   |   | 155,113 |       |   |      | 147,395 |       |   |   | 80,316  |      
|Book value per share                                  |                        | $                                               | 6.19    |      |      | $ | 5.76    |       |   | $ | 5.34    |       |   | $    | 4.98    |       |   | $ | 9.44    |      
|Other Data:                                           |                        |                                                 |         |      |      |   |         |       |   |   |         |       |   |      |         |       |   |   |         |      
|GAAP ratios (insurance companies only):               |                        |                                                 |         |      |      |   |         |       |   |   |         |       |   |      |         |       |   |   |         |      
|                                                      | Net loss and LAE ratio |                                                 |         | 65.2 | %    |   |         | 67.9  | % |   |         | 70.1  | % |      |         | 72.1  | % |   |         | 81.1  | %
|                                                      | Expense ratio          |                                                 |         | 33.5 | %    |   |         | 33.5  | % |   |         | 34.3  | % |      |         | 36.5  | % |   |         | 35.8  | %
|                                                      | Combined ratio         |                                                 |         | 98.7 | %    |   |         | 101.4 | % |   |         | 104.4 | % |      |         | 108.6 | % |   |         | 116.9 | %
|Statutory combined ratio                              |                        |                                                 | 97.9    | %    |      |   | 101.2   | %     |   |   | 101.9   | %     |   |      | 109.7   | %     |   |   | 113.0   | %    






|    |                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Both the loss and loss adjustment expense ratios are calculated
    based upon unconsolidated insurance company operations. The
    following table sets forth the intercompany fees, which are
    eliminated upon consolidation.

25



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


Unconsolidated GAAP data  Ratio Calculation
Table:


|                                                                  |                             |                                  |         |      |      |   |         |      |   |   |         |      |   |      |         |      |   |   |         |      |  
|----------------------------------------------------------------- | --------------------------- | -------------------------------- | ------- | ---- | ---- | - | ------- | ---- | - | - | ------- | ---- | - | ---- | ------- | ---- | - | - | ------- | ---- | -
|                                                                  |                             | For the Years Ended December 31, |        
|                                                                  |                             |                                  |        
|                                                                  |                             | 2005                             |         |      | 2004 |   |         | 2003 |   |   | 2002    |      |   | 2001 |        
|                                                                  |                             |                                  |         |      |      |   |         |      |   |   |         |      |   |      |        
|Net earned premiums                                               |                             | $                                | 249,959 |      |      | $ | 214,493 |      |   | $ | 151,205 |      |   | $    | 145,383 |      |   | $ | 163,665 |     
|Consolidated net losses and LAE                                   |                             | $                                | 151,542 |      |      | $ | 135,938 |      |   | $ | 98,472  |      |   | $    | 98,734  |      |   | $ | 125,183 |     
|Intercompany claim fees                                           |                             |                                  | 11,523  |      |      |   | 9,691   |      |   |   | 7,514   |      |   |      | 6,154   |      |   |   | 7,520   |     
|                                                                  |                             |                                  |         |      |      |   |         |      |   |   |         |      |   |      |        
|Unconsolidated net losses and LAE                                 |                             | $                                | 163,065 |      |      | $ | 145,629 |      |   | $ | 105,986 |      |   | $    | 104,888 |      |   | $ | 132,703 |     
|                                                                  |                             |                                  |         |      |      |   |         |      |   |   |         |      |   |      |        
|                                                                  | GAAP net loss and LAE ratio |                                  |         | 65.2 | %    |   |         | 67.9 | % |   |         | 70.1 | % |      |         | 72.1 | % |   |         | 81.1 | %
|Consolidated policy acquisition and other underwriting expenses   |                             | $                                | 44,439  |      |      | $ | 33,424  |      |   | $ | 23,606  |      |   | $    | 33,573  |      |   | $ | 31,216  |     
|Intercompany administrative and other underwriting fees           |                             |                                  | 39,231  |      |      |   | 38,359  |      |   |   | 28,296  |      |   |      | 19,445  |      |   |   | 27,309  |     
|Unconsolidated policy acquisition and other underwriting expenses |                             | $                                | 83,670  |      |      | $ | 71,783  |      |   | $ | 51,902  |      |   | $    | 53,018  |      |   | $ | 58,525  |     
|                                                                  |                             |                                  |         |      |      |   |         |      |   |   |         |      |   |      |        
|                                                                  | GAAP expense ratio          |                                  |         | 33.5 | %    |   |         | 33.5 | % |   |         | 34.3 | % |      |         | 36.5 | % |   |         | 35.8 | %
|                                                                  |                             |                                  |         |      |      |   |         |      |   |   |         |      |   |      |        
|GAAP combined ratio                                               |                             |                                  | 98.7    | %    |      |   | 101.4   | %    |   |   | 104.4   | %    |   |      | 108.6   | %    |   |   | 116.9   | %   





26



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND ANALYSIS


Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations




| |                           
| | --------------------------
| | Forward-Looking Statements

This Form 10-K may provide information including certain
statements which constitute forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. These include statements regarding the
intent, belief, or current expectations of management,
including, but not limited to, those statements that use the
words believes, expects,
anticipates, estimates, or similar
expressions. You are cautioned that any such forward-looking
statements are not guarantees of future performance and involve
a number of risks and uncertainties, and results could differ
materially from those indicated by such forward-looking
statements. Among the important factors that could cause actual
results to differ materially from those indicated by such
forward-looking statements are: the frequency and severity of
claims; uncertainties inherent in reserve estimates;
catastrophic events; a change in the demand for, pricing of,
availability or collectibility of reinsurance; increased rate
pressure on premiums; obtainment of certain rate increases in
current market conditions; investment rate of return; changes in
and adherence to insurance regulation; actions taken by
regulators, rating agencies or lenders; obtainment of certain
processing efficiencies; changing rates of inflation; general
economic conditions and other risks identified in our reports
and registration statements filed with the Securities and
Exchange Commission. We are not under any obligation to (and
expressly disclaim any such obligation to) update or alter our
forward-looking statements whether as a result of new
information, future events or otherwise.


Description of Business








27



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued








| |                                     
| | ------------------------------------
| | Specialty Risk Management Operations



risk-bearing Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts.




| |                  
| | -----------------
| | Agency Operations



28



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued






|         |                           |                                  |   |         |      |  |   |         |   |  |   |         |  
|-------- | ------------------------- | -------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|         |                           | For the Years Ended December 31, |  
|         |                           |                                  |  
|         |                           | 2005                             |   |         | 2004 |  |   | 2003    |  
|         |                           |                                  |   |         |      |  |   |         |  
|Revenues |                           |                                  |   |         |      |  |   |         |   |  |   |        
|         | Net earned premiums       |                                  | $ | 249,959 |      |  | $ | 214,493 |   |  | $ | 151,205 |  
|         | Management fees           |                                  |   | 16,741  |      |  |   | 16,253  |   |  |   | 18,751  |  
|         | Claims fees(3)            |                                  |   | 7,113   |      |  |   | 13,207  |   |  |   | 14,756  |  
|         | Loss control fees         |                                  |   | 2,260   |      |  |   | 2,174   |   |  |   | 2,303   |  
|         | Reinsurance placement     |                                  |   | 660     |      |  |   | 420     |   |  |   | 308     |  
|         | Investment income         |                                  |   | 17,692  |      |  |   | 14,887  |   |  |   | 13,471  |  
|         | Net realized gains        |                                  |   | 85      |      |  |   | 339     |   |  |   | 823     |  
|         |                           |                                  |   |         |      |  |   |         |  
|         | Specialty risk management |                                  |   | 294,510 |      |  |   | 261,773 |   |  |   | 201,617 |  
|         | Agency operations(1)      |                                  |   | 11,304  |      |  |   | 9,805   |   |  |   | 9,378   |  
|         | Reconciling items(2)      |                                  |   | 365     |      |  |   | 24      |   |  |   | 13      |  
|         | Intersegment revenue(1)   |                                  |   | (2,162  | )    |  |   | (1,324  | ) |  |   | (205    | )
|         |                           |                                  |   |         |      |  |   |         |  
|         | Consolidated revenue      |                                  | $ | 304,017 |      |  | $ | 270,278 |   |  | $ | 210,803 |  
|         |                           |                                  |   |         |      |  |   |         |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We reclassified 2004 and 2003 revenues related to the conversion
    of a west-coast commercial transportation program, which was
    converted to a specialty risk program with one of our
    subsidiaries, from the agency operations segment to the
    specialty risk management operations segment. Accordingly, the
    agency operations revenue and intersegment revenue have been
    reclassified. As a result, $7.9 million and
    $5.6 million were reclassified within the agency operations
    segment and the intersegment revenue for the years ended
    December 31, 2004 and 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(2) | In December 2003, we entered into a Purchase and Sale Agreement
    with an unaffiliated third party for the sale of land. In July
    2004, a land contract was executed and the transaction closed in
    escrow subject to the conveyance of certain land by the city to
    both parties. In May 2005, the settlement of the land contract
    was completed. The sale of this land resulted in a total gain of
    approximately $464,000. In accordance with SFAS No. 66
    Accounting for Sales of Real Estate,we
    recorded this transaction based on the installment method of
    accounting. Accordingly, we recorded a gain of $82,000, as of
    June 30, 2005, which reflects a portion of the total gain
    allocated proportionately based on the down payment to the total
    purchase price. The remaining $382,000 will be deferred until
    the land contract is paid in full, or as principal payments are
    received. In addition, we received $121,000 in interest income
    related to the land contract, which has been included in
    reconciling items. The remaining $162,000 in reconciling items
    relates to miscellaneous interest income.
|   
|(3) | During 2004, we accelerated the recognition of $3.5 million
    in deferred claim revenue, as a result of an earlier than
    anticipated termination of two limited duration administrative
    services and multi-state claims run-off contracts. These
    contracts had been terminated by the liquidator for the
    companies during the third quarter of 2004. Had the contract not
    been terminated, we would have received additional claims fee
    revenue for continued claims handling services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Critical Accounting Estimates




| |        
| | -------
| | General



29



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued




| |                                    
| | -----------------------------------
| | Losses and Loss Adjustment Expenses







|                              |  |      |         |  |      |   |         |       |  |   |         | 
|----------------------------- |  | ---- | ------- |  | ---- | - | ------- | ----- |  | - | ------- | 
|                              |  | Case |         |  | IBNR |   |         | Total | 
|                              |  |      |         |  |      |   |         |       | 
|Direct                        |  | $    | 186,080 |  |      | $ | 208,595 |       |  | $ | 394,675 | 
|Assumed  Directly Managed(1) |  |      | 7,442   |  |      |   | 27,164  |       |  |   | 34,606  | 
|Assumed  Residual Markets(2) |  |      | 8,318   |  |      |   | 16,121  |       |  |   | 24,439  | 
|Assumed  Retroceded          |  |      | 1,231   |  |      |   | 518     |       |  |   | 1,749   | 
|Assumed  Other               |  |      | 2,037   |  |      |   | 1,171   |       |  |   | 3,208   | 
|                              |  |      |         |  |      |   |         |       | 
|Gross                         |  |      | 205,108 |  |      |   | 253,569 |       |  |   | 458,677 | 
|Less Ceded                    |  |      | 89,796  |  |      |   | 97,458  |       |  |   | 187,254 | 
|                              |  |      |         |  |      |   |         |       | 
|Net                           |  | $    | 115,312 |  |      | $ | 156,111 |       |  | $ | 271,423 | 
|                              |  |      |         |  |      |   |         |       | 






|    |                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Directly managed represents business managed and processed by
    our underwriting, claims, and loss control departments,
    utilizing our internal systems and related controls.
|   
|(2) | Residual markets represent mandatory pooled workers
    compensation business based upon an individual companys
    market share by state.                                      







30



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued




|                                             |  |          |         |  |          |   |         |       |  |   |         | 
|-------------------------------------------- |  | -------- | ------- |  | -------- | - | ------- | ----- |  | - | ------- | 
|                                             |  | Net Case |         |  | Net IBNR |   |         | Total | 
|                                             |  |          |         |  |          |   |         |       | 
|Workers Compensation                        |  | $        | 59,749  |  |          | $ | 69,053  |       |  | $ | 128,802 | 
|Residual Markets                             |  |          | 8,318   |  |          |   | 16,122  |       |  |   | 24,440  | 
|Commercial Multiple Peril/ General Liability |  |          | 16,185  |  |          |   | 36,321  |       |  |   | 52,506  | 
|Commercial Automobile                        |  |          | 21,692  |  |          |   | 22,690  |       |  |   | 44,382  | 
|Other                                        |  |          | 9,368   |  |          |   | 11,925  |       |  |   | 21,293  | 
|                                             |  |          |         |  |          |   |         |       | 
|Total                                        |  | $        | 115,312 |  |          | $ | 156,111 |       |  | $ | 271,423 | 
|                                             |  |          |         |  |          |   |         |       | 











| |                         
| | ------------------------
| | Reinsurance Recoverables



31



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued








| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Investments and Other Than Temporary Impairments of
    Securities and Unrealized Losses on Investments







32



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued






| |                    
| | -------------------
| | Revenue Recognition















33



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued




| |                    
| | -------------------
| | Legal Contingencies

Accounting for
Contingencies,




| |         
| | --------
| | Goodwill

Goodwill and Other Intangible
Assets,


Results of Operations




| |                   
| | ------------------
| | Executive Overview





34



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued






| |                       
| | ----------------------
| | 2005 compared to 2004:







| |                       
| | ----------------------
| | 2004 compared to 2003:



35



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued










| |                                     
| | ------------------------------------
| | Specialty Risk Management Operations



|               |                                               |                                  |   |         |      |  |   |         |  |  |   |         | 
|-------------- | --------------------------------------------- | -------------------------------- | - | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|               |                                               | For the Years Ended December 31, |  
|               |                                               |                                  |  
|               |                                               | 2005                             |   |         | 2004 |  |   | 2003    | 
|               |                                               |                                  |   |         |      |  |   |         | 
|Revenue:       |                                               |                                  |   |         |      |  |   |         |  |  |   |        
|               | Net earned premiums                           |                                  | $ | 249,959 |      |  | $ | 214,493 |  |  | $ | 151,205 | 
|               | Management fees                               |                                  |   | 16,741  |      |  |   | 16,253  |  |  |   | 18,751  | 
|               | Claims fees(3)                                |                                  |   | 7,113   |      |  |   | 13,207  |  |  |   | 14,756  | 
|               | Loss control fees                             |                                  |   | 2,260   |      |  |   | 2,174   |  |  |   | 2,303   | 
|               | Reinsurance placement                         |                                  |   | 660     |      |  |   | 420     |  |  |   | 308     | 
|               | Investment income                             |                                  |   | 17,692  |      |  |   | 14,887  |  |  |   | 13,471  | 
|               | Net realized gains                            |                                  |   | 85      |      |  |   | 339     |  |  |   | 823     | 
|               |                                               |                                  |   |         |      |  |   |         | 
|               | Total revenue                                 |                                  | $ | 294,510 |      |  | $ | 261,773 |  |  | $ | 201,617 | 
|               |                                               |                                  |   |         |      |  |   |         | 
|Pre-tax income |                                               |                                  |   |         |      |  |   |         |  |  |   |        
|               | Specialty risk management operations(1) & (2) |                                  | $ | 29,444  |      |  | $ | 23,205  |  |  | $ | 16,703  | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our specialty risk management operations now exclude an
    allocation of corporate overhead, which is attributable to our
    agency operations. Prior to January 1, 2005, corporate
    overhead was only reflected in the specialty risk management
    operations segment. This reclassification for the allocation of
    corporate overhead more accurately presents our segments as a
    result of improved cost allocation information. As a result, the
    segment information for the years ended December 31, 2004
    and 2003 have been adjusted to reflect this allocation. For the
    years ended December 31, 2005, 2004, and 2003, the
    allocation of corporate overhead from the specialty risk
    management operations to the agency operations segment was
    $3.1 million, $3.5 million, and $2.8 million,
    respectively.

36



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | In addition to the reclassification for the allocation of
    corporate overhead as described above, we reclassified 2004 and
    2003 revenues related to the conversion of a west-coast
    commercial transportation program, which was converted to a
    specialty risk program with one of our subsidiaries, from the
    agency operations segment to the specialty risk management
    operations segment. Accordingly, the agency operations revenue
    and intersegment revenue have been reclassified. In addition,
    the overall net income related to this subsidiary was
    reclassified from the agency operations to the specialty risk
    management operations segment. As a result, pre-tax net income
    of $3.2 million and $2.0 million related to this
    subsidiary was reclassified to the specialty risk management
    operations pre-tax income from the agency operations segment for
    the years ended December 31, 2004 and 2003, respectively.
|   
|(3) | During 2004, we accelerated the recognition of $3.5 million
    in deferred claim revenue, as a result of an earlier than
    anticipated termination of two limited duration administrative
    services and multi-state claims run-off contracts. These
    contracts had been terminated by the liquidator for the
    companies during the third quarter of 2004. Had the contract not
    been terminated, we would have received additional claims fee
    revenue for continued claims handling services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



| |                       
| | ----------------------
| | 2005 compared to 2004:













37



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued




Other
Items  Reserves






| |                       
| | ----------------------
| | 2004 compared to 2003:







38



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued














39



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued






| |                  
| | -----------------
| | Agency Operations



|                        |  |                     |        |  |      |   |       |      |  |   |       | 
|----------------------- |  | ------------------- | ------ |  | ---- | - | ----- | ---- |  | - | ----- | 
|                        |  | For the Years Ended |       
|                        |  | December 31,        |       
|                        |  |                     |       
|                        |  | 2005                |        |  | 2004 |   |       | 2003 | 
|                        |  |                     |        |  |      |   |       |      | 
|Net commission(1)       |  | $                   | 11,304 |  |      | $ | 9,805 |      |  | $ | 9,378 | 
|Pre-tax income(1) & (2) |  | $                   | 3,343  |  |      | $ | 2,257 |      |  | $ | 2,064 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We reclassified 2004 and 2003 revenues related to the conversion
    of a west-coast commercial transportation program, which was
    converted to a specialty risk program with one of our
    subsidiaries, from the agency operations segment to the
    specialty risk management operations segment. Accordingly, the
    agency operations revenue and intersegment revenue have been
    reclassified. In addition, the overall net income related to
    this subsidiary was reclassified from the agency operations to
    the specialty risk management operations segment. As a result,
    pre-tax net income of $3.2 million and $2.0 million
    related to this subsidiary was reclassified to the specialty
    risk management operations pre-tax income from the agency
    operations segment for the years ended December 31, 2004
    and 2003, respectively.                                                                 
|   
|(2) | Our agency operations include an allocation of corporate
    overhead, which includes expenses associated with accounting,
    information services, legal, and other corporate services. The
    corporate overhead allocation excludes those expenses specific
    to the holding company. Prior to January 1, 2005, corporate
    overhead was only reflected in the specialty risk management
    operations segment. This reclassification for the allocation of
    corporate overhead more accurately presents our segments as a
    result of improved cost allocation information. As a result, the
    segment information for the years ended December 31, 2004
    and 2003 have been adjusted to reflect this allocation. For the
    years ended December 31, 2005, 2004, and 2003, the
    allocation of corporate overhead to the agency operations
    segment was $3.1 million, $3.5 million, and
    $2.8 million, respectively.



| |                       
| | ----------------------
| | 2005 compared to 2004:







| |                       
| | ----------------------
| | 2004 compared to 2003:





40



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued


Other Items




| |         
| | --------
| | Reserves



|                                   |           |                 |         |        |                 |   |         |                   |  |   |         |        | 
|---------------------------------- | --------- | --------------- | ------- | ------ | --------------- | - | ------- | ----------------- |  | - | ------- | ------ | 
|                                   |           | Minimum Reserve |         |        | Maximum Reserve |   |         |                  
|Line of Business                   |           | Range           |         |        | Range           |   |         | Selected Reserves | 
|                                   |           |                 |         |        |                 |   |         |                   | 
|Workers Compensation(1)           |           | $               | 143,398 |        |                 | $ | 163,247 |                   |  | $ | 153,242 |       
|Commercial Multiple Peril/ General |           |                 |         |        |                 |   |         |                   |  |   |         |       
|                                   | Liability |                 |         | 48,345 |                 |   |         | 56,343            |  |   |         | 52,506 | 
|Commercial Automobile              |           |                 | 40,570  |        |                 |   | 46,550  |                   |  |   | 44,382  |       
|Other                              |           |                 | 19,109  |        |                 |   | 22,802  |                   |  |   | 21,293  |       
|                                   |           |                 |         |        |                 |   |         |                   | 
|Total Net Reserves                 |           | $               | 251,422 |        |                 | $ | 288,942 |                   |  | $ | 271,423 |       
|                                   |           |                 |         |        |                 |   |         |                   | 




|    |                          
|--- | -------------------------
|(1) | Includes Residual Markets







41



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued




|                                            |  |              |         |                 |         |   |             |       |  |   |             |  |  |         |         |  |       |   |        |       |  |   |              |  |  |   |         |  |  |   |         | 
|------------------------------------------- |  | ------------ | ------- | --------------- | ------- | - | ----------- | ----- |  | - | ----------- |  |  | ------- | ------- |  | ----- | - | ------ | ----- |  | - | ------------ |  |  | - | ------- |  |  | - | ------- | 
|                                            |  |              |         | Incurred Losses |         |   | Paid Losses |       |  |  
|                                            |  | Reserves at  |         |                 |         |   |             |       |  |   | Reserves at | 
|                                            |  | December 31, |         |                 | Current |   |             | Prior |  |   | Total       |  |  | Current |         |  | Prior |   |        | Total |  |   | December 31, | 
|Line of Business                            |  | 2004         |         |                 | Year    |   |             | Years |  |   | Incurred    |  |  | Year    |         |  | Years |   |        | Paid  |  |   | 2005         | 
|                                            |  |              |         |                 |         |   |             |       |  |   |             |  |  |         |         |  |       |   |        |       |  |   |              | 
|Workers Compensation                       |  | $            | 112,086 |                 |         | $ | 63,219      |       |  | $ | 1,567       |  |  | $       | 64,786  |  |       | $ | 9,583  |       |  | $ | 38,487       |  |  | $ | 48,070  |  |  | $ | 128,802 | 
|Residual Markets                            |  |              | 19,391  |                 |         |   | 12,626      |       |  |   | 179         |  |  |         | 12,805  |  |       |   | 4,427  |       |  |   | 3,329        |  |  |   | 7,756   |  |  |   | 24,440  | 
|Commercial Multiple Peril/General Liability |  |              | 44,217  |                 |         |   | 21,375      |       |  |   | 392         |  |  |         | 21,767  |  |       |   | 707    |       |  |   | 12,771       |  |  |   | 13,478  |  |  |   | 52,506  | 
|Commercial Automobile                       |  |              | 33,235  |                 |         |   | 34,306      |       |  |   | 1,106       |  |  |         | 35,412  |  |       |   | 9,347  |       |  |   | 14,918       |  |  |   | 24,265  |  |  |   | 44,382  | 
|Other                                       |  |              | 18,067  |                 |         |   | 15,132      |       |  |   | 1,640       |  |  |         | 16,772  |  |       |   | 3,995  |       |  |   | 9,551        |  |  |   | 13,546  |  |  |   | 21,293  | 
|                                            |  |              |         |                 |         |   |             |       |  |   |             |  |  |         |         |  |       |   |        |       |  |   |              | 
|Net Reserves                                |  |              | 226,996 |                 |         | $ | 146,658     |       |  | $ | 4,884       |  |  | $       | 151,542 |  |       | $ | 28,059 |       |  | $ | 79,056       |  |  | $ | 107,115 |  |  |   | 271,423 | 
|                                            |  |              |         |                 |         |   |             |       |  |   |             |  |  |         |         |  |       |   |        |       |  |   |              | 
|Reinsurance Recoverable                     |  |              | 151,161 |                 |         |   |             |       |  |   |             |  |  |         |         |  |       |   |        |       |  |   |              |  |  |   |         |  |  |   | 187,254 | 
|                                            |  |              |         |                 |         |   |             |       |  |   |             |  |  |         |         |  |       |   |        |       |  |   |              | 
|Consolidated                                |  | $            | 378,157 |                 |         |   |             |       |  |   |             |  |  |         |         |  |       |   |        |       |  |   |              |  |  |   |         |  |  | $ | 458,677 | 
|                                            |  |              |         |                 |         |   |             |       |  |   |             |  |  |         |         |  |       |   |        |       |  |   |              | 

|                                            |  |              |         |              |              |   |                |                 |  |  |     |  
|------------------------------------------- |  | ------------ | ------- | ------------ | ------------ | - | -------------- | --------------- |  |  | --- | -
|                                            |  |              |         | Re-estimated |              |   |               
|                                            |  |              |         | reserves at  |              |   | Development as |                
|                                            |  | Reserves at  |         |              | December 31, |   |                | a percentage of | 
|                                            |  | December 31, |         |              | 2005 on      |   |                | prior year      | 
|Line of Business                            |  | 2004         |         |              | prior years  |   |                | reserves        | 
|                                            |  |              |         |              |              |   |                |                 | 
|Workers Compensation                       |  | $            | 112,086 |              |              | $ | 113,653        |                 |  |  | 1.4 | %
|Commercial Multiple Peril/General Liability |  |              | 44,217  |              |              |   | 44,609         |                 |  |  | 0.9 | %
|Commercial Automobile                       |  |              | 33,235  |              |              |   | 34,341         |                 |  |  | 3.3 | %
|Other                                       |  |              | 18,067  |              |              |   | 19,707         |                 |  |  | 9.1 | %
|                                            |  |              |         |              |              |   |                |                 | 
|Sub-total                                   |  |              | 207,605 |              |              |   | 212,310        |                 |  |  | 2.3 | %
|Residual Markets                            |  |              | 19,391  |              |              |   | 19,570         |                 |  |  | 0.9 | %
|                                            |  |              |         |              |              |   |                |                 | 
|Total Net Reserves                          |  | $            | 226,996 |              |              | $ | 231,880        |                 |  |  | 2.2 | %
|                                            |  |              |         |              |              |   |                |                 | 



| |                                                 
| | ------------------------------------------------
| | Workers Compensation Excluding Residual Markets



42



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued




| |                                            
| | -------------------------------------------
| | Commercial Multiple Peril/General Liability





| |                      
| | ---------------------
| | Commercial Automobile





| |      
| | -----
| | Other





| |                 
| | ----------------
| | Residual Markets



43



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued




Salary and Employee Benefits and Other Administrative
Expenses












Interest Expense


Liquidity and Capital
Resources


Income Taxes




44



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued




Liquidity and Capital Resources




|                        |                                                                |                                                                                      |        |        |        |   |        |        |        |   |        |        |        | 
|----------------------- | -------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                        |                                                                | For the Years Ended December 31,                                                     |       
|                        |                                                                |                                                                                      |       
|                        |                                                                | 2005                                                                                 |        |        | 2004   |   |        | 2003   |       
|                        |                                                                |                                                                                      |        |        |        |   |        |        |       
|Net income              |                                                                | $                                                                                    | 17,910 |        |        | $ | 14,061 |        |        | $ | 10,099 |       
|                        |                                                                |                                                                                      |        |        |        |   |        |        |       
|Regulated Subsidiaries: |                                                                |                                                                                      |        |        |        |   |        |        |        |   |        |       
|                        |                                                                | Net income                                                                           |        | $      | 13,508 |   |        | $      | 6,973  |   |        | $      | 3,928  | 
|                        |                                                                | Depreciation and amortization                                                        |        |        |       |   |        |        |       |   |        |        | 6      | 
|                        |                                                                | Interest                                                                             |        |        |       |   |        |        |       |   |        |        | 8      | 
|                        |                                                                |                                                                                      |        |        |        |   |        |        |       
|                        | Net income, excluding interest, depreciation, and amortization |                                                                                      |        | 13,508 |        |   |        | 6,973  |        |   |        | 3,942  |       
|                        |                                                                |                                                                                      |        |        |        |   |        |        |       
|                        |                                                                | Adjustments to reconcile net income to net cash provided by
    operating activities |        |        | 3,003  |   |        |        | 6,866  |   |        |        | 5,517  | 
|                        |                                                                | Changes in operating assets and liabilities                                          |        |        | 59,784 |   |        |        | 48,270 |   |        |        | 20,166 | 
|                        |                                                                |                                                                                      |        |        |        |   |        |        |       
|                        | Total adjustments                                              |                                                                                      |        | 62,787 |        |   |        | 55,136 |        |   |        | 25,683 |       
|                        | Depreciation and amortization                                  |                                                                                      |        |       |        |   |        |       |        |   |        | (6     | )     
|                        | Interest                                                       |                                                                                      |        |       |        |   |        |       |        |   |        | (8     | )     
|                        |                                                                |                                                                                      |        |        |        |   |        |        |       
|                        | Net cash provided by operating activities                      |                                                                                      | $      | 76,295 |        |   | $      | 62,109 |        |   | $      | 29,611 |       
|                        |                                                                |                                                                                      |        |        |        |   |        |        |       

45



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued


|                                                       |                                                                |                                                                                      |        |        |        |   |        |        |        |   |        |        |       | 
|------------------------------------------------------ | -------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ----- | 
|                                                       |                                                                | For the Years Ended December 31,                                                     |       
|                                                       |                                                                |                                                                                      |       
|                                                       |                                                                | 2005                                                                                 |        |        | 2004   |   |        | 2003   |       
|                                                       |                                                                |                                                                                      |        |        |        |   |        |        |       
|Non-regulated Subsidiaries:                            |                                                                |                                                                                      |        |        |        |   |        |        |        |   |        |       
|                                                       |                                                                | Net income                                                                           |        | $      | 4,402  |   |        | $      | 7,088  |   |        | $      | 6,171 | 
|                                                       |                                                                | Depreciation and amortization                                                        |        |        | 2,650  |   |        |        | 1,967  |   |        |        | 1,765 | 
|                                                       |                                                                | Interest                                                                             |        |        | 3,856  |   |        |        | 2,535  |   |        |        | 1,229 | 
|                                                       |                                                                |                                                                                      |        |        |        |   |        |        |       
|                                                       | Net income, excluding interest, depreciation, and amortization |                                                                                      |        | 10,908 |        |   |        | 11,590 |        |   |        | 9,165  |      
|                                                       |                                                                |                                                                                      |        |        |        |   |        |        |       
|                                                       |                                                                | Adjustments to reconcile net income to net cash provided by
    operating activities |        |        | 4,444  |   |        |        | (1,063 | ) |        |        | 2,365 | 
|                                                       |                                                                | Changes in operating assets and liabilities                                          |        |        | (3,194 | ) |        |        | 2,540  |   |        |        | 9,383 | 
|                                                       |                                                                |                                                                                      |        |        |        |   |        |        |       
|                                                       | Total adjustments                                              |                                                                                      |        | 1,250  |        |   |        | 1,477  |        |   |        | 11,748 |      
|                                                       | Depreciation and amortization                                  |                                                                                      |        | (2,650 | )      |   |        | (1,967 | )      |   |        | (1,765 | )    
|                                                       | Interest                                                       |                                                                                      |        | (3,856 | )      |   |        | (2,535 | )      |   |        | (1,229 | )    
|                                                       |                                                                |                                                                                      |        |        |        |   |        |        |       
|                                                       | Net cash provided by operating activities                      |                                                                                      | $      | 5,652  |        |   | $      | 8,565  |        |   | $      | 17,919 |      
|                                                       |                                                                |                                                                                      |        |        |        |   |        |        |       
|Consolidated total adjustments                         |                                                                |                                                                                      | 64,037 |        |        |   | 56,613 |        |        |   | 37,431 |       
|                                                       |                                                                |                                                                                      |        |        |        |   |        |        |       
|Consolidated net cash provided by operating activities |                                                                | $                                                                                    | 81,947 |        |        | $ | 70,674 |        |        | $ | 47,530 |       
|                                                       |                                                                |                                                                                      |        |        |        |   |        |        |       





| |                       
| | ----------------------
| | 2005 compared to 2004:









46



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued




| |                       
| | ----------------------
| | 2004 compared to 2003:







| |            
| | -----------
| | Other Items









47



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued








Accounting for Derivative
Instruments and Hedging Activities,












48



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued














.




49



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued






Contractual Obligations and Commitments




|                                                   |  |                        |         |           |          |   |         |             |  |          |            |  |           |            |        |  |  |   |         | 
|-------------------------------------------------- |  | ---------------------- | ------- | --------- | -------- | - | ------- | ----------- |  | -------- | ---------- |  | --------- | ---------- | ------ |  |  | - | ------- | 
|                                                   |  | Payments due by period |        
|                                                   |  |                        |        
|                                                   |  |                        |         | Less than |          |   | One to  |             |  | Three to |            |  | More than |           
|                                                   |  | Total                  |         |           | one year |   |         | three years |  |          | five years |  |           | five years |       
|                                                   |  |                        |         |           |          |   |         |             |  |          |            |  |           |            |       
|Non-regulated companies:                           |  |                        |         |           |          |   |         |             |  |          |            |  |           |            |        |  |  |   |         | 
|Lines of credit(1)                                 |  | $                      | 7,000   |           |          | $ | 7,000   |             |  | $        |           |  |           | $          |       |  |  | $ |        | 
|Senior debentures, excluding interest              |  |                        | 25,000  |           |          |   |        |             |  |          |           |  |           |            |       |  |  |   | 25,000  | 
|Junior subordinated debentures, excluding interest |  |                        | 30,930  |           |          |   |        |             |  |          |           |  |           |            |       |  |  |   | 30,930  | 
|Operating lease obligations(2)                     |  |                        | 13,375  |           |          |   | 2,442   |             |  |          | 4,061      |  |           |            | 3,133  |  |  |   | 3,739   | 
|Regulated companies:                               |  |                        |         |           |          |   |         |             |  |          |            |  |           |            |        |  |  |   |         | 
|Losses and loss adjustment expenses(3)             |  |                        | 458,677 |           |          |   | 153,617 |             |  |          | 179,900    |  |           |            | 68,134 |  |  |   | 57,026  | 
|                                                   |  |                        |         |           |          |   |         |             |  |          |            |  |           |            |       
|Total                                              |  | $                      | 534,982 |           |          | $ | 163,059 |             |  | $        | 183,961    |  |           | $          | 71,267 |  |  | $ | 116,695 | 
|                                                   |  |                        |         |           |          |   |         |             |  |          |            |  |           |            |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Relates to revolving lines of credit (excludes interest).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(2) | Consists of rental obligations under real estate leases related
    to branch offices. In addition, includes amounts related to
    equipment leases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(3) | The loss and loss adjustment expense payments do not have
    contractual maturity dates and the exact timing of payments
    cannot be predicted with certainty. However, based upon
    historical payment patterns, we have included an estimate of our
    gross losses and loss adjustment expenses. In addition, we have
    anticipated cash receipts on reinsurance recoverables on unpaid
    losses and loss adjustment expenses of $187.3 million, of
    which we estimate that these payments to be paid for losses and
    loss adjustment expenses for the periods less than one year, one
    to three years, three to five years, and more than five years,
    to be $51.8 million, $71.7 million,
    $32.9 million, and $30.8 million, respectively,
    resulting in net losses and loss adjustment expenses of
    $101.8 million, $108.2 million, $35.2 million,
    and $26.2 million, respectively.

50



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued




Regulatory and Rating Issues












51



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued




|                                                 |  |                 |  |       |        |  
|------------------------------------------------ |  | --------------- |  | ----- | ------ | -
|Ratio                                            |  | Usual Range     |  | Value |       
|                                                 |  |                 |  |       |       
|Company: Star                                    |  |                 |  |       |        |  
|Investment Yield                                 |  | <10% or > 4.5%  |  |       | 2.6%(1 | )
|Liabilities to Liquid Assets                     |  | Under 105%      |  |       | 108%(2 | )
|Company: Savers                                  |  |                 |  |       |        |  
|Change in Net Writings                           |  | <33% or > (33)% |  |       | 151%(3 | )
|Company: Williamsburg                            |  |                 |  |       |        |  
|Change in Net Writings                           |  | <33% or> (33)%  |  |       | 453%(3 | )
|Gross Agents Balances to Policyholders Surplus |  | Under 40%       |  |       | 50%(4  | )
|Company: Ameritrust                              |  |                 |  |       |        |  
|Change in Net Writings                           |  | <33% or> (33)%  |  |       | 82%(3  | )






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The low investment yield is affected by an interest environment
    where rates are still relatively low. During March 2005, Star
    transferred $84.0 million in invested assets to its
    subsidiaries pursuant to an Intercompany Reinsurance Agreement.
    As a result of this transfer, the average invested assets used
    in the calculation were higher than the monthly weighted
    average. Monthly weighted average invested assets would produce
    a yield of 3.02%. Also contributing to the low yield was a shift
    in investment strategy toward greater allocation to municipal
    bonds, which have lower yields than taxable bonds.                                                                             
|   
|(2) | The Liabilities to Liquid Assets ratio increase to 108% was
    primarily related to the transfer by Star of $84.0 million
    in invested bond assets to its subsidiaries pursuant to an
    Intercompany Reinsurance Agreement, which therefore reduced
    liquid assets. Ceded premium payables increased
    $18.9 million as a result of the intercompany pooling
    activity. Excluding the effect of intercompany pooling, the
    ratio would have been 99.5%, below the threshold of 105%. Also
    contributing to the high ratio was an increase in the provision
    for reinsurance of $3.7 million in 2005.                                                                                                                 
|   
|(3) | Effective January 1, 2005, the Insurance Company
    Subsidiaries began participating in an Intercompany Reinsurance
    Agreement, whereby each participating affiliate cedes 100% of
    its business to Star. Thereafter, Star cedes to each
    participating affiliate based on their respective participation
    percentages, from which each affiliate has agreed to reinsure
    Star. Excluding the intercompany pooling activity, the Change in
    Net Writings ratio would have been within the normal range for
    2005. In addition, Savers ratio was impacted by an increase of
    $4.4 million in commercial multi-peril written premium for
    2005 as a result of retention of existing business and new
    business.
|   
|(4) | The Gross Agents Balances to Policyholders Surplus
    on Williamsburg was impacted by the previously mentioned
    Intercompany Reinsurance Agreement. Williamsburgs assumed
    premium receivable increased $5.1 million as a result of
    intercompany pooling activity. Although Savers and Ameritrust
    experienced a significant increase in such balances, the results
    remained within the usual range. Excluding the intercompany
    pooling activity, this ratio would have been within the usual
    range for 2005.                                                                                                                                                                                                  



52



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued


Reinsurance Considerations






|                                  |  |                           |       |  |                         |   |        |           |  |  |     | 
|--------------------------------- |  | ------------------------- | ----- |  | ----------------------- | - | ------ | --------- |  |  | --- | 
|                                  |  | Reinsurance Premium Ceded |       |  | Reinsurance Recoverable |   |        | A.M. Best | 
|Reinsurer                         |  | December 31, 2005         |       |  | December 31, 2005       |   |        | Rating    | 
|                                  |  |                           |       |  |                         |   |        |           | 
|                                  |  | (In thousands)            |       |  | (In thousands)          |   |        |          
|Employers Reinsurance Corporation |  | $                         | 9,525 |  |                         | $ | 93,349 |           |  |  | A   | 
|Motors Insurance Company          |  |                           | 5,469 |  |                         |   | 12,451 |           |  |  | A-  | 
|Aspen Insurance UK Ltd.           |  |                           | 4,796 |  |                         |   | 6,399  |           |  |  | A   | 
|General Reinsurance Company       |  |                           | 4,663 |  |                         |   | 9,791  |           |  |  | A++ | 
|Munich American Reinsurance       |  |                           | 9,178 |  |                         |   | 15,933 |           |  |  | A+  | 



|                             |  |      |        |   |      |   |        |  
|---------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                             |  | 2005 |        |   | 2004 |  
|                             |  |      |        |   |      |  
|Gross Exposure               |  | $    | 14,046 |   |      | $ | 14,044 |  
|Collateral or other security |  |      | (2,749 | ) |      |   | (3,323 | )
|Allowance                    |  |      | (9,662 | ) |      |   | (8,324 | )
|                             |  |      |        |   |      |  
|Net Exposure                 |  | $    | 1,635  |   |      | $ | 2,397  |  
|                             |  |      |        |   |      |  



53



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued


Intercompany Pooling Agreement




Off-Balance Sheet Arrangements




Convertible Note




54



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued


Recent Accounting Pronouncements


Share-Based Payment Accounting for Stock Issued to
Employees.


Accounting
Changes and Error Corrections, a replacement of APB Opinion
No. 20 and FASB Statement No. 3.


Accounting by Insurance Enterprises for Deferred Acquisition
Costs in Connection with Modifications or Exchanges of Insurance
Contracts,


55



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued


Related Party Transactions


 Related Party Transaction


Item 7A.     Qualitative and
Quantitative Disclosures About Market Risk










56



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued




|                          |  |                   |         |   |                 |   |         |                 |  |   |         |  
|------------------------- |  | ----------------- | ------- | - | --------------- | - | ------- | --------------- |  | - | ------- | -
|                          |  | Rates Down 100bps |         |   | Rates Unchanged |   |         | Rates Up 100bps | 
|                          |  |                   |         |   |                 |   |         |                 | 
|Market Value              |  | $                 | 417,437 |   |                 | $ | 402,195 |                 |  | $ | 387,063 |  
|Yield to Maturity or Call |  |                   | 3.51    | % |                 |   | 4.51    | %               |  |   | 5.51    | %
|Effective Duration        |  |                   | 3.63    |   |                 |   | 3.73    |                 |  |   | 3.82    |  





Accounting for
Derivative Instruments and Hedging Activities,






Item 8.     Financial
Statements and Supplementary Data


 Quarterly Financial Data (Unaudited)


Item 9.     Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure








57



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued






Item 9A.     Controls and
Procedures


Evaluation of Disclosure Controls and Procedures.






Managements Report on Internal Control over Financial
Reporting








58



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued


Changes in Internal Control over Financial Reporting




Item 9B.     Other
Information




PART III




Item 10.     Directors and
Executive Officers of the Registrant




Item 11.     Executive
Compensation


Executive Compensation Compensation of Directors Employment Contracts Report of Compensation
Committee of the Board on Executive Compensation Performance Graph


59



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued






|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters



|                                                           |       |                                      |           |           |                         |   |      |                           |  |  |           |           | 
|---------------------------------------------------------- | ----- | ------------------------------------ | --------- | --------- | ----------------------- | - | ---- | ------------------------- |  |  | --------- | --------- | 
|                                                           |       | Equity Compensation Plan Information |           |           | Number of securities    |  
|                                                           |       |                                      |           |           | remaining available for |  
|                                                           |       | Number of securities to              |           |           | Weighted-average        |   |      | future issuance under     | 
|                                                           |       | be issued upon exercise              |           |           | exercise price of       |   |      | equity compensation       | 
|                                                           |       | of outstanding options,              |           |           | outstanding options,    |   |      | plans (excluding          | 
|                                                           |       | warrants and rights                  |           |           | warrants and rights     |   |      | securities in column (a)) | 
|Plan category                                              |       | (a)                                  |           |           | (b)                     |   |      | (c)                       | 
|                                                           |       |                                      |           |           |                         |   |      |                           | 
|Equity compensation plans approved by security holders     |       |                                      | 1,605,901 |           |                         | $ | 5.42 |                           |  |  | 1,956,395 |          
|Equity compensation plans not approved by security holders |       |                                      |          |           |                         |   |     |                           |  |  |          |          
|                                                           |       |                                      |           |           |                         |   |      |                           | 
|                                                           | Total |                                      |           | 1,605,901 |                         |   | $    | 5.42                      |  |  |           | 1,956,395 | 
|                                                           |       |                                      |           |           |                         |   |      |                           | 

Item 13.     Certain
Relationships and Related Transactions


Certain Transactions with Management


Item 14.     Principal
Accountant Fees and Services


The Second Proposal on Which You Are
Voting  Ratification of Appointment of Independent
Accountants


60



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


MANAGEMENTS DISCUSSION AND
ANALYSIS  continued









MEADOWBROOK INSURANCE GROUP, INC.




PART IV




|         |                                        
|-------- | ---------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules



|   |  |                                                                                                                                                                                                            |  |      |        | 
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | 
|   |  |                                                                                                                                                                                                            |  | Page |       
|   |  |                                                                                                                                                                                                            |  |      |       
|1. |  | List of Financial Statements:                                                                                                                                                                              |  |      |        | 
|   |  | Report of Independent Registered Public
    Accounting Firm on Financial Statements                                                                                                                        |  |      | 62     | 
|   |  | Report of Independent Registered Public
    Accounting Firm on Internal Control over Financial Reporting                                                                                                   |  |      | 63     | 
|   |  | Report of Independent Registered Public Accounting Firm on
    Financial Statements                                                                                                                        |  |      | 64     | 
|   |  | Consolidated Balance Sheet 
    December 31, 2005 and 2004                                                                                                                                                |  |      | 65     | 
|   |  | Consolidated Statement of Income  For
    Years Ended December 31, 2005, 2004, and 2003                                                                                                                   |  |      | 66     | 
|   |  | Consolidated Statement of Comprehensive
    Income  For Years Ended December 31, 2005, 2004, and
    2003                                                                                                 |  |      | 67     | 
|   |  | Consolidated Statement of
    Shareholders Equity  For Years Ended
    December 31, 2005, 2004, and 2003                                                                                                 |  |      | 68     | 
|   |  | Consolidated Statement of Cash Flows 
    For Years Ended December 31, 2005, 2004, and 2003                                                                                                               |  |      | 69     | 
|   |  | Notes to Consolidated Financial
    Statements                                                                                                                                                             |  |      | 70-100 | 
|2. |  | Financial Statement Schedules                                                                                                                                                                              |  |      |        | 
|   |  | Schedule I Summary of Investments
    Other Than Investments in Related Parties                                                                                                                            |  |      | 101    | 
|   |  | Schedule II Condensed Financial
    Information of Registrant                                                                                                                                              |  |      | 102    | 
|   |  | Schedule III Supplementary Insurance
    Information                                                                                                                                                       |  |      | 106    | 
|   |  | Schedule IV Reinsurance                                                                                                                                                                                    |  |      | 109    | 
|   |  | Schedule V Valuation and qualifying
    accounts                                                                                                                                                           |  |      | 110    | 
|   |  | Schedule VI Supplemental Information
    Concerning Property and Casualty Insurance Operations                                                                                                             |  |      | 111    | 
|3. |  | Exhibits: The Exhibits listed on the accompanying
    Exhibit Index immediately following the financial statement
    schedule are filed as part of, or incorporated by reference
    into, this Form 10-K |  |      |        | 



61



---



##### 






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





















62



---



##### 






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

























63



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM















64



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.





CONSOLIDATED BALANCE SHEET


|                                        |                                                                                                                                |                       |                                            |         |         |         |   |         |         |         | 
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | --------------------- | ------------------------------------------ | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                        |                                                                                                                                | December 31,          |                                           
|                                        |                                                                                                                                |                       |                                           
|                                        |                                                                                                                                | 2005                  |                                            |         | 2004    |        
|                                        |                                                                                                                                |                       |                                            |         |         |        
|                                        |                                                                                                                                | (In thousands, except |                                           
|                                        |                                                                                                                                | share data)           |                                           
|ASSETS                                 
|Investments                             |                                                                                                                                |                       |                                            |         |         |         |   |        
|                                        | Debt securities available for sale, at fair value (amortized
    cost of $403,947 and $324,966 in 2005 and 2004, respectively) |                       | $                                          | 402,195 |         |         | $ | 332,242 |        
|                                        | Equity securities available for sale, at fair value (cost of $0
    in 2004)                                                   |                       |                                            |        |         |         |   | 39      |        
|                                        |                                                                                                                                |                       |                                            |         |         |        
|                                        |                                                                                                                                |                       | Total investments                          |         |         | 402,195 |   |         |         | 332,281 | 
|                                        | Cash and cash equivalents                                                                                                      |                       |                                            | 58,038  |         |         |   | 69,875  |        
|                                        | Accrued investment income                                                                                                      |                       |                                            | 4,953   |         |         |   | 4,331   |        
|                                        | Premiums and agent balances receivable (net of allowance of
    $3,901 and $4,336 in 2005 and 2004, respectively)              |                       |                                            | 84,807  |         |         |   | 84,094  |        
|                                        | Reinsurance recoverable on:                                                                                                    |                       |                                            |         |         |         |   |         |        
|                                        |                                                                                                                                | Paid losses           |                                            |         | 15,327  |         |   |         | 17,908  |        
|                                        |                                                                                                                                | Unpaid losses         |                                            |         | 187,254 |         |   |         | 151,161 |        
|                                        | Prepaid reinsurance premiums                                                                                                   |                       |                                            | 24,588  |         |         |   | 26,075  |        
|                                        | Deferred policy acquisition costs                                                                                              |                       |                                            | 26,371  |         |         |   | 25,167  |        
|                                        | Deferred federal income taxes, net                                                                                             |                       |                                            | 16,630  |         |         |   | 14,956  |        
|                                        | Goodwill                                                                                                                       |                       |                                            | 30,802  |         |         |   | 28,997  |        
|                                        | Other assets                                                                                                                   |                       |                                            | 50,379  |         |         |   | 46,851  |        
|                                        |                                                                                                                                |                       |                                            |         |         |        
|                                        |                                                                                                                                |                       | Total assets                               |         | $       | 901,344 |   |         | $       | 801,696 | 
|                                        |                                                                                                                                |                       |                                            |         |         |        
|                                       
|LIABILITIES AND SHAREHOLDERS EQUITY   
|Liabilities                             |                                                                                                                                |                       |                                            |         |         |         |   |        
|                                        | Losses and loss adjustment expenses                                                                                            |                       | $                                          | 458,677 |         |         | $ | 378,157 |        
|                                        | Unearned premiums                                                                                                              |                       |                                            | 140,990 |         |         |   | 134,302 |        
|                                        | Debt                                                                                                                           |                       |                                            | 7,000   |         |         |   | 12,144  |        
|                                        | Debentures                                                                                                                     |                       |                                            | 55,930  |         |         |   | 35,310  |        
|                                        | Accounts payable and accrued expenses                                                                                          |                       |                                            | 26,667  |         |         |   | 38,837  |        
|                                        | Reinsurance funds held and balances payable                                                                                    |                       |                                            | 15,240  |         |         |   | 17,832  |        
|                                        | Payable to insurance companies                                                                                                 |                       |                                            | 6,684   |         |         |   | 6,990   |        
|                                        | Other liabilities                                                                                                              |                       |                                            | 12,791  |         |         |   | 10,614  |        
|                                        |                                                                                                                                |                       |                                            |         |         |        
|                                        |                                                                                                                                |                       | Total liabilities                          |         |         | 723,979 |   |         |         | 634,186 | 
|                                        |                                                                                                                                |                       |                                            |         |         |        
|Commitments and contingencies (Note 14) |                                                                                                                                |                       |                                            |         |         |         |   |        
|Shareholders Equity                    |                                                                                                                                |                       |                                            |         |         |         |   |        
|                                        | Common stock, $0.01 stated value; authorized 50,000,000 shares;
    28,672,009 and 29,074,832 shares issued and outstanding    |                       |                                            | 287     |         |         |   | 290     |        
|                                        | Additional paid-in capital                                                                                                     |                       |                                            | 124,819 |         |         |   | 126,085 |        
|                                        | Retained earnings                                                                                                              |                       |                                            | 54,248  |         |         |   | 37,175  |        
|                                        | Note receivable from officer                                                                                                   |                       |                                            | (859    | )       |         |   | (868    | )      
|                                        | Accumulated other comprehensive (loss) income                                                                                  |                       |                                            | (1,130  | )       |         |   | 4,828   |        
|                                        |                                                                                                                                |                       |                                            |         |         |        
|                                        |                                                                                                                                |                       | Total shareholders equity                 |         |         | 177,365 |   |         |         | 167,510 | 
|                                        |                                                                                                                                |                       |                                            |         |         |        
|                                        |                                                                                                                                |                       | Total liabilities and shareholders equity |         | $       | 901,344 |   |         | $       | 801,696 | 
|                                        |                                                                                                                                |                       |                                            |         |         |        



65



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##### 



MEADOWBROOK INSURANCE GROUP, INC.





CONSOLIDATED STATEMENT OF INCOME


|                                         |                                                    |                                       |        |            |         |   |        |            |         |   |        |            |         |  
|---------------------------------------- | -------------------------------------------------- | ------------------------------------- | ------ | ---------- | ------- | - | ------ | ---------- | ------- | - | ------ | ---------- | ------- | -
|                                         |                                                    | For the Years Ended December 31,      |       
|                                         |                                                    |                                       |       
|                                         |                                                    | 2005                                  |        |            | 2004    |   |        | 2003       |        
|                                         |                                                    |                                       |        |            |         |   |        |            |        
|                                         |                                                    | (In thousands, except per share data) |       
|Revenues                                 |                                                    |                                       |        |            |         |   |        |            |         |   |        |           
|                                         | Premiums earned                                    |                                       |        |            |         |   |        |            |         |   |        |            |        
|                                         |                                                    | Gross                                 |        | $          | 325,522 |   |        | $          | 288,868 |   |        | $          | 212,281 |  
|                                         |                                                    | Ceded                                 |        |            | (75,563 | ) |        |            | (74,375 | ) |        |            | (61,076 | )
|                                         |                                                    |                                       |        |            |         |   |        |            |        
|                                         | Net earned premiums                                |                                       |        | 249,959    |         |   |        | 214,493    |         |   |        | 151,205    |        
|                                         | Net commissions and fees                           |                                       |        | 35,916     |         |   |        | 40,535     |         |   |        | 45,291     |        
|                                         | Net investment income                              |                                       |        | 17,975     |         |   |        | 14,911     |         |   |        | 13,484     |        
|                                         | Net realized gains                                 |                                       |        | 167        |         |   |        | 339        |         |   |        | 823        |        
|                                         |                                                    |                                       |        |            |         |   |        |            |        
|                                         |                                                    | Total revenues                        |        |            | 304,017 |   |        |            | 270,278 |   |        |            | 210,803 |  
|                                         |                                                    |                                       |        |            |         |   |        |            |        
|Expenses                                 |                                                    |                                       |        |            |         |   |        |            |         |   |        |           
|                                         | Losses and loss adjustment expenses                |                                       |        | 237,775    |         |   |        | 212,337    |         |   |        | 150,998    |        
|                                         | Reinsurance recoveries                             |                                       |        | (86,233    | )       |   |        | (76,399    | )       |   |        | (52,526    | )      
|                                         |                                                    |                                       |        |            |         |   |        |            |        
|                                         | Net losses and loss adjustment expenses            |                                       |        | 151,542    |         |   |        | 135,938    |         |   |        | 98,472     |        
|                                         | Salaries and employee benefits                     |                                       |        | 51,331     |         |   |        | 52,297     |         |   |        | 48,238     |        
|                                         | Policy acquisition and other underwriting expenses |                                       |        | 44,439     |         |   |        | 33,424     |         |   |        | 23,606     |        
|                                         | Other administrative expenses                      |                                       |        | 27,183     |         |   |        | 25,964     |         |   |        | 23,232     |        
|                                         | Interest expense                                   |                                       |        | 3,856      |         |   |        | 2,281      |         |   |        | 977        |        
|                                         |                                                    |                                       |        |            |         |   |        |            |        
|                                         |                                                    | Total expenses                        |        |            | 278,351 |   |        |            | 249,904 |   |        |            | 194,525 |  
|                                         |                                                    |                                       |        |            |         |   |        |            |        
|Income before taxes and equity earnings  |                                                    |                                       | 25,666 |            |         |   | 20,374 |            |         |   | 16,278 |           
|                                         |                                                    |                                       |        |            |         |   |        |            |        
|                                         | Federal and state income tax expense               |                                       |        | 7,757      |         |   |        | 6,352      |         |   |        | 6,182      |        
|                                         | Equity earnings of affiliates                      |                                       |        | 1          |         |   |        | 39         |         |   |        | 3          |        
|                                         |                                                    |                                       |        |            |         |   |        |            |        
|Net income                               |                                                    | $                                     | 17,910 |            |         | $ | 14,061 |            |         | $ | 10,099 |           
|                                         |                                                    |                                       |        |            |         |   |        |            |        
|Earnings Per Share                       |                                                    |                                       |        |            |         |   |        |            |         |   |        |           
|                                         | Basic                                              |                                       | $      | 0.62       |         |   | $      | 0.48       |         |   | $      | 0.35       |        
|                                         | Diluted                                            |                                       | $      | 0.60       |         |   | $      | 0.48       |         |   | $      | 0.35       |        
|Weighted average number of common shares |                                                    |                                       |        |            |         |   |        |            |         |   |        |           
|                                         | Basic                                              |                                       |        | 28,961,229 |         |   |        | 29,048,069 |         |   |        | 29,188,967 |        
|                                         | Diluted                                            |                                       |        | 29,653,067 |         |   |        | 29,420,508 |         |   |        | 29,268,799 |        



66



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MEADOWBROOK INSURANCE GROUP, INC.





CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME


|           |                                         |                                                                                 |        |        |        |   |        |        |        |   |        |        |      |  
|---------- | --------------------------------------- | ------------------------------------------------------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ---- | -
|           |                                         | For the Years Ended December 31,                                                |       
|           |                                         |                                                                                 |       
|           |                                         | 2005                                                                            |        |        | 2004   |   |        | 2003   |       
|           |                                         |                                                                                 |        |        |        |   |        |        |       
|           |                                         | (In thousands)                                                                  |       
|Net income |                                         | $                                                                               | 17,910 |        |        | $ | 14,061 |        |        | $ | 10,099 |       
|           | Other comprehensive income, net of tax: |                                                                                 |        |        |        |   |        |        |        |   |        |        |     
|           |                                         | Unrealized losses on securities                                                 |        |        | (6,023 | ) |        |        | (2,364 | ) |        |        | (814 | )
|           |                                         | Net deferred derivative gain-hedging activity                                   |        |        | 9      |   |        |        |       |   |        |        |     |  
|           |                                         | Deconsolidation of subsidiary                                                   |        |        |       |   |        |        | (45    | ) |        |        |     |  
|           |                                         | Less: reclassification adjustment for gains (losses) included in
    net income |        |        | 56     |   |        |        | (222   | ) |        |        | (200 | )
|           |                                         |                                                                                 |        |        |        |   |        |        |       
|           | Other comprehensive loss                |                                                                                 |        | (5,958 | )      |   |        | (2,631 | )      |   |        | (1,014 | )   
|           |                                         |                                                                                 |        |        |        |   |        |        |       
|           | Comprehensive income                    |                                                                                 | $      | 11,952 |        |   | $      | 11,430 |        |   | $      | 9,085  |     
|           |                                         |                                                                                 |        |        |        |   |        |        |       



67



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##### 



MEADOWBROOK INSURANCE GROUP, INC.





CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY


|                                                         |  |                                                       |     |             |         |   |         |          |      |   |              |               |  |        |       |   |               |   |        |   |  |   |         |  
|-------------------------------------------------------- |  | ----------------------------------------------------- | --- | ----------- | ------- | - | ------- | -------- | ---- | - | ------------ | ------------- |  | ------ | ----- | - | ------------- | - | ------ | - |  | - | ------- | -
|                                                         |  | For the Years Ended December 31, 2005, 2004, and 2003 |    
|                                                         |  |                                                       |    
|                                                         |  |                                                       |     | Accumulated |         |   |        
|                                                         |  |                                                       |     | Other       |         |   |        
|                                                         |  |                                                       |     | Additional  |         |   |         |          | Note |   |              | Comprehensive |  |        | Total |  
|                                                         |  | Common                                                |     |             | Paid-In |   |         | Retained |      |   | Receivable   |               |  | Income |       |   | Shareholders |  
|                                                         |  | Stock                                                 |     |             | Capital |   |         | Earnings |      |   | from Officer |               |  | (Loss) |       |   | Equity        |  
|                                                         |  |                                                       |     |             |         |   |         |          |      |   |              |               |  |        |       |   |               |  
|                                                         |  | (In thousands)                                        |    
|Balances January 1, 2003                                 |  | $                                                     | 296 |             |         | $ | 127,429 |          |      | $ | 12,073       |               |  | $      | (876  | ) |               | $ | 8,473  |   |  | $ | 147,395 |  
|Unrealized depreciation available for sale securities    |  |                                                       |    |             |         |   |        |          |      |   |             |               |  |        |      |   |               |   | (1,014 | ) |  |   | (1,014  | )
|Stock-based employee compensation                        |  |                                                       |    |             |         |   | 189     |          |      |   |             |               |  |        |      |   |               |   |       |   |  |   | 189     |  
|Retirement of 569,059 shares of common stock             |  |                                                       | (6  | )           |         |   | (2,437  | )        |      |   | 897          |               |  |        |      |   |               |   |       |   |  |   | (1,546  | )
|Note receivable from an officer                          |  |                                                       |    |             |         |   |        |          |      |   |             |               |  |        | (10   | ) |               |   |       |   |  |   | (10     | )
|Net income                                               |  |                                                       |    |             |         |   |        |          |      |   | 10,099       |               |  |        |      |   |               |   |       |   |  |   | 10,099  |  
|                                                         |  |                                                       |     |             |         |   |         |          |      |   |              |               |  |        |       |   |               |  
|Balances December 31, 2003                               |  |                                                       | 290 |             |         |   | 125,181 |          |      |   | 23,069       |               |  |        | (886  | ) |               |   | 7,459  |   |  |   | 155,113 |  
|Unrealized depreciation on available for sale securities |  |                                                       |    |             |         |   |        |          |      |   |             |               |  |        |      |   |               |   | (2,586 | ) |  |   | (2,586  | )
|Deconsolidation of subsidiary                            |  |                                                       |    |             |         |   |        |          |      |   | 45           |               |  |        |      |   |               |   | (45    | ) |  |   |        |  
|Long term incentive plan; restricted stock award         |  |                                                       |    |             |         |   | 650     |          |      |   |             |               |  |        |      |   |               |   |       |   |  |   | 650     |  
|Stock-based employee compensation                        |  |                                                       |    |             |         |   | 78      |          |      |   |             |               |  |        |      |   |               |   |       |   |  |   | 78      |  
|Issuance of 54,500 shares of common stock                |  |                                                       |    |             |         |   | 185     |          |      |   |             |               |  |        |      |   |               |   |       |   |  |   | 185     |  
|Retirement of 2,103 shares of common stock               |  |                                                       |    |             |         |   | (9      | )        |      |   |             |               |  |        |      |   |               |   |       |   |  |   | (9      | )
|Note receivable from an officer                          |  |                                                       |    |             |         |   |        |          |      |   |             |               |  |        | (18   | ) |               |   |       |   |  |   | (18     | )
|Net income                                               |  |                                                       |    |             |         |   |        |          |      |   | 14,061       |               |  |        |      |   |               |   |       |   |  |   | 14,061  |  
|                                                         |  |                                                       |     |             |         |   |         |          |      |   |              |               |  |        |       |   |               |  
|Balances December 31, 2004                               |  |                                                       | 290 |             |         |   | 126,085 |          |      |   | 37,175       |               |  |        | (868  | ) |               |   | 4,828  |   |  |   | 167,510 |  
|Unrealized depreciation on available for sale securities |  |                                                       |    |             |         |   |        |          |      |   |             |               |  |        |      |   |               |   | (5,967 | ) |  |   | (5,967  | )
|Net deferred derivative gain hedging activity           |  |                                                       |    |             |         |   |        |          |      |   |             |               |  |        |      |   |               |   | 9      |   |  |   | 9       |  
|Long term incentive plan; restricted stock award         |  |                                                       |    |             |         |   | 923     |          |      |   |             |               |  |        |      |   |               |   |       |   |  |   | 923     |  
|Stock-based employee compensation                        |  |                                                       |    |             |         |   | 41      |          |      |   |             |               |  |        |      |   |               |   |       |   |  |   | 41      |  
|Issuance of 382,825 shares of common stock               |  |                                                       | 4   |             |         |   | 1,193   |          |      |   |             |               |  |        |      |   |               |   |       |   |  |   | 1,197   |  
|Retirement of 785,648 shares of common stock             |  |                                                       | (7  | )           |         |   | (3,423  | )        |      |   | (837         | )             |  |        |      |   |               |   |       |   |  |   | (4,267  | )
|Note receivable from an officer                          |  |                                                       |    |             |         |   |        |          |      |   |             |               |  |        | 9     |   |               |   |       |   |  |   | 9       |  
|Net income                                               |  |                                                       |    |             |         |   |        |          |      |   | 17,910       |               |  |        |      |   |               |   |       |   |  |   | 17,910  |  
|                                                         |  |                                                       |     |             |         |   |         |          |      |   |              |               |  |        |       |   |               |  
|Balances December 31, 2005                               |  | $                                                     | 287 |             |         | $ | 124,819 |          |      | $ | 54,248       |               |  | $      | (859  | ) |               | $ | (1,130 | ) |  | $ | 177,365 |  
|                                                         |  |                                                       |     |             |         |   |         |          |      |   |              |               |  |        |       |   |               |  



68



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##### 



MEADOWBROOK INSURANCE GROUP, INC.





CONSOLIDATED STATEMENT OF CASH FLOWS


|                                                                            |                                                                                       |                                                                              |                                                     |        |          |          |   |        |          |         |   |        |         |         |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | --------------------------------------------------- | ------ | -------- | -------- | - | ------ | -------- | ------- | - | ------ | ------- | ------- | -
|                                                                            |                                                                                       | For the Years Ended December 31,                                             |                                                    
|                                                                            |                                                                                       |                                                                              |                                                    
|                                                                            |                                                                                       | 2005                                                                         |                                                     |        | 2004     |          |   | 2003   |         
|                                                                            |                                                                                       |                                                                              |                                                     |        |          |          |   |        |         
|                                                                            |                                                                                       | (In thousands)                                                               |                                                    
|Cash Flows From Operating Activities                                        |                                                                                       |                                                                              |                                                     |        |          |          |   |        |          |         |   |       
|                                                                            | Net income                                                                            |                                                                              | $                                                   | 17,910 |          |          | $ | 14,061 |          |         | $ | 10,099 |        
|                                                                            |                                                                                       |                                                                              |                                                     |        |          |          |   |        |         
|                                                                            | Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                                              |                                                     |        |          |          |   |        |          |         |   |        |        
|                                                                            |                                                                                       | Amortization of other intangible assets                                      |                                                     |        | 198      |          |   |        | 376      |         |   |        | 353     |        
|                                                                            |                                                                                       | Amortization of deferred debenture issuance costs                            |                                                     |        | 175      |          |   |        | 110      |         |   |        | 11      |        
|                                                                            |                                                                                       | Depreciation of furniture, equipment, and building                           |                                                     |        | 2,452    |          |   |        | 1,591    |         |   |        | 1,418   |        
|                                                                            |                                                                                       | Net accretion of discount and premiums on bonds                              |                                                     |        | 2,395    |          |   |        | 1,856    |         |   |        | 1,798   |        
|                                                                            |                                                                                       | Gain (loss) on sale of investments                                           |                                                     |        | 86       |          |   |        | (337     | )       |   |        | (303    | )      
|                                                                            |                                                                                       | Gain on sale of fixed assets                                                 |                                                     |        | (170     | )        |   |        | (98      | )       |   |        |        |        
|                                                                            |                                                                                       | Stock-based employee compensation                                            |                                                     |        | 41       |          |   |        | 78       |         |   |        | 189     |        
|                                                                            |                                                                                       | Long term incentive plan expense                                             |                                                     |        | 923      |          |   |        | 650      |         |   |        |        |        
|                                                                            |                                                                                       | Deferred income tax expense                                                  |                                                     |        | 1,347    |          |   |        | 1,577    |         |   |        | 4,415   |        
|                                                                            | Changes in operating assets and liabilities:                                          |                                                                              |                                                     |        |          |          |   |        |          |         |   |        |        
|                                                                            | Decrease (increase) in:                                                               |                                                                              |                                                     |        |          |          |   |        |          |         |   |        |        
|                                                                            |                                                                                       | Premiums and agent balances receivable                                       |                                                     |        | (713     | )        |   |        | (6,277   | )       |   |        | (6,134  | )      
|                                                                            |                                                                                       | Reinsurance recoverable on paid and unpaid losses                            |                                                     |        | (33,513  | )        |   |        | (2,445   | )       |   |        | 37,201  |        
|                                                                            |                                                                                       | Prepaid reinsurance premiums                                                 |                                                     |        | 1,488    |          |   |        | (5,157   | )       |   |        | (2,377  | )      
|                                                                            |                                                                                       | Deferred policy acquisition costs                                            |                                                     |        | (1,204   | )        |   |        | (5,773   | )       |   |        | (7,424  | )      
|                                                                            |                                                                                       | Other assets                                                                 |                                                     |        | 5,612    |          |   |        | 2,772    |         |   |        | (3,747  | )      
|                                                                            | Increase (decrease) in:                                                               |                                                                              |                                                     |        |          |          |   |        |          |         |   |        |        
|                                                                            |                                                                                       | Losses and loss adjustment expenses                                          |                                                     |        | 80,521   |          |   |        | 38,692   |         |   |        | (35,468 | )      
|                                                                            |                                                                                       | Unearned premiums                                                            |                                                     |        | 6,688    |          |   |        | 24,625   |         |   |        | 40,999  |        
|                                                                            |                                                                                       | Payable to insurance companies                                               |                                                     |        | (307     | )        |   |        | (863     | )       |   |        | (505    | )      
|                                                                            |                                                                                       | Reinsurance funds held and balances payable                                  |                                                     |        | (2,591   | )        |   |        | 3,659    |         |   |        | (2,238  | )      
|                                                                            |                                                                                       | Other liabilities                                                            |                                                     |        | 609      |          |   |        | 1,577    |         |   |        | 9,243   |        
|                                                                            |                                                                                       |                                                                              |                                                     |        |          |          |   |        |         
|                                                                            |                                                                                       |                                                                              | Total adjustments                                   |        |          | 64,037   |   |        |          | 56,613  |   |        |         | 37,431  |  
|                                                                            |                                                                                       |                                                                              |                                                     |        |          |          |   |        |         
|                                                                            |                                                                                       | Net cash provided by operating activities                                    |                                                     |        | 81,947   |          |   |        | 70,674   |         |   |        | 47,530  |        
|                                                                            |                                                                                       |                                                                              |                                                     |        |          |          |   |        |         
|Cash Flows From Investing Activities                                        |                                                                                       |                                                                              |                                                     |        |          |          |   |        |          |         |   |       
|                                                                            |                                                                                       | Purchase of debt securities available for sale                               |                                                     |        | (203,789 | )        |   |        | (115,954 | )       |   |        | (89,433 | )      
|                                                                            |                                                                                       | Proceeds from sale of equity securities available for sale                   |                                                     |        | 8        |          |   |        | 2,409    |         |   |        |        |        
|                                                                            |                                                                                       | Proceeds from sales and maturities of debt securities available
    for sale |                                                     |        | 122,317  |          |   |        | 47,362   |         |   |        | 59,483  |        
|                                                                            |                                                                                       | Capital expenditures                                                         |                                                     |        | (15,810  | )        |   |        | (5,244   | )       |   |        | (2,155  | )      
|                                                                            |                                                                                       | Purchase of books of business                                                |                                                     |        | (3,557   | )        |   |        | (446     | )       |   |        | (738    | )      
|                                                                            |                                                                                       | Proceeds from sale of assets                                                 |                                                     |        | 633      |          |   |        | 2,837    |         |   |        |        |        
|                                                                            |                                                                                       | Deconsolidation of subsidiary                                                |                                                     |        |         |          |   |        | (4,218   | )       |   |        |        |        
|                                                                            |                                                                                       | Loan receivable                                                              |                                                     |        | (5,905   | )        |   |        | 174      |         |   |        | 1,002   |        
|                                                                            |                                                                                       | Net cash deposited in funds held                                             |                                                     |        | 501      |          |   |        | 2,315    |         |   |        | 1,208   |        
|                                                                            |                                                                                       |                                                                              |                                                     |        |          |          |   |        |         
|                                                                            |                                                                                       |                                                                              | Net cash used in investing activities               |        |          | (105,602 | ) |        |          | (70,765 | ) |        |         | (30,633 | )
|                                                                            |                                                                                       |                                                                              |                                                     |        |          |          |   |        |         
|Cash Flows From Financing Activities                                        |                                                                                       |                                                                              |                                                     |        |          |          |   |        |          |         |   |       
|                                                                            |                                                                                       | Proceeds from lines of credit                                                |                                                     |        | 14,307   |          |   |        | 10,489   |         |   |        | 18,957  |        
|                                                                            |                                                                                       | Payment of lines of credit                                                   |                                                     |        | (19,451  | )        |   |        | (15,851  | )       |   |        | (33,948 | )      
|                                                                            |                                                                                       | Book overdraft                                                               |                                                     |        | 924      |          |   |        | 268      |         |   |        | 1,212   |        
|                                                                            |                                                                                       | Net proceeds from debentures                                                 |                                                     |        | 19,400   |          |   |        | 24,250   |         |   |        | 9,700   |        
|                                                                            |                                                                                       | Stock options exercised                                                      |                                                     |        | 1,092    |          |   |        | 145      |         |   |        |        |        
|                                                                            |                                                                                       | Share repurchases of common stock                                            |                                                     |        | (4,191   | )        |   |        |         |         |   |        | (1,562  | )      
|                                                                            |                                                                                       | Other financing activities                                                   |                                                     |        | (263     | )        |   |        | 18       |         |   |        | 6       |        
|                                                                            |                                                                                       |                                                                              |                                                     |        |          |          |   |        |         
|                                                                            |                                                                                       |                                                                              | Net cash provided by (used in) financing activities |        |          | 11,818   |   |        |          | 19,319  |   |        |         | (5,635  | )
|                                                                            |                                                                                       |                                                                              |                                                     |        |          |          |   |        |         
|                                                                            |                                                                                       | Net (decrease) increase in cash and cash equivalents                         |                                                     |        | (11,837  | )        |   |        | 19,228   |         |   |        | 11,262  |        
|                                                                            |                                                                                       | Cash and cash equivalents, beginning of year                                 |                                                     |        | 69,875   |          |   |        | 50,647   |         |   |        | 39,385  |        
|                                                                            |                                                                                       |                                                                              |                                                     |        |          |          |   |        |         
|                                                                            |                                                                                       | Cash and cash equivalents, end of year                                       |                                                     | $      | 58,038   |          |   | $      | 69,875   |         |   | $      | 50,647  |        
|                                                                            |                                                                                       |                                                                              |                                                     |        |          |          |   |        |         
|Supplemental Disclosure of Cash Flow Information:                           |                                                                                       |                                                                              |                                                     |        |          |          |   |        |          |         |   |       
|                                                                            |                                                                                       | Interest paid                                                                |                                                     | $      | 3,428    |          |   | $      | 1,902    |         |   | $      | 835     |        
|                                                                            |                                                                                       | Net income taxes paid                                                        |                                                     | $      | 6,404    |          |   | $      | 5,578    |         |   | $      | 76      |        
|Supplemental Disclosure of Non Cash Investing and Financing
    Activities: |                                                                                       |                                                                              |                                                     |        |          |          |   |        |          |         |   |       
|                                                                            |                                                                                       | Tax benefit from stock options                                               |                                                     | $      | 105      |          |   | $      | 30       |         |   | $      |        |        
|                                                                            |                                                                                       | Stock-based employee compensation                                            |                                                     | $      | 41       |          |   | $      | 78       |         |   | $      | 189     |        
|                                                                            |                                                                                       | Accrued liability for purchase of building(1)                                |                                                     | $      |         |          |   | $      | 11,583   |         |   | $      |        |        






|    |                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On January 19, 2005, the Company closed on the purchase of
    its new headquarters in Southfield, Michigan, with a cash
    settlement of $11.6 million paid to the developer.



69



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##### 



MEADOWBROOK INSURANCE GROUP, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.     Summary of Significant
Accounting Policies


Basis of Presentation and Principles of Consolidation








Reclassifications




Business




70



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




Use of Estimates




Cash and Cash Equivalents




Investments






Other Than Temporary Impairments of Securities and Unrealized
Losses on Investments




Losses and Loss Adjustment Expenses and Reinsurance
Recoverables




71



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)












Revenue Recognition










72



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








Deferred Policy Acquisition Costs




Participating Policyholder Dividends




Furniture and Equipment




Goodwill and Other Intangible Assets


Goodwill and Other Intangible
Assets,


73



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Income Taxes






Stock Options


Accounting for
Stock-Based Compensation  Transition and
Disclosure  an amendment of FASB Statement
No. 123,






74



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                                                                                                                     |                       |      |        |      |      |   |        |      |  |   |        |      | 
|---------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ---- | ------ | ---- | ---- | - | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                                                                     |                       | 2005 |        |      | 2004 |   |        | 2003 | 
|                                                                                                                                                     |                       |      |        |      |      |   |        |      | 
|Net income, as reported                                                                                                                              |                       | $    | 17,910 |      |      | $ | 14,061 |      |  | $ | 10,099 |     
|Add: Stock-based employee compensation expense included in
    reported income, net of related tax effects                                           |                       |      | 27     |      |      |   | 52     |      |  |   | 125    |     
|Deduct: Total stock-based employee compensation expense
    determined under fair-value-based methods for all awards, net of
    related tax effects |                       |      | (108   | )    |      |   | (220   | )    |  |   | (443   | )   
|                                                                                                                                                     |                       |      |        |      |      |   |        |      | 
|Pro forma net income                                                                                                                                 |                       | $    | 17,829 |      |      | $ | 13,893 |      |  | $ | 9,781  |     
|                                                                                                                                                     |                       |      |        |      |      |   |        |      | 
|Earnings per share:                                                                                                                                  |                       |      |        |      |      |   |        |      |  |   |        |     
|                                                                                                                                                     | Basic  as reported   |      | $      | 0.62 |      |   | $      | 0.48 |  |   | $      | 0.35 | 
|                                                                                                                                                     | Basic  pro forma     |      | $      | 0.62 |      |   | $      | 0.48 |  |   | $      | 0.34 | 
|                                                                                                                                                     | Diluted  as reported |      | $      | 0.60 |      |   | $      | 0.48 |  |   | $      | 0.35 | 
|                                                                                                                                                     | Diluted  pro forma   |      | $      | 0.60 |      |   | $      | 0.47 |  |   | $      | 0.33 | 





Long Term Incentive Plan




Earnings Per Share




75



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




Comprehensive Income




Derivative Instruments


Accounting for Derivative Instruments and Hedging
Activities,




Recent Accounting Pronouncements


Share-Based Payment Accounting for Stock Issued to
Employees.


76



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




Accounting Changes and Error Corrections, a replacement
of APB Opinion No. 20 and FASB Statement No. 3.


05-1, Accounting by Insurance Enterprises for Deferred Acquisition
Costs in Connection with Modifications or Exchanges of Insurance
Contracts, 05-1


77



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|   |            
|-- | -----------
|2. | Investments



|                                                           |                                          |                   |         |         |            |   |       |            |  |   |            |        |   |   |         |         | 
|---------------------------------------------------------- | ---------------------------------------- | ----------------- | ------- | ------- | ---------- | - | ----- | ---------- |  | - | ---------- | ------ | - | - | ------- | ------- | 
|                                                           |                                          | December 31, 2005 |        
|                                                           |                                          |                   |        
|                                                           |                                          | Cost or           |         |         | Gross      |   |       | Gross      |  |   |           
|                                                           |                                          | Amortized         |         |         | Unrealized |   |       | Unrealized |  |   | Estimated  |       
|                                                           |                                          | Cost              |         |         | Gains      |   |       | Losses     |  |   | Fair Value |       
|                                                           |                                          |                   |         |         |            |   |       |            |  |   |            |       
|Debt Securities:                                           |                                          |                   |         |         |            |   |       |            |  |   |            |        |   |   |         |        
|Debt securities issued by the U.S. government and agencies |                                          | $                 | 57,026  |         |            | $ | 498   |            |  | $ | (720       | )      |   | $ | 56,804  |        
|Obligations of states and political subdivisions           |                                          |                   | 143,093 |         |            |   | 1,054 |            |  |   | (1,493     | )      |   |   | 142,654 |        
|Corporate securities                                       |                                          |                   | 107,761 |         |            |   | 2,106 |            |  |   | (1,722     | )      |   |   | 108,145 |        
|Mortgage and asset-backed securities                       |                                          |                   | 96,067  |         |            |   | 127   |            |  |   | (1,602     | )      |   |   | 94,592  |        
|                                                           |                                          |                   |         |         |            |   |       |            |  |   |            |       
|                                                           | Total Debt Securities available for sale |                   | $       | 403,947 |            |   | $     | 3,785      |  |   | $          | (5,537 | ) |   | $       | 402,195 | 
|                                                           |                                          |                   |         |         |            |   |       |            |  |   |            |       

|                                                           |                                            |                                     |         |         |            |   |       |            |       |   |            |        |        |   |         |         |         | 
|---------------------------------------------------------- | ------------------------------------------ | ----------------------------------- | ------- | ------- | ---------- | - | ----- | ---------- | ----- | - | ---------- | ------ | ------ | - | ------- | ------- | ------- | 
|                                                           |                                            | December 31, 2004                   |        
|                                                           |                                            |                                     |        
|                                                           |                                            | Cost or                             |         |         | Gross      |   |       | Gross      |       |   |           
|                                                           |                                            | Amortized                           |         |         | Unrealized |   |       | Unrealized |       |   | Estimated  |       
|                                                           |                                            | Cost                                |         |         | Gains      |   |       | Losses     |       |   | Fair Value |       
|                                                           |                                            |                                     |         |         |            |   |       |            |       |   |            |       
|Debt Securities:                                           |                                            |                                     |         |         |            |   |       |            |       |   |            |        |        |   |         |        
|Debt securities issued by the U.S. government and agencies |                                            | $                                   | 56,492  |         |            | $ | 1,234 |            |       | $ | (288       | )      |        | $ | 57,438  |        
|Obligations of states and political subdivisions           |                                            |                                     | 104,009 |         |            |   | 1,857 |            |       |   | (271       | )      |        |   | 105,595 |        
|Corporate securities                                       |                                            |                                     | 99,784  |         |            |   | 4,813 |            |       |   | (446       | )      |        |   | 104,151 |        
|Mortgage and asset-backed securities                       |                                            |                                     | 64,681  |         |            |   | 673   |            |       |   | (296       | )      |        |   | 65,058  |        
|                                                           |                                            |                                     |         |         |            |   |       |            |       |   |            |       
|                                                           | Total Debt Securities available for sale   |                                     |         | 324,966 |            |   |       | 8,577      |       |   |            | (1,301 | )      |   |         | 332,242 |        
|Equity Securities:                                         |                                            |                                     |         |         |            |   |       |            |       |   |            |        |        |   |         |        
|Common Stocks                                              |                                            |                                     |        |         |            |   | 39    |            |       |   |           |        |        |   | 39      |        
|                                                           |                                            |                                     |         |         |            |   |       |            |       |   |            |       
|                                                           | Total Equity Securities available for sale |                                     |         |        |            |   |       | 39         |       |   |            |       |        |   |         | 39      |        
|                                                           |                                            |                                     |         |         |            |   |       |            |       |   |            |       
|                                                           |                                            | Total Securities available for sale |         | $       | 324,966    |   |       | $          | 8,616 |   |            | $      | (1,301 | ) |         | $       | 332,281 | 
|                                                           |                                            |                                     |         |         |            |   |       |            |       |   |            |       



|                                                                                                    |  |              |        |   |      |   |        |  
|--------------------------------------------------------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                                                                                    |  | December 31, |       
|                                                                                                    |  |              |       
|                                                                                                    |  | 2005         |        |   | 2004 |  
|                                                                                                    |  |              |        |   |      |  
|Unrealized appreciation                                                                             |  | $            | 3,785  |   |      | $ | 8,616  |  
|Unrealized depreciation                                                                             |  |              | (5,537 | ) |      |   | (1,301 | )
|                                                                                                    |  |              |        |   |      |  
|Net unrealized (depreciation ) appreciation                                                         |  |              | (1,752 | ) |      |   | 7,315  |  
|Deferred federal income tax benefit (expense)                                                       |  |              | 613    |   |      |   | (2,487 | )
|                                                                                                    |  |              |        |   |      |  
|Net unrealized (depreciation) appreciation on investments,
    net of deferred federal income taxes |  | $            | (1,139 | ) |      | $ | 4,828  |  
|                                                                                                    |  |              |        |   |      |  



78



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)










|                                       |  |                    |         |  |            |   |         | 
|-------------------------------------- |  | ------------------ | ------- |  | ---------- | - | ------- | 
|                                       |  | Available for Sale |        
|                                       |  |                    |        
|                                       |  | Amortized          |         |  | Estimated  |  
|                                       |  | Cost               |         |  | Fair Value |  
|                                       |  |                    |         |  |            |  
|Due in one year or less                |  | $                  | 26,862  |  |            | $ | 26,842  | 
|Due after one year through five years  |  |                    | 155,095 |  |            |   | 154,740 | 
|Due after five years through ten years |  |                    | 114,172 |  |            |   | 114,050 | 
|Due after ten years                    |  |                    | 11,750  |  |            |   | 11,970  | 
|Mortgage-backed securities             |  |                    | 96,068  |  |            |   | 94,593  | 
|                                       |  |                    |         |  |            |  
|                                       |  | $                  | 403,947 |  |            | $ | 402,195 | 
|                                       |  |                    |         |  |            |  



|                              |  |      |        |  |      |   |        |      |  |   |        | 
|----------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                              |  | 2005 |        |  | 2004 |   |        | 2003 | 
|                              |  |      |        |  |      |   |        |      | 
|Net Investment Income On:     |  |      |        |  |      |   |        |      |  |   |        | 
|Debt securities               |  | $    | 16,080 |  |      | $ | 13,559 |      |  | $ | 12,481 | 
|Equity securities             |  |      | 37     |  |      |   | 149    |      |  |   | 182    | 
|Cash and cash equivalents     |  |      | 2,291  |  |      |   | 1,657  |      |  |   | 1,425  | 
|                              |  |      |        |  |      |   |        |      | 
|Total gross investment income |  |      | 18,408 |  |      |   | 15,365 |      |  |   | 14,088 | 
|Less investment expenses      |  |      | 433    |  |      |   | 454    |      |  |   | 604    | 
|                              |  |      |        |  |      |   |        |      | 
|Net investment income         |  | $    | 17,975 |  |      | $ | 14,911 |      |  | $ | 13,484 | 
|                              |  |      |        |  |      |   |        |      | 



Other Than Temporary Impairments of Securities and Unrealized
Losses on Investments




79



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






|                                                       |        |                     |        |         |                        |   |               |            |   |   |            |               |  |            |      |        |            |   |        |         |  |   |        |        |  
|------------------------------------------------------ | ------ | ------------------- | ------ | ------- | ---------------------- | - | ------------- | ---------- | - | - | ---------- | ------------- |  | ---------- | ---- | ------ | ---------- | - | ------ | ------- |  | - | ------ | ------ | -
|                                                       |        | December 31, 2005   |       
|                                                       |        |                     |       
|                                                       |        | Less than 12 months |        |         | Greater than 12 months |   |               | Total      |  
|                                                       |        |                     |        |         |                        |   |               |            |  
|                                                       |        | Fair Value of       |        |         |                        |   | Fair Value of |            |   |   |            | Fair Value of |  |            |     
|                                                       |        | Investments         |        |         |                        |   | Investments   |            |   |   |            | Investments   |  |            |     
|                                                       |        | with                |        |         | Gross                  |   |               | with       |   |   | Gross      |               |  | with       |      |        | Gross      |  
|                                                       |        | Unrealized          |        |         | Unrealized             |   |               | Unrealized |   |   | Unrealized |               |  | Unrealized |      |        | Unrealized |  
|                                                       |        | Losses              |        |         | Losses                 |   |               | Losses     |   |   | Losses     |               |  | Losses     |      |        | Losses     |  
|                                                       |        |                     |        |         |                        |   |               |            |   |   |            |               |  |            |      |        |            |  
|Debt Securities:                                       |        |                     |        |         |                        |   |               |            |   |   |            |               |  |            |      |        |            |   |        |         |  |   |        |       
|Debt securities issued by U.S. government and agencies |        | $                   | 10,627 |         |                        | $ | (155          | )          |   | $ | 24,328     |               |  | $          | (565 | )      |            | $ | 34,955 |         |  | $ | (720   | )     
|Obligations of states and political subdivisions       |        |                     | 64,559 |         |                        |   | (877          | )          |   |   | 24,818     |               |  |            | (616 | )      |            |   | 89,377 |         |  |   | (1,493 | )     
|Corporate securities                                   |        |                     | 33,820 |         |                        |   | (769          | )          |   |   | 29,586     |               |  |            | (953 | )      |            |   | 63,406 |         |  |   | (1,722 | )     
|Mortgage and asset backed securities                   |        |                     | 58,048 |         |                        |   | (953          | )          |   |   | 20,667     |               |  |            | (649 | )      |            |   | 78,715 |         |  |   | (1,602 | )     
|                                                       |        |                     |        |         |                        |   |               |            |   |   |            |               |  |            |      |        |            |  
|                                                       | Totals |                     | $      | 167,053 |                        |   | $             | (2,754     | ) |   | $          | 99,399        |  |            | $    | (2,783 | )          |   | $      | 266,452 |  |   | $      | (5,537 | )
|                                                       |        |                     |        |         |                        |   |               |            |   |   |            |               |  |            |      |        |            |  

|                                                       |        |                     |        |        |                        |   |               |            |   |   |            |               |  |            |      |      |            |   |        |         |  |   |      |        |  
|------------------------------------------------------ | ------ | ------------------- | ------ | ------ | ---------------------- | - | ------------- | ---------- | - | - | ---------- | ------------- |  | ---------- | ---- | ---- | ---------- | - | ------ | ------- |  | - | ---- | ------ | -
|                                                       |        | December 31, 2004   |       
|                                                       |        |                     |       
|                                                       |        | Less than 12 months |        |        | Greater than 12 months |   |               | Total      |  
|                                                       |        |                     |        |        |                        |   |               |            |  
|                                                       |        | Fair Value of       |        |        |                        |   | Fair Value of |            |   |   |            | Fair Value of |  |            |     
|                                                       |        | Investments         |        |        |                        |   | Investments   |            |   |   |            | Investments   |  |            |     
|                                                       |        | with                |        |        | Gross                  |   |               | with       |   |   | Gross      |               |  | with       |      |      | Gross      |  
|                                                       |        | Unrealized          |        |        | Unrealized             |   |               | Unrealized |   |   | Unrealized |               |  | Unrealized |      |      | Unrealized |  
|                                                       |        | Losses              |        |        | Losses                 |   |               | Losses     |   |   | Losses     |               |  | Losses     |      |      | Losses     |  
|                                                       |        |                     |        |        |                        |   |               |            |   |   |            |               |  |            |      |      |            |  
|Debt Securities:                                       |        |                     |        |        |                        |   |               |            |   |   |            |               |  |            |      |      |            |   |        |         |  |   |      |       
|Debt securities issued by U.S. government and agencies |        | $                   | 18,480 |        |                        | $ | (138          | )          |   | $ | 4,871      |               |  | $          | (150 | )    |            | $ | 23,351 |         |  | $ | (288 | )     
|Obligations of states and political subdivisions       |        |                     | 28,581 |        |                        |   | (257          | )          |   |   | 551        |               |  |            | (14  | )    |            |   | 29,132 |         |  |   | (271 | )     
|Corporate securities                                   |        |                     | 23,323 |        |                        |   | (220          | )          |   |   | 7,450      |               |  |            | (226 | )    |            |   | 30,773 |         |  |   | (446 | )     
|Mortgage and asset backed securities                   |        |                     | 19,583 |        |                        |   | (167          | )          |   |   | 6,442      |               |  |            | (129 | )    |            |   | 26,025 |         |  |   | (296 | )     
|                                                       |        |                     |        |        |                        |   |               |            |   |   |            |               |  |            |      |      |            |  
|                                                       | Totals |                     | $      | 89,967 |                        |   | $             | (782       | ) |   | $          | 19,314        |  |            | $    | (519 | )          |   | $      | 109,281 |  |   | $    | (1,301 | )
|                                                       |        |                     |        |        |                        |   |               |            |   |   |            |               |  |            |      |      |            |  

80



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


3.     Liability for Losses and Loss
Adjustment Expenses




|                                                |                               |                                  |         |         |      |   |         |         |  |   |         |         | 
|----------------------------------------------- | ----------------------------- | -------------------------------- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                                |                               | For the Years Ended December 31, |        
|                                                |                               |                                  |        
|                                                |                               | 2005                             |         |         | 2004 |   |         | 2003    | 
|                                                |                               |                                  |         |         |      |   |         |         | 
|Balance, beginning of year                      |                               | $                                | 378,157 |         |      | $ | 339,465 |         |  | $ | 374,933 |        
|Adjustment for deconsolidation of subsidiary(1) |                               |                                  |        |         |      |   | (2,989  | )       |  |   |        |        
|Less reinsurance recoverables                   |                               |                                  | 151,161 |         |      |   | 147,446 |         |  |   | 181,817 |        
|                                                |                               |                                  |         |         |      |   |         |         | 
|Net balance, beginning of year                  |                               |                                  | 226,996 |         |      |   | 189,030 |         |  |   | 193,116 |        
|                                                |                               |                                  |         |         |      |   |         |         | 
|Incurred related to:                            |                               |                                  |         |         |      |   |         |         |  |   |         |        
|                                                | Current year                  |                                  |         | 146,658 |      |   |         | 131,409 |  |   |         | 95,565  | 
|                                                | Prior years                   |                                  |         | 4,884   |      |   |         | 4,529   |  |   |         | 2,907   | 
|                                                |                               |                                  |         |         |      |   |         |         | 
|Total incurred                                  |                               |                                  | 151,542 |         |      |   | 135,938 |         |  |   | 98,472  |        
|                                                |                               |                                  |         |         |      |   |         |         | 
|Paid related to:                                |                               |                                  |         |         |      |   |         |         |  |   |         |        
|                                                | Current year                  |                                  |         | 28,059  |      |   |         | 26,534  |  |   |         | 21,446  | 
|                                                | Prior years                   |                                  |         | 79,056  |      |   |         | 71,438  |  |   |         | 78,123  | 
|                                                |                               |                                  |         |         |      |   |         |         | 
|Total paid                                      |                               |                                  | 107,115 |         |      |   | 97,972  |         |  |   | 99,569  |        
|                                                |                               |                                  |         |         |      |   |         |         | 
|Net balance, end of year                        |                               |                                  | 271,423 |         |      |   | 226,996 |         |  |   | 192,019 |        
|                                                | Plus reinsurance recoverables |                                  |         | 187,254 |      |   |         | 151,161 |  |   |         | 147,446 | 
|                                                |                               |                                  |         |         |      |   |         |         | 
|Balance, end of year                            |                               | $                                | 458,677 |         |      | $ | 378,157 |         |  | $ | 339,465 |        
|                                                |                               |                                  |         |         |      |   |         |         | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In accordance with FIN 46(R), the Company performed an
    evaluation of its business relationships and determined that its
    wholly owned subsidiary, American Indemnity, did not meet the
    tests for consolidation, as neither the Company, nor its
    subsidiary Star, are the primary beneficiaries of American
    Indemnity. Therefore, effective January 1, 2004, the
    Company deconsolidated American Indemnity on a prospective basis
    in accordance with the provisions of FIN 46(R). The
    adoption of FIN 46(R) and the deconsolidation of American
    Indemnity did not have a material impact on the Companys
    consolidated balance sheet or consolidated statement of income.







81



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






4.     Reinsurance


Accounting and
Reporting for Reinsurance for Short-Duration and Long-Duration
Contracts.








82



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                             |  |      |        |   |      |   |        |  
|---------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                             |  | 2005 |        |   | 2004 |  
|                             |  |      |        |   |      |  
|Gross Exposure               |  | $    | 14,046 |   |      | $ | 14,044 |  
|Collateral or other security |  |      | (2,749 | ) |      |   | (3,323 | )
|Allowance                    |  |      | (9,662 | ) |      |   | (8,324 | )
|                             |  |      |        |   |      |  
|Net Exposure                 |  | $    | 1,635  |   |      | $ | 2,397  |  
|                             |  |      |        |   |      |  











83



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)
















|           |  |         |         |   |        |   |         |         |  |   |         |   |  |         |         |   |        |   |         |   |  |   |         |  
|---------- |  | ------- | ------- | - | ------ | - | ------- | ------- |  | - | ------- | - |  | ------- | ------- | - | ------ | - | ------- | - |  | - | ------- | -
|           |  | 2005    |         |   | 2004   |   |         | 2003    | 
|           |  |         |         |   |        |   |         |         | 
|           |  | Written |         |   | Earned |   |         | Written |  |   | Earned  |   |  | Written |         |   | Earned |  
|           |  |         |         |   |        |   |         |         |  |   |         |   |  |         |         |   |        |  
|Direct     |  | $       | 264,571 |   |        | $ | 264,381 |         |  | $ | 261,653 |   |  | $       | 247,169 |   |        | $ | 229,647 |   |  | $ | 198,991 |  
|Assumed(1) |  |         | 67,698  |   |        |   | 61,141  |         |  |   | 51,840  |   |  |         | 41,699  |   |        |   | 23,633  |   |  |   | 13,290  |  
|Ceded      |  |         | (74,075 | ) |        |   | (75,563 | )       |  |   | (79,532 | ) |  |         | (74,375 | ) |        |   | (63,453 | ) |  |   | (61,076 | )
|           |  |         |         |   |        |   |         |         |  |   |         |   |  |         |         |   |        |  
|Net        |  | $       | 258,194 |   |        | $ | 249,959 |         |  | $ | 233,961 |   |  | $       | 214,493 |   |        | $ | 189,827 |   |  | $ | 151,205 |  
|           |  |         |         |   |        |   |         |         |  |   |         |   |  |         |         |   |        |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For the years ending December 31, 2005, 2004, and 2003,
    $56.0 million, $38.2 million, and $15.6 million,
    relates to assumed business the Company manages directly,
    respectively. The related transactions of this business are
    processed through the Companys internal systems and
    related controls. In addition, the Company does not assume any
    foreign reinsurance.



84



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


5.     Segment Information




Specialty Risk Management Operations




Agency Operations




85



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                |                                    |                                  |                      |         |         |         |   |         |         |         |   |         |         |         | 
|--------------- | ---------------------------------- | -------------------------------- | -------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                |                                    | For the Years Ended December 31, |                     
|                |                                    |                                  |                     
|                |                                    | 2005                             |                      |         | 2004    |         |   | 2003    |        
|                |                                    |                                  |                      |         |         |         |   |         |        
|Revenues        |                                    |                                  |                      |         |         |         |   |         |         |         |   |        
|                | Net earned premiums                |                                  | $                    | 249,959 |         |         | $ | 214,493 |         |         | $ | 151,205 |        
|                | Management fees                    |                                  |                      | 16,741  |         |         |   | 16,253  |         |         |   | 18,751  |        
|                | Claims fees(4)                     |                                  |                      | 7,113   |         |         |   | 13,207  |         |         |   | 14,756  |        
|                | Loss control fees                  |                                  |                      | 2,260   |         |         |   | 2,174   |         |         |   | 2,303   |        
|                | Reinsurance placement              |                                  |                      | 660     |         |         |   | 420     |         |         |   | 308     |        
|                | Investment income                  |                                  |                      | 17,692  |         |         |   | 14,887  |         |         |   | 13,471  |        
|                | Net realized gains                 |                                  |                      | 85      |         |         |   | 339     |         |         |   | 823     |        
|                |                                    |                                  |                      |         |         |         |   |         |        
|                |                                    | Specialty risk management        |                      |         | 294,510 |         |   |         | 261,773 |         |   |         | 201,617 |        
|                | Agency operations(2)               |                                  |                      | 11,304  |         |         |   | 9,805   |         |         |   | 9,378   |        
|                | Reconciling items(3)               |                                  |                      | 365     |         |         |   | 24      |         |         |   | 13      |        
|                | Intersegment revenue(2)            |                                  |                      | (2,162  | )       |         |   | (1,324  | )       |         |   | (205    | )      
|                |                                    |                                  |                      |         |         |         |   |         |        
|                |                                    |                                  | Consolidated revenue |         | $       | 304,017 |   |         | $       | 270,278 |   |         | $       | 210,803 | 
|                |                                    |                                  |                      |         |         |         |   |         |        
|Pre-tax income: |                                    |                                  |                      |         |         |         |   |         |         |         |   |        
|                | Specialty risk management(1) & (2) |                                  | $                    | 29,444  |         |         | $ | 23,205  |         |         | $ | 16,703  |        
|                | Agency operations(1) & (2)         |                                  |                      | 3,343   |         |         |   | 2,257   |         |         |   | 2,064   |        
|                | Other corporate                    |                                  |                      | (7,121  | )       |         |   | (5,088  | )       |         |   | (2,489  | )      
|                |                                    |                                  |                      |         |         |         |   |         |        
|                |                                    | Consolidated pre-tax income      |                      | $       | 25,666  |         |   | $       | 20,374  |         |   | $       | 16,278  |        
|                |                                    |                                  |                      |         |         |         |   |         |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Companys agency operations include an allocation of
    corporate overhead, which includes expenses associated with
    accounting, information services, legal, and other corporate
    services. The corporate overhead allocation excludes those
    expenses specific to the holding company. Prior to
    January 1, 2005, corporate overhead was only reflected in
    the specialty risk management operations segment. This
    reclassification for the allocation of corporate overhead more
    accurately presents the Companys segments as a result of
    improved cost allocation information. As a result, the segment
    information for the years ended December 31, 2004 and 2003
    have been adjusted to reflect this allocation. For the years
    ended December 31, 2005, 2004, and 2003, the allocation of
    corporate overhead to the agency operations segment was
    $3.1 million, $3.5 million, and $2.8 million,
    respectively.                                                                                                                                                                                                                                                          
|   
|(2) | In addition to the reclassification for the allocation of
    corporate overhead as described above, the Company also
    reclassified 2004 and 2003 revenues related to the conversion of
    a west-coast commercial transportation program, which was
    converted to a specialty risk program with one of its
    subsidiaries, from the agency operations segment to the
    specialty risk management operations segment. Accordingly, the
    agency operations revenue and intersegment revenue have been
    reclassified. As a result, $7.9 million and
    $5.6 million were reclassified within the agency operations
    segment and the intersegment revenue for the years ended
    December 31, 2004 and 2003, respectively. In addition, the
    overall net income related to this subsidiary was reclassified
    from the agency operations to the specialty risk management
    operations segment. As a result, pre-tax net income of
    $3.2 million and $2.0 million related to this
    subsidiary was reclassified to the specialty risk management
    operations pre-tax income from the agency operations segment for
    the years ended December 31, 2004 and 2003, respectively.                   
|   
|(3) | In December 2003, the Company entered into a Purchase and Sale
    Agreement with an unaffiliated third party for the sale of land.
    In July 2004, a land contract was executed and the transaction
    closed in escrow subject to the conveyance of certain land by
    the city to both parties. In May 2005, the settlement of the
    land contract was completed. The sale of this land resulted in a
    total gain of approximately $464,000. In accordance with SFAS
    No. 66 Accounting for Sales of Real
    Estate, the Company recorded this transaction based on
    the installment method of accounting. Accordingly, the Company
    recorded a gain of $82,000, as of June 30, 2005, which
    reflects a portion of the total gain allocated proportionately
    based on the down payment to the total purchase price. The
    remaining $382,000 will be deferred until the land contract is
    paid in full, or as principal payments are received. In
    addition, the Company has received $121,000 in interest income
    related to the land contract, which has been included in
    reconciling items. The remaining $162,000 in reconciling items
    relates to miscellaneous interest income.

86



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | During 2004, the Company accelerated the recognition of
    $3.5 million in deferred claim revenue, as a result of an
    earlier than anticipated termination of two limited duration
    administrative services and multi-state claims run-off
    contracts. These contracts had been terminated by the liquidator
    for the companies during the third quarter of 2004. Had the
    contract not been terminated, the Company would have received
    additional claims fee revenue for continued claims handling
    services.



|                         |  |                                  |        |   |      |   |        |      |  |   |        |  
|------------------------ |  | -------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                         |  | For the Years Ended December 31, |       
|                         |  |                                  |       
|                         |  | 2005                             |        |   | 2004 |   |        | 2003 | 
|                         |  |                                  |        |   |      |   |        |      | 
|Holding company expenses |  | $                                | (2,892 | ) |      | $ | (2,431 | )    |  | $ | (1,159 | )
|Amortization             |  |                                  | (373   | ) |      |   | (376   | )    |  |   | (353   | )
|Interest expense         |  |                                  | (3,856 | ) |      |   | (2,281 | )    |  |   | (977   | )
|                         |  |                                  |        |   |      |   |        |      | 
|                         |  | $                                | (7,121 | ) |      | $ | (5,088 | )    |  | $ | (2,489 | )
|                         |  |                                  |        |   |      |   |        |      | 

6.     Debt


Lines of Credit












87



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Senior Debentures








Junior Subordinated Debentures










88



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)












7.     Derivative Instruments


Accounting for Derivative Instruments and
Hedging Activities,










89



---



##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




8.     Regulatory Matters and Rating
Issues






|                              |  |      |         |  |        |   |        |              |  |   |            |   |  |      |        |  |        |   |         |              |  |   |            |   |  |   |        |  |  |   |        | 
|----------------------------- |  | ---- | ------- |  | ------ | - | ------ | ------------ |  | - | ---------- | - |  | ---- | ------ |  | ------ | - | ------- | ------------ |  | - | ---------- | - |  | - | ------ |  |  | - | ------ | 
|                              |  | 2005 |         |  | 2004   |  
|                              |  |      |         |  |        |  
|                              |  | Star |         |  | Savers |   |        | Williamsburg |  |   | Ameritrust |   |  | Star |        |  | Savers |   |         | Williamsburg |  |   | Ameritrust |  
|                              |  |      |         |  |        |   |        |              |  |   |            |   |  |      |        |  |        |   |         |              |  |   |            |  
|Statutory capital and surplus |  | $    | 141,136 |  |        | $ | 31,883 |              |  | $ | 16,447     |   |  | $    | 14,398 |  |        | $ | 120,727 |              |  | $ | 29,303     |   |  | $ | 15,579 |  |  | $ | 13,001 | 
|RBC authorized control level  |  |      | 37,265  |  |        |   | 7,673  |              |  |   | 4,043      |   |  |      | 4,000  |  |        |   | 28,436  |              |  |   | 3,572      |   |  |   | 2,600  |  |  |   | 4,000  | 
|Statutory net income (loss)   |  |      | 13,446  |  |        |   | 283    |              |  |   | (518       | ) |  |      | 539    |  |        |   | 7,040   |              |  |   | (1,816     | ) |  |   | 2,544  |  |  |   | 4      | 





90



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








9.     Deferred Policy Acquisition
Costs




|                                       |  |                                  |         |   |      |   |         |      |  |   |         |  
|-------------------------------------- |  | -------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                       |  | For the Years Ended December 31, |        
|                                       |  |                                  |        
|                                       |  | 2005                             |         |   | 2004 |   |         | 2003 | 
|                                       |  |                                  |         |   |      |   |         |      | 
|Balance, beginning of period           |  | $                                | 25,167  |   |      | $ | 19,564  |      |  | $ | 12,140  |  
|Acquisition costs deferred             |  |                                  | 35,367  |   |      |   | 30,883  |      |  |   | 25,626  |  
|Amortized to expense during the period |  |                                  | (34,163 | ) |      |   | (25,280 | )    |  |   | (18,202 | )
|                                       |  |                                  |         |   |      |   |         |      | 
|Balance, end of period                 |  | $                                | 26,371  |   |      | $ | 25,167  |      |  | $ | 19,564  |  
|                                       |  |                                  |         |   |      |   |         |      | 



10.     Income Taxes




|                                       |  |                              |       |  |      |   |       |      |  |   |       | 
|-------------------------------------- |  | ---------------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                       |  | For the Years Ended December |      
|                                       |  | 31,                          |      
|                                       |  |                              |      
|                                       |  | 2005                         |       |  | 2004 |   |       | 2003 | 
|                                       |  |                              |       |  |      |   |       |      | 
|Current tax expense                    |  | $                            | 6,410 |  |      | $ | 4,775 |      |  | $ | 1,767 | 
|Deferred tax expense                   |  |                              | 1,347 |  |      |   | 1,577 |      |  |   | 4,415 | 
|                                       |  |                              |       |  |      |   |       |      | 
|Total provision for income tax expense |  | $                            | 7,757 |  |      | $ | 6,352 |      |  | $ | 6,182 | 
|                                       |  |                              |       |  |      |   |       |      | 

91



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                |                                                                                               |                              |       |        |      |   |       |      |   |   |       |      |  
|------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------- | ----- | ------ | ---- | - | ----- | ---- | - | - | ----- | ---- | -
|                                |                                                                                               | For the Years Ended December |      
|                                |                                                                                               | 31,                          |      
|                                |                                                                                               |                              |      
|                                |                                                                                               | 2005                         |       |        | 2004 |   |       | 2003 |  
|                                |                                                                                               |                              |       |        |      |   |       |      |  
|Tax provision at statutory rate |                                                                                               | $                            | 8,982 |        |      | $ | 6,927 |      |   | $ | 5,535 |     
|Tax effect of:                  |                                                                                               |                              |       |        |      |   |       |      |   |   |       |     
|                                | Tax exempt interest                                                                           |                              |       | (1,291 | )    |   |       | (777 | ) |   |       | (371 | )
|                                | State income taxes, net of federal benefit                                                    |                              |       | 458    |      |   |       | 38   |   |   |       | 816  |  
|                                | Impact of increase in statutory rate relating to deferred tax
    assets at December 31, 2005 |                              |       | (386   | )    |   |       |     |   |   |       |     |  
|                                | Other, net                                                                                    |                              |       | (6     | )    |   |       | 164  |   |   |       | 202  |  
|                                |                                                                                               |                              |       |        |      |   |       |      |  
|Federal income tax expense      |                                                                                               | $                            | 7,757 |        |      | $ | 6,352 |      |   | $ | 6,182 |     
|                                |                                                                                               |                              |       |        |      |   |       |      |  
|Effective tax expense rate      |                                                                                               |                              | 30.2  | %      |      |   | 31.2  | %    |   |   | 38.0  | %   
|                                |                                                                                               |                              |       |        |      |   |       |      |  



Accounting for Income Taxes


92



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                            |                      |                         |        |        |             |   |       |          |  |   |             |        |        |   |       |        |  | 
|------------------------------------------- | -------------------- | ----------------------- | ------ | ------ | ----------- | - | ----- | -------- |  | - | ----------- | ------ | ------ | - | ----- | ------ |  | 
|                                            |                      | 2005                    |        |        | 2004        |  
|                                            |                      |                         |        |        |             |  
|                                            |                      | Deferred                |        |        | Deferred    |   |       | Deferred |  |   | Deferred    |       
|                                            |                      | Tax                     |        |        | Tax         |   |       | Tax      |  |   | Tax         |       
|                                            |                      | Assets                  |        |        | Liabilities |   |       | Assets   |  |   | Liabilities |       
|                                            |                      |                         |        |        |             |   |       |          |  |   |             |       
|Unpaid losses and loss adjustment expenses  |                      | $                       | 14,125 |        |             | $ |      |          |  | $ | 11,815      |        |        | $ |      |       
|Unearned premium reserves                   |                      |                         | 8,248  |        |             |   |      |          |  |   | 7,512       |        |        |   |      |       
|Unrealized loss/gains on investments        |                      |                         | 608    |        |             |   |      |          |  |   |            |        |        |   | 2,487 |       
|Deferred policy acquisition expense         |                      |                         |       |        |             |   | 9,230 |          |  |   |            |        |        |   | 8,557 |       
|Allowance for doubtful accounts             |                      |                         | 1,330  |        |             |   |      |          |  |   | 1,440       |        |        |   |      |       
|Policyholder dividends                      |                      |                         | 208    |        |             |   |      |          |  |   | 112         |        |        |   |      |       
|Alternate minimum tax credit                |                      |                         | 637    |        |             |   |      |          |  |   | 4,061       |        |        |   |      |       
|Net operating loss carryforward             |                      |                         |       |        |             |   |      |          |  |   | 125         |        |        |   |      |       
|Goodwill                                    |                      |                         |       |        |             |   | 1,529 |          |  |   |            |        |        |   | 1,131 |       
|Deferred revenue                            |                      |                         | 125    |        |             |   |      |          |  |   | 147         |        |        |   |      |       
|Long term incentive plan                    |                      |                         | 865    |        |             |   |      |          |  |   | 442         |        |        |   |      |       
|Amortization of intangible assets           |                      |                         | 227    |        |             |   |      |          |  |   | 171         |        |        |   |      |       
|Deferred gain on sale-leaseback transaction |                      |                         | 262    |        |             |   |      |          |  |   | 284         |        |        |   |      |       
|Other                                       |                      |                         | 754    |        |             |   |      |          |  |   | 1,022       |        |        |   |      |       
|                                            |                      |                         |        |        |             |   |       |          |  |   |             |       
|                                            | Total deferred taxes |                         |        | 27,389 |             |   |       | 10,759   |  |   |             | 27,131 |        |   |       | 12,175 | 
|                                            |                      |                         |        |        |             |   |       |          |  |   |             |       
|                                            |                      | Net deferred tax assets |        | $      | 16,630      |   |       |          |  |   |             | $      | 14,956 |   |       |        |  | 
|                                            |                      |                         |        |        |             |   |       |          |  |   |             |       

Summary of Significant Accounting Policies


11.     Stock Options and Long Term
Incentive Plan




93



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                               |  |         |           |           |       |   |      |         |           |  |           |   |  |           |      |  |       |   |           |   |  |   |      | 
|-------------------------------------------------------------- |  | ------- | --------- | --------- | ----- | - | ---- | ------- | --------- |  | --------- | - |  | --------- | ---- |  | ----- | - | --------- | - |  | - | ---- | 
|                                                               |  | 2005    |           |           | 2004  |   |      | 2003    |          
|                                                               |  |         |           |           |       |   |      |         |          
|                                                               |  |         |           | Weighted- |       |   |      |         | Weighted- |  |           |   |  | Weighted- |     
|                                                               |  |         |           | Average   |       |   |      |         | Average   |  |           |   |  | Average   |     
|                                                               |  |         |           | Exercise  |       |   |      |         | Exercise  |  |           |   |  | Exercise  |     
|                                                               |  | Options |           |           | Price |   |      | Options |           |  | Price     |   |  | Options   |      |  | Price |  
|                                                               |  |         |           |           |       |   |      |         |           |  |           |   |  |           |      |  |       |  
|Outstanding  beginning of year                                |  |         | 2,121,317 |           |       | $ | 5.53 |         |           |  | 2,381,609 |   |  | $         | 5.80 |  |       |   | 2,693,223 |   |  | $ | 6.78 | 
|Granted                                                        |  |         |          |           |       |   |     |         |           |  |          |   |  |           |     |  |       |   | 331,490   |   |  | $ | 2.17 | 
|Exercised                                                      |  |         | (97,825   | )         |       | $ | 2.90 |         |           |  | (39,500   | ) |  | $         | 2.74 |  |       |   | (550      | ) |  | $ | 2.82 | 
|Forfeited                                                      |  |         | (417,591  | )         |       | $ | 6.57 |         |           |  | (220,792  | ) |  | $         | 8.97 |  |       |   | (642,554  | ) |  | $ | 8.01 | 
|                                                               |  |         |           |           |       |   |      |         |           |  |           |   |  |           |      |  |       |  
|Outstanding  end of year                                      |  |         | 1,605,901 |           |       | $ | 5.42 |         |           |  | 2,121,317 |   |  | $         | 5.53 |  |       |   | 2,381,609 |   |  | $ | 5.80 | 
|                                                               |  |         |           |           |       |   |      |         |           |  |           |   |  |           |      |  |       |  
|Exercisable at end of year                                     |  |         | 1,288,296 |           |       | $ | 5.65 |         |           |  | 1,451,015 |   |  | $         | 5.92 |  |       |   | 1,231,981 |   |  | $ | 6.75 | 
|Weighted-average fair value of options granted during the year |  |         |          |           |       |   |     |         |           |  |          |   |  |           |     |  |       | $ | 1.14      |   |  |   |     | 



|                 |  |                     |           |           |                     |  |           |       |  |   |         |           |  |       |           |  |  |   |       | 
|---------------- |  | ------------------- | --------- | --------- | ------------------- |  | --------- | ----- |  | - | ------- | --------- |  | ----- | --------- |  |  | - | ----- | 
|                 |  | Options Outstanding |           |           | Options Exercisable | 
|                 |  |                     |           |           |                     | 
|                 |  |                     |           | Weighted- |                     |  | Weighted- |       |  |   |         | Weighted- | 
|                 |  |                     |           | Average   |                     |  | Average   |       |  |   |         | Average   | 
|Range of         |  |                     |           | Remaining |                     |  | Exercise  |       |  |   |         | Exercise  | 
|Exercise Prices  |  | Options             |           |           | Life (Years)        |  |           | Price |  |   | Options |           |  | Price |          
|                 |  |                     |           |           |                     |  |           |       |  |   |         |           |  |       |          
|$2.173 to $3.066 |  |                     | 496,700   |           |                     |  | 1.8       |       |  | $ | 2.66    |           |  |       | 327,690   |  |  | $ | 2.74  | 
|$3.507           |  |                     | 575,000   |           |                     |  | 1.4       |       |  | $ | 3.51    |           |  |       | 460,000   |  |  | $ | 3.51  | 
|$6.48 to $6.5063 |  |                     | 395,000   |           |                     |  | 0.7       |       |  | $ | 6.51    |           |  |       | 393,500   |  |  | $ | 6.51  | 
|$10.91 to $30.45 |  |                     | 139,201   |           |                     |  | 2.1       |       |  | $ | 20.10   |           |  |       | 107,106   |  |  | $ | 20.60 | 
|                 |  |                     |           |           |                     |  |           |       |  |   |         |           |  |       |          
|                 |  |                     | 1,605,901 |           |                     |  | 1.5       |       |  | $ | 5.42    |           |  |       | 1,288,296 |  |  | $ | 5.65  | 
|                 |  |                     |           |           |                     |  |           |       |  |   |         |           |  |       |          



94



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




12.     Shareholders Equity








Regulatory
Matters and Rating Issues


13.     Goodwill and Other
Intangible Assets


Goodwill






95



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                             |  |                   |       |                |            |   |        |       |  |   |        | 
|---------------------------- |  | ----------------- | ----- | -------------- | ---------- | - | ------ | ----- |  | - | ------ | 
|                             |  |                   |       | Specialty Risk |            |   |       
|                             |  |                   |       | Management     |            |   |       
|                             |  | Agency Operations |       |                | Operations |   |        | Total | 
|                             |  |                   |       |                |            |   |        |       | 
|Balance at December 31, 2005 |  | $                 | 5,769 |                |            | $ | 25,033 |       |  | $ | 30,802 | 
|Balance at December 31, 2004 |  | $                 | 3,964 |                |            | $ | 25,033 |       |  | $ | 28,997 | 

Other Intangible
Assets




Goodwill and Other Intangible Assets.








|     |                            |   |     |       | 
|---- | -------------------------- | - | --- | ----- | 
|2006 |                            | $ | 410 |      
|2007 |                            |   | 407 |      
|2008 |                            |   | 108 |      
|2009 |                            |   | 101 |      
|2010 |                            |   | 95  |      
|     |                            |   |    
|     | Total amortization expense |   | $   | 1,121 | 
|     |                            |   |    

14.     Commitments and
Contingencies




96



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|           |                                 |   |       |        | 
|---------- | ------------------------------- | - | ----- | ------ | 
|2006       |                                 | $ | 2,442 |       
|2007       |                                 |   | 2,210 |       
|2008       |                                 |   | 1,851 |       
|2009       |                                 |   | 1,685 |       
|2010       |                                 |   | 1,448 |       
|Thereafter |                                 |   | 3,739 |       
|           |                                 |   |      
|           | Total minimum lease commitments |   | $     | 13,375 | 
|           |                                 |   |      











97



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Accounting for Contingencies,


15.     Sale-Leaseback
Transaction






16.     Related Party
Transactions






98



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








17.     Employee Benefit Plans


1 2


18.     Fair Value of Financial
Instruments


Disclosures about Fair Value of
Financial Instruments,


Accounting
for Certain Investments in Debt and Equity Securities Derivative Instruments, Accounting for
Derivative Instruments and Hedging Activities,


99



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


19.     Quarterly Financial Data
(Unaudited)




|                                                   |  |         |        |   |         |   |        |         |  |   |         |   |  |   |        |  
|-------------------------------------------------- |  | ------- | ------ | - | ------- | - | ------ | ------- |  | - | ------- | - |  | - | ------ | -
|                                                   |  | 1st     |        |   | 2nd     |   |        | 3rd     |  |   | 4th     |  
|                                                   |  | Quarter |        |   | Quarter |   |        | Quarter |  |   | Quarter |  
|                                                   |  |         |        |   |         |   |        |         |  |   |         |  
|2005:                                              |  |         |        |   |         |   |        |         |  |   |         |   |  |   |        |  
|Gross premiums written                             |  | $       | 90,992 |   |         | $ | 75,959 |         |  | $ | 86,075  |   |  | $ | 79,183 |  
|Net premiums written                               |  |         | 68,990 |   |         |   | 61,288 |         |  |   | 67,420  |   |  |   | 60,436 |  
|Net premiums earned                                |  |         | 60,787 |   |         |   | 63,364 |         |  |   | 63,205  |   |  |   | 62,603 |  
|Net commissions and fees                           |  |         | 10,099 |   |         |   | 8,034  |         |  |   | 9,200   |   |  |   | 8,583  |  
|Net investment income and realized gains/losses    |  |         | 3,977  |   |         |   | 4,581  |         |  |   | 4,632   |   |  |   | 4,952  |  
|Net losses and LAE incurred                        |  |         | 37,134 |   |         |   | 37,728 |         |  |   | 38,469  |   |  |   | 38,211 |  
|Policy acquisition and other underwriting expenses |  |         | 10,822 |   |         |   | 10,971 |         |  |   | 11,947  |   |  |   | 10,699 |  
|Other administrative expenses                      |  |         | 7,785  |   |         |   | 6,046  |         |  |   | 6,037   |   |  |   | 7,315  |  
|Salaries and employee benefits                     |  |         | 12,605 |   |         |   | 13,648 |         |  |   | 12,913  |   |  |   | 12,165 |  
|Interest expense                                   |  |         | 773    |   |         |   | 806    |         |  |   | 948     |   |  |   | 1,329  |  
|Net income                                         |  |         | 3,743  |   |         |   | 4,580  |         |  |   | 4,662   |   |  |   | 4,925  |  
|Diluted earnings per share                         |  | $       | 0.13   |   |         | $ | 0.16   |         |  | $ | 0.16    |   |  | $ | 0.17   |  
|GAAP combined ratio(1)                             |  |         | 99.3   | % |         |   | 97.1   | %       |  |   | 99.8    | % |  |   | 98.7   | %
|2004:                                              |  |         |        |   |         |   |        |         |  |   |         |   |  |   |        |  
|Gross premiums written                             |  | $       | 81,054 |   |         | $ | 70,871 |         |  | $ | 79,234  |   |  | $ | 82,334 |  
|Net premiums written                               |  |         | 62,951 |   |         |   | 53,025 |         |  |   | 56,303  |   |  |   | 61,682 |  
|Net premiums earned                                |  |         | 49,713 |   |         |   | 53,083 |         |  |   | 52,963  |   |  |   | 58,734 |  
|Net commissions and fees                           |  |         | 11,281 |   |         |   | 8,844  |         |  |   | 12,669  |   |  |   | 7,741  |  
|Net investment income and realized gains/losses    |  |         | 3,477  |   |         |   | 3,515  |         |  |   | 3,836   |   |  |   | 4,422  |  
|Net losses and LAE incurred                        |  |         | 32,509 |   |         |   | 32,826 |         |  |   | 31,829  |   |  |   | 38,774 |  
|Policy acquisition and other underwriting expenses |  |         | 7,546  |   |         |   | 8,870  |         |  |   | 8,169   |   |  |   | 8,839  |  
|Other administrative expenses                      |  |         | 6,096  |   |         |   | 6,469  |         |  |   | 6,802   |   |  |   | 6,597  |  
|Salaries and employee benefits                     |  |         | 12,808 |   |         |   | 12,325 |         |  |   | 14,284  |   |  |   | 12,880 |  
|Interest expense                                   |  |         | 315    |   |         |   | 528    |         |  |   | 686     |   |  |   | 752    |  
|Net income                                         |  |         | 3,232  |   |         |   | 2,820  |         |  |   | 5,252   |   |  |   | 2,757  |  
|Diluted earnings per share                         |  | $       | 0.11   |   |         | $ | 0.10   |         |  | $ | 0.18    |   |  | $ | 0.09   |  
|GAAP combined ratio(1)                             |  |         | 102.0  | % |         |   | 101.2  | %       |  |   | 99.5    | % |  |   | 102.6  | %






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Management uses the GAAP combined ratio and its components to
    assess and benchmark underwriting performance. The GAAP combined
    ratio is the sum of the GAAP loss and loss adjustment expense
    ratio and the GAAP expense ratio. The GAAP loss and loss
    adjustment expense ratio is the unconsolidated net incurred loss
    and loss adjustment expense in relation to net earned premium.
    The GAAP expense ratio is the unconsolidated policy acquisition
    and other underwriting expenses in relation to net earned
    premium.

100



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##### 



SCHEDULE I


MEADOWBROOK INSURANCE GROUP, INC.





SUMMARY OF INVESTMENTS  OTHER THAN INVESTMENTS IN
RELATED PARTIES


As of December 31, 2005


(In thousands)


|                                                      |                   |      |         |         |       |             |         |         |  |   |         |         | 
|----------------------------------------------------- | ----------------- | ---- | ------- | ------- | ----- | ----------- | ------- | ------- |  | - | ------- | ------- | 
|                                                      |                   |      |         |         |       | Amount at   |        
|                                                      |                   |      |         |         |       | Which       |        
|                                                      |                   |      |         |         |       | Shown in    |        
|                                                      |                   |      |         |         |       | the Balance |        
|Type of Investment                                    |                   | Cost |         |         | Value |             |         | Sheet   | 
|                                                      |                   |      |         |         |       |             |         |         | 
|Fixed Maturities:                                     |                   |      |         |         |       |             |         |         |  |   |         |        
|US government and government agencies and authorities |                   | $    | 57,026  |         |       | $           | 56,804  |         |  | $ | 56,804  |        
|States and political subdivisions                     |                   |      | 143,093 |         |       |             | 142,654 |         |  |   | 142,654 |        
|Corporate securities                                  |                   |      | 107,761 |         |       |             | 108,145 |         |  |   | 108,145 |        
|Mortgage-backed securities                            |                   |      | 96,067  |         |       |             | 94,592  |         |  |   | 94,592  |        
|                                                      |                   |      |         |         |       |             |         |         | 
|                                                      | Total Investments |      | $       | 403,947 |       |             | $       | 402,195 |  |   | $       | 402,195 | 
|                                                      |                   |      |         |         |       |             |         |         | 

101



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##### 



SCHEDULE II





CONDENSED FINANCIAL INFORMATION OF REGISTRANT


MEADOWBROOK INSURANCE GROUP, INC.


PARENT COMPANY ONLY


BALANCE SHEET


|                                              |                            |                                            |         |         |         |   |         |         |         | 
|--------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                              |                            | December 31,                               |        
|                                              |                            |                                            |        
|                                              |                            | 2005                                       |         |         | 2004    |  
|                                              |                            |                                            |         |         |         |  
|                                              |                            | (In thousands)                             |        
|ASSETS                                       
|Cash and cash equivalents                     |                            | $                                          | 73      |         |         | $ | 5,755   |        
|Investment in subsidiaries                    |                            |                                            | 225,475 |         |         |   | 200,029 |        
|Goodwill                                      |                            |                                            | 3,024   |         |         |   | 3,024   |        
|Other assets                                  |                            |                                            | 25,441  |         |         |   | 18,722  |        
|                                              |                            |                                            |         |         |         |  
|                                              | Total assets               |                                            | $       | 254,013 |         |   | $       | 227,530 |        
|                                              |                            |                                            |         |         |         |  
|                                             
|LIABILITIES                                  
|Other liabilities                             |                            | $                                          | 1,448   |         |         | $ | 12,609  |        
|Payable to subsidiaries                       |                            |                                            | 14,270  |         |         |   | 3,057   |        
|Debt                                          |                            |                                            | 5,000   |         |         |   | 9,044   |        
|Debentures                                    |                            |                                            | 55,930  |         |         |   | 35,310  |        
|                                              |                            |                                            |         |         |         |  
|                                              | Total liabilities          |                                            |         | 76,648  |         |   |         | 60,020  |        
|                                              |                            |                                            |         |         |         |  
|                                             
|SHAREHOLDERS EQUITY                         
|Common stock                                  |                            |                                            | 287     |         |         |   | 290     |        
|Additional paid-in capital                    |                            |                                            | 124,819 |         |         |   | 126,085 |        
|Retained earnings                             |                            |                                            | 54,248  |         |         |   | 37,175  |        
|Note receivable from officer                  |                            |                                            | (859    | )       |         |   | (868    | )      
|Accumulated other comprehensive (loss) income |                            |                                            | (1,130  | )       |         |   | 4,828   |        
|                                              |                            |                                            |         |         |         |  
|                                              | Total shareholders equity |                                            |         | 177,365 |         |   |         | 167,510 |        
|                                              |                            |                                            |         |         |         |  
|                                              |                            | Total liabilities and shareholders equity |         | $       | 254,013 |   |         | $       | 227,530 | 
|                                              |                            |                                            |         |         |         |  

102



---



##### 



SCHEDULE II


CONDENSED FINANCIAL INFORMATION OF REGISTRANT


MEADOWBROOK INSURANCE GROUP, INC.


PARENT COMPANY ONLY


INCOME STATEMENT


|                                               |                  |                                  |        |       |       |   |        |       |       |   |        |       |       | 
|---------------------------------------------- | ---------------- | -------------------------------- | ------ | ----- | ----- | - | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                               |                  | For the Years Ended December 31, |       
|                                               |                  |                                  |       
|                                               |                  | 2005                             |        |       | 2004  |   |        | 2003  |      
|                                               |                  |                                  |        |       |       |   |        |       |      
|Revenue                                        |                  | $                                | 2,198  |       |       | $ | 466    |       |       | $ | 216    |      
|Operating expenses:                            |                  |                                  |        |       |       |   |        |       |       |   |        |      
|                                               | Interest expense |                                  |        | 4,233 |       |   |        | 2,369 |       |   |        | 1,061 |      
|                                               | Other expenses   |                                  |        | 3,540 |       |   |        | 2,898 |       |   |        | 1,374 |      
|                                               |                  |                                  |        |       |       |   |        |       |      
|                                               |                  | Total operating expenses         |        |       | 7,773 |   |        |       | 5,267 |   |        |       | 2,435 | 
|                                               |                  |                                  |        |       |       |   |        |       |      
|Loss before income taxes and subsidiary equity |                  |                                  | (5,575 | )     |       |   | (4,801 | )     |       |   | (2,219 | )    
|Federal and state income tax benefit           |                  |                                  | (2,203 | )     |       |   | (1,906 | )     |       |   | (828   | )    
|                                               |                  |                                  |        |       |       |   |        |       |      
|Loss before subsidiary equity earnings         |                  |                                  | (3,372 | )     |       |   | (2,895 | )     |       |   | (1,391 | )    
|Subsidiary equity earnings                     |                  |                                  | 21,282 |       |       |   | 16,956 |       |       |   | 11,490 |      
|                                               |                  |                                  |        |       |       |   |        |       |      
|Net income                                     |                  | $                                | 17,910 |       |       | $ | 14,061 |       |       | $ | 10,099 |      
|                                               |                  |                                  |        |       |       |   |        |       |      

103



---



##### 



SCHEDULE II


CONDENSED FINANCIAL INFORMATION OF REGISTRANT


MEADOWBROOK INSURANCE GROUP, INC.


PARENT COMPANY ONLY


STATEMENT OF COMPREHENSIVE INCOME


|           |                                         |                                                                                 |        |        |        |   |        |        |        |   |        |        |      |  
|---------- | --------------------------------------- | ------------------------------------------------------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ---- | -
|           |                                         | For the Years Ended December 31,                                                |       
|           |                                         |                                                                                 |       
|           |                                         | 2005                                                                            |        |        | 2004   |   |        | 2003   |       
|           |                                         |                                                                                 |        |        |        |   |        |        |       
|Net income |                                         | $                                                                               | 17,910 |        |        | $ | 14,061 |        |        | $ | 10,099 |       
|           | Other comprehensive income, net of tax: |                                                                                 |        |        |        |   |        |        |        |   |        |        |     
|           |                                         | Unrealized losses on securities:                                                |        |        | (6,023 | ) |        |        | (2,364 | ) |        |        | (814 | )
|           |                                         | Net deferred derivative gain  hedging activity                                 |        |        | 9      |   |        |        |        |   |        |        |      |  
|           |                                         | Deconsolidation of subsidiary                                                   |        |        |        |   |        |        | (45    | ) |        |        |     |  
|           |                                         | Less: reclassification adjustment for gains (losses) included in
    net income |        |        | 56     |   |        |        | (222   | ) |        |        | (200 | )
|           |                                         |                                                                                 |        |        |        |   |        |        |       
|           | Other comprehensive loss                |                                                                                 |        | (5,958 | )      |   |        | (2,631 | )      |   |        | (1,014 | )   
|           |                                         |                                                                                 |        |        |        |   |        |        |       
|           | Comprehensive income                    |                                                                                 | $      | 11,952 |        |   | $      | 11,430 |        |   | $      | 9,085  |     
|           |                                         |                                                                                 |        |        |        |   |        |        |       

104



---



##### 



SCHEDULE II


CONDENSED FINANCIAL INFORMATION OF REGISTRANT


MEADOWBROOK INSURANCE GROUP, INC.


PARENT COMPANY ONLY


STATEMENT OF CASH FLOWS


|                                                     |                                          |                                                     |        |         |        |   |        |         |        |   |        |         |        |  
|---------------------------------------------------- | ---------------------------------------- | --------------------------------------------------- | ------ | ------- | ------ | - | ------ | ------- | ------ | - | ------ | ------- | ------ | -
|                                                     |                                          | For the Years Ended December 31,                    |       
|                                                     |                                          |                                                     |       
|                                                     |                                          | 2005                                                |        |         | 2004   |   |        | 2003    |       
|                                                     |                                          |                                                     |        |         |        |   |        |         |       
|Net cash (used in) provided by operating activities: |                                          | $                                                   | (8,437 | )       |        | $ | (4,489 | )       |        | $ | 15,404 |        
|                                                     |                                          |                                                     |        |         |        |   |        |         |       
|Cash Flow from Investing Activities:                 |                                          |                                                     |        |         |        |   |        |         |        |   |        |        
|                                                     | Purchase of land                         |                                                     |        |        |        |   |        |        |        |   |        | (3,228  | )     
|                                                     | Dividends from subsidiaries              |                                                     |        | 6,089   |        |   |        | 3,678   |        |   |        |        |       
|                                                     | Investment in subsidiaries               |                                                     |        | (15,600 | )      |   |        | (13,539 | )      |   |        | (6,272  | )     
|                                                     |                                          |                                                     |        |         |        |   |        |         |       
|                                                     |                                          | Net cash used in investing activities               |        |         | (9,511 | ) |        |         | (9,861 | ) |        |         | (9,500 | )
|                                                     |                                          |                                                     |        |         |        |   |        |         |       
|Cash Flow from Financing Activities:                 |                                          |                                                     |        |         |        |   |        |         |        |   |        |        
|                                                     | Proceeds from borrowings                 |                                                     |        | 9,500   |        |   |        | 3,744   |        |   |        | 8,800   |       
|                                                     | Principal payments on borrowings         |                                                     |        | (13,544 | )      |   |        | (8,700  | )      |   |        | (22,350 | )     
|                                                     | Net proceeds from issuance of debentures |                                                     |        | 19,400  |        |   |        | 24,250  |        |   |        | 9,700   |       
|                                                     | Stock options exercised                  |                                                     |        | 1,092   |        |   |        | 145     |        |   |        |        |       
|                                                     | Share repurchases of common stock        |                                                     |        | (4,191  | )      |   |        |        |        |   |        | (1,562  | )     
|                                                     | Other financing activities               |                                                     |        | 9       |        |   |        | 18      |        |   |        | 6       |       
|                                                     |                                          |                                                     |        |         |        |   |        |         |       
|                                                     |                                          | Net cash provided by (used in) financing activities |        |         | 12,266 |   |        |         | 19,457 |   |        |         | (5,406 | )
|                                                     |                                          |                                                     |        |         |        |   |        |         |       
|(Decrease) increase in cash and cash equivalents     |                                          |                                                     | (5,682 | )       |        |   | 5,107  |         |        |   | 498    |        
|Cash and cash equivalents, beginning of year         |                                          |                                                     | 5,755  |         |        |   | 648    |         |        |   | 150    |        
|                                                     |                                          |                                                     |        |         |        |   |        |         |       
|Cash and cash equivalents, end of year               |                                          | $                                                   | 73     |         |        | $ | 5,755  |         |        | $ | 648    |        
|                                                     |                                          |                                                     |        |         |        |   |        |         |       

105



---



##### 



SCHEDULE III


MEADOWBROOK INSURANCE GROUP, INC.





SUPPLEMENTARY INSURANCE INFORMATION


December 31, 2005


(In thousands)


|                                      |  |                   |        |                   |               |   |         |          |              |   |                   |  |  |         |   |  |  |   |         | 
|------------------------------------- |  | ----------------- | ------ | ----------------- | ------------- | - | ------- | -------- | ------------ | - | ----------------- |  |  | ------- | - |  |  | - | ------- | 
|                                      |  |                   |        | Future Policy     |               |   |         |          |              |   |                  
|                                      |  |                   |        | Benefits, Losses, |               |   |         |          | Other Policy |   |                   | 
|                                      |  | Deferred Policy   |        |                   | Claims & Loss |   |         | Unearned |              |   | Claims & Benefits |  |  | Premium |  
|                                      |  | Acquisition Costs |        |                   | Expenses      |   |         | Premium  |              |   | Payable           |  |  | Revenue |  
|                                      |  |                   |        |                   |               |   |         |          |              |   |                   |  |  |         |  
|Speciality Risk Management Operations |  | $                 | 26,371 |                   |               | $ | 458,677 |          |              | $ | 140,990           |  |  |         |  |  |  | $ | 249,959 | 
|Agency Operations                     |  |                   |       |                   |               |   |        |          |              |   |                  |  |  |         |  |  |  |   |        | 
|Reconciling Items                     |  |                   |       |                   |               |   |        |          |              |   |                  |  |  |         |  |  |  |   |        | 
|                                      |  |                   |        |                   |               |   |         |          |              |   |                   |  |  |         |  
|                                      |  | $                 | 26,371 |                   |               | $ | 458,677 |          |              | $ | 140,990           |  |  |         |  |  |  | $ | 249,959 | 
|                                      |  |                   |        |                   |               |   |         |          |              |   |                   |  |  |         |  

|                                      |  |            |        |                   |            |   |         |                   |  |   |           |  |  |         |        |  |  |   |         | 
|------------------------------------- |  | ---------- | ------ | ----------------- | ---------- | - | ------- | ----------------- |  | - | --------- |  |  | ------- | ------ |  |  | - | ------- | 
|                                      |  |            |        | Benefits, Claims, |            |   |         |                   |  |   |          
|                                      |  | Net        |        |                   | Losses &   |   |         | Amortization of   |  |   | Other     |  |  |        
|                                      |  | Investment |        |                   | Settlement |   |         | Deferred Policy   |  |   | Operating |  |  | Premium |       
|                                      |  | Income     |        |                   | Expenses   |   |         | Acquisition Costs |  |   | Expenses  |  |  | Written |       
|                                      |  |            |        |                   |            |   |         |                   |  |   |           |  |  |         |       
|Speciality Risk Management Operations |  | $          | 17,692 |                   |            | $ | 151,542 |                   |  | $ | 34,163    |  |  | $       | 79,361 |  |  | $ | 258,134 | 
|Agency Operations                     |  |            |       |                   |            |   |        |                   |  |   |          |  |  |         | 7,961  |  |  |   |        | 
|Reconciling Items                     |  |            | 283    |                   |            |   |        |                   |  |   |          |  |  |         | 5,324  |  |  |   |        | 
|                                      |  |            |        |                   |            |   |         |                   |  |   |           |  |  |         |       
|                                      |  | $          | 17,975 |                   |            | $ | 151,542 |                   |  | $ | 34,163    |  |  | $       | 92,646 |  |  | $ | 258,134 | 
|                                      |  |            |        |                   |            |   |         |                   |  |   |           |  |  |         |       

106



---



##### 



SCHEDULE III


MEADOWBROOK INSURANCE GROUP, INC.


SUPPLEMENTARY INSURANCE INFORMATION


December 31, 2004


(In thousands)


|                                      |  |                   |        |                   |               |   |         |          |              |   |                  |  |  |         |   |  |  |   |         | 
|------------------------------------- |  | ----------------- | ------ | ----------------- | ------------- | - | ------- | -------- | ------------ | - | ---------------- |  |  | ------- | - |  |  | - | ------- | 
|                                      |  |                   |        | Future Policy     |               |   |         |          |              |   |                 
|                                      |  |                   |        | Benefits, Losses, |               |   |         |          | Other Policy |   |                  | 
|                                      |  | Deferred Policy   |        |                   | Claims & Loss |   |         | Unearned |              |   | Claims &         |  |  | Premium |  
|                                      |  | Acquisition Costs |        |                   | Expenses      |   |         | Premium  |              |   | Benefits Payable |  |  | Revenue |  
|                                      |  |                   |        |                   |               |   |         |          |              |   |                  |  |  |         |  
|Speciality Risk Management Operations |  | $                 | 25,167 |                   |               | $ | 378,157 |          |              | $ | 134,302          |  |  |         |  |  |  | $ | 214,493 | 
|Agency Operations                     |  |                   |       |                   |               |   |        |          |              |   |                 |  |  |         |  |  |  |   |        | 
|Reconciling Items                     |  |                   |       |                   |               |   |        |          |              |   |                 |  |  |         |  |  |  |   |        | 
|                                      |  |                   |        |                   |               |   |         |          |              |   |                  |  |  |         |  
|                                      |  | $                 | 25,167 |                   |               | $ | 378,157 |          |              | $ | 134,302          |  |  |         |  |  |  | $ | 214,493 | 
|                                      |  |                   |        |                   |               |   |         |          |              |   |                  |  |  |         |  

|                                          |  |            |        |                   |            |   |         |                   |  |   |           |  |  |         |        |   |  |   |         | 
|----------------------------------------- |  | ---------- | ------ | ----------------- | ---------- | - | ------- | ----------------- |  | - | --------- |  |  | ------- | ------ | - |  | - | ------- | 
|                                          |  |            |        | Benefits, Claims, |            |   |         |                   |  |   |          
|                                          |  | Net        |        |                   | Losses &   |   |         | Amortization of   |  |   | Other     |  |  |        
|                                          |  | Investment |        |                   | Settlement |   |         | Deferred Policy   |  |   | Operating |  |  | Premium |       
|                                          |  | Income     |        |                   | Expenses   |   |         | Acquisition Costs |  |   | Expenses  |  |  | Written |       
|                                          |  |            |        |                   |            |   |         |                   |  |   |           |  |  |         |       
|Speciality Risk Management
    Operations |  | $          | 14,887 |                   |            | $ | 135,938 |                   |  | $ | 25,280    |  |  | $       | 83,978 |   |  | $ | 233,961 | 
|Agency Operations                         |  |            |       |                   |            |   |        |                   |  |   |          |  |  |         | 8,805  |   |  |   |        | 
|Reconciling Items                         |  |            | 24     |                   |            |   |        |                   |  |   |          |  |  |         | (4,097 | ) |  |   |        | 
|                                          |  |            |        |                   |            |   |         |                   |  |   |           |  |  |         |       
|                                          |  | $          | 14,911 |                   |            | $ | 135,938 |                   |  | $ | 25,280    |  |  | $       | 88,686 |   |  | $ | 233,961 | 
|                                          |  |            |        |                   |            |   |         |                   |  |   |           |  |  |         |       

107



---



##### 



SCHEDULE III


MEADOWBROOK INSURANCE GROUP, INC.


SUPPLEMENTARY INSURANCE INFORMATION


December 31, 2003


(In thousands)


|                                      |  |                   |        |                   |               |   |         |          |              |   |                  |  |  |         |   |  |  |   |         | 
|------------------------------------- |  | ----------------- | ------ | ----------------- | ------------- | - | ------- | -------- | ------------ | - | ---------------- |  |  | ------- | - |  |  | - | ------- | 
|                                      |  |                   |        | Future Policy     |               |   |         |          |              |   |                 
|                                      |  |                   |        | Benefits, Losses, |               |   |         |          | Other Policy |   |                  | 
|                                      |  | Deferred Policy   |        |                   | Claims & Loss |   |         | Unearned |              |   | Claims &         |  |  | Premium |  
|                                      |  | Acquisition Costs |        |                   | Expenses      |   |         | Premium  |              |   | Benefits Payable |  |  | Revenue |  
|                                      |  |                   |        |                   |               |   |         |          |              |   |                  |  |  |         |  
|Speciality Risk Management Operations |  | $                 | 19,564 |                   |               | $ | 339,465 |          |              | $ | 109,677          |  |  |         |  |  |  | $ | 151,205 | 
|Agency Operations                     |  |                   |       |                   |               |   |        |          |              |   |                 |  |  |         |  |  |  |   |        | 
|Reconciling Items                     |  |                   |       |                   |               |   |        |          |              |   |                 |  |  |         |  |  |  |   |        | 
|                                      |  |                   |        |                   |               |   |         |          |              |   |                  |  |  |         |  
|                                      |  | $                 | 19,564 |                   |               | $ | 339,465 |          |              | $ | 109,677          |  |  |         |  |  |  | $ | 151,205 | 
|                                      |  |                   |        |                   |               |   |         |          |              |   |                  |  |  |         |  

|                                          |  |            |        |                   |            |   |        |                   |  |   |           |  |  |         |        |   |  |   |         | 
|----------------------------------------- |  | ---------- | ------ | ----------------- | ---------- | - | ------ | ----------------- |  | - | --------- |  |  | ------- | ------ | - |  | - | ------- | 
|                                          |  |            |        | Benefits, Claims, |            |   |        |                   |  |   |          
|                                          |  | Net        |        |                   | Losses &   |   |        | Amortization of   |  |   | Other     |  |  |        
|                                          |  | Investment |        |                   | Settlement |   |        | Deferred Policy   |  |   | Operating |  |  | Premium |       
|                                          |  | Income     |        |                   | Expenses   |   |        | Acquisition Costs |  |   | Expenses  |  |  | Written |       
|                                          |  |            |        |                   |            |   |        |                   |  |   |           |  |  |         |       
|Speciality Risk Management
    Operations |  | $          | 13,471 |                   |            | $ | 98,472 |                   |  | $ | 18,202    |  |  | $       | 73,121 |   |  | $ | 189,827 | 
|Agency Operations                         |  |            |       |                   |            |   |       |                   |  |   |          |  |  |         | 8,009  |   |  |   |        | 
|Reconciling Items                         |  |            | 13     |                   |            |   |       |                   |  |   |          |  |  |         | (3,279 | ) |  |   |        | 
|                                          |  |            |        |                   |            |   |        |                   |  |   |           |  |  |         |       
|                                          |  | $          | 13,484 |                   |            | $ | 98,472 |                   |  | $ | 18,202    |  |  | $       | 77,851 |   |  | $ | 189,827 | 
|                                          |  |            |        |                   |            |   |        |                   |  |   |           |  |  |         |       

108



---



##### 



SCHEDULE IV


MEADOWBROOK INSURANCE GROUP, INC.





REINSURANCE


For the Years Ended December 31,


(In thousands)


|                                 |  |        |         |          |           |         |        |           |  |   |            |           |  |         |         |  |  |  |       |  
|-------------------------------- |  | ------ | ------- | -------- | --------- | ------- | ------ | --------- |  | - | ---------- | --------- |  | ------- | ------- |  |  |  | ----- | -
|                                 |  |        |         |          |           | Assumed |        |           |  |   | Percentage |          
|                                 |  |        |         | Ceded to |           |         | from   |           |  |   |            | of Amount | 
|                                 |  | Gross  |         |          | Other     |         |        | Other     |  |   | Net        |           |  | Assumed |        
|                                 |  | Amount |         |          | Companies |         |        | Companies |  |   | Amount     |           |  | to Net  |        
|                                 |  |        |         |          |           |         |        |           |  |   |            |           |  |         |        
|Property and Liability Insurance |  |        |         |          |           |         |        |           |  |   |            |           |  |         |         |  |  |  |       |  
|2005                             |  | $      | 264,381 |          |           | $       | 75,563 |           |  | $ | 61,141     |           |  | $       | 249,959 |  |  |  | 24.46 | %
|2004                             |  | $      | 247,169 |          |           | $       | 74,375 |           |  | $ | 41,699     |           |  | $       | 214,493 |  |  |  | 19.44 | %
|2003                             |  | $      | 198,991 |          |           | $       | 61,076 |           |  | $ | 13,290     |           |  | $       | 151,205 |  |  |  | 8.79  | %

109



---



##### 



SCHEDULE V


MEADOWBROOK INSURANCE GROUP, INC.





VALUATION AND QUALIFYING ACCOUNTS


For the Years Ended December 31,


(In thousands)


|                                |  |            |       |           |            |   |            |            |  |  |           |  |  |            |       |  |  |   |       | 
|------------------------------- |  | ---------- | ----- | --------- | ---------- | - | ---------- | ---------- |  |  | --------- |  |  | ---------- | ----- |  |  | - | ----- | 
|                                |  |            |       | Additions |            |   |            |            | 
|                                |  |            |       |           |            |   | Deductions |            |  | 
|                                |  | Balance at |       |           | Charged to |   |            | Charged to |  |  | from      |  |  | Balance at |      
|                                |  | Beginning  |       |           | Costs and  |   |            | Other      |  |  | Allowance |  |  | End of     |      
|                                |  | of Period  |       |           | Expense    |   |            | Accounts   |  |  | Account   |  |  | Period     |      
|                                |  |            |       |           |            |   |            |            |  |  |           |  |  |            |      
|Allowance for doubtful accounts |  |            |       |           |            |   |            |            |  |  |           |  |  |            |       |  |  |   |       | 
|2005                            |  | $          | 4,336 |           |            | $ | 704        |            |  |  |          |  |  | $          | 1,139 |  |  | $ | 3,901 | 
|2004                            |  | $          | 4,651 |           |            | $ | 822        |            |  |  |          |  |  | $          | 1,137 |  |  | $ | 4,336 | 
|2003                            |  | $          | 4,747 |           |            | $ | 2,724      |            |  |  |          |  |  | $          | 2,820 |  |  | $ | 4,651 | 

110



---



##### 



SCHEDULE VI


MEADOWBROOK INSURANCE GROUP, INC.





SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND


CASUALTY INSURANCE OPERATIONS


|                                                   |  |                                  |        |              |             |   |         |                   |  |             |   |     |          |   |         |            |  |   |         |  |  |   |        | 
|-------------------------------------------------- |  | -------------------------------- | ------ | ------------ | ----------- | - | ------- | ----------------- |  | ----------- | - | --- | -------- | - | ------- | ---------- |  | - | ------- |  |  | - | ------ | 
|                                                   |  | For the Years Ended December 31, |       
|                                                   |  | (In thousands)                   |       
|                                                   |  |                                  |       
|                                                   |  |                                  |        | Reserves for |             |   |        
|                                                   |  | Deferred                         |        |              | Losses and  |   |         | Discount, if any, |  |            
|                                                   |  | Policy                           |        |              | Loss        |   |         | deducted from     |  |             |   | Net |          |   | Net     |           
|                                                   |  | Acquisition                      |        |              | Adjustment  |   |         | previous          |  | Unearned    |   |     | Premiums |   |         | Investment | 
|Affiliation with Registrant                        |  | Costs                            |        |              | Expenses(2) |   |         | column(1)         |  | Premiums(2) |   |     | Earned   |   |         | Income     | 
|                                                   |  |                                  |        |              |             |   |         |                   |  |             |   |     |          |   |         |            | 
|(a)Consolidated Property and Casualty Subsidiaries |  |                                  |        |              |             |   |         |                   |  |             |   |     |          |   |         |            |  |   |         |  |  |   |        | 
|2005                                               |  | $                                | 26,371 |              |             | $ | 458,677 |                   |  | $           |  |     |          | $ | 140,990 |            |  | $ | 249,959 |  |  | $ | 17,692 | 
|2004                                               |  | $                                | 25,167 |              |             | $ | 378,157 |                   |  | $           |  |     |          | $ | 134,302 |            |  | $ | 214,493 |  |  | $ | 14,887 | 
|2003                                               |  | $                                | 19,564 |              |             | $ | 339,465 |                   |  | $           |  |     |          | $ | 109,677 |            |  | $ | 151,205 |  |  | $ | 13,471 | 

|     |  |                    |         |  |                 |   |       |             |  |   |          |  |  |         |         |  |  |   |         | 
|---- |  | ------------------ | ------- |  | --------------- | - | ----- | ----------- |  | - | -------- |  |  | ------- | ------- |  |  | - | ------- | 
|     |  | Losses and loss    |         |  | Amortization of |   |       | Paid losses |  |   |         
|     |  | adjustment expense |         |  | deferred policy |   |       | and loss    |  |   | Net      | 
|     |  |                    |         |  | acquisition     |   |       | adjustment  |  |   | Premiums | 
|     |  | Current Year       |         |  | Prior Years     |   |       | expenses    |  |   | expenses |  |  | Written |        
|     |  |                    |         |  |                 |   |       |             |  |   |          |  |  |         |        
|2005 |  | $                  | 146,658 |  |                 | $ | 4,884 |             |  | $ | 34,163   |  |  | $       | 107,115 |  |  | $ | 258,134 | 
|2004 |  | $                  | 131,409 |  |                 | $ | 4,529 |             |  | $ | 25,280   |  |  | $       | 97,972  |  |  | $ | 233,961 | 
|2003 |  | $                  | 95,565  |  |                 | $ | 2,907 |             |  | $ | 18,202   |  |  | $       | 99,569  |  |  | $ | 189,827 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Company does not employ any discounting techniques.                                                                                                                                                                                                                                                                                                                         
|   
|(2) | Reserves for losses and loss adjustment expenses are shown gross
    of $187.3 million, $151.2 million and $147.4 million
    of reinsurance recoverable on unpaid losses in 2005, 2004 and
    2003, respectively. Unearned premiums are shown gross of ceded
    unearned premiums of $24.6 million, $26.1 million and
    $20.5 million in 2005, 2004 and 2003, respectively.

111



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##### 



MEADOWBROOK INSURANCE GROUP, INC.


Exhibit Index


|        |    |     |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |        |  |     |  
|------- | -- | --- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ |  | --- | -
|Exhibit |    |     |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Filing | 
|No.     |    |     | Description |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Basis  | 
|        |    |     |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |        | 
|        | 3  | .1  |             | Amended and Restated Articles of Incorporation of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |  | (5  | )
|        | 3  | .2  |             | Amended and Restated Bylaws of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        |  | (1  | )
|        | 4  | .1  |             | Junior Subordinated Indenture between Meadowbrook Insurance
    Group, Inc., and JP Morgan Chase Bank, dated September 30,
    2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |  | (7  | )
|        | 4  | .2  |             | Junior Subordinated Indenture between Meadowbrook Insurance
    Group, Inc. and LaSalle Bank National Association, dated as of
    September 16, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |        |  | (14 | )
|        | 10 | .1  |             | Meadowbrook Insurance Group, Inc. Amended and Restated 1995
    Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |  | (9  | )
|        | 10 | .2  |             | Meadowbrook, Inc. 401(k) and Profit Sharing Plan Trust, amended
    and restated December 31, 1994                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |        |  | (1  | )
|        | 10 | .3  |             | Demand Note dated November 9, 1998 among the Company and
    Robert S. Cubbin and Kathleen D. Cubbin and Stock Pledge
    Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |  | (4  | )
|        | 10 | .4  |             | Meadowbrook Insurance Group, Inc. Amended and Restated 2002
    Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |  | (9  | )
|        | 10 | .5  |             | Agency Agreement by and between Meadowbrook, Inc., Preferred
    Insurance Agency, Inc., TPA Insurance Agency, Inc., Preferred
    Comp Insurance Agency of New Hampshire, TPA Insurance Agency of
    New Hampshire, Inc., Meadowbrook of Nevada, Inc., d/b/a
    Meadowbrook Insurance Services, Meadowbrook of Florida, Inc.,
    Association Self-Insurance Services, Inc., Commercial Carriers
    Insurance Agency, Inc., and Star Insurance Company, Savers
    Property and Casualty Insurance Company, Williamsburg National
    Insurance Company, and Ameritrust Insurance Corporation, dated
    January 1, 2003 |        |  | (6  | )
|        | 10 | .6  |             | Purchase Agreement among Meadowbrook Insurance Group, Inc.,
    Meadowbrook Capital Trust I, and Dekania CDO I, Ltd.,
    dated September 30, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |        |  | (7  | )
|        | 10 | .7  |             | Amended and Restated Trust Agreement among Meadowbrook
    Insurance Group, Inc., JP Morgan Chase Bank, Chase Manhattan
    Bank USA, National Association, and The Administrative Trustees
    Named Herein, dated September 30, 2003                                                                                                                                                                                                                                                                                                                                                                                       |        |  | (7  | )
|        | 10 | .8  |             | Guaranty Agreement between Meadowbrook Insurance Group, Inc.,
    and JP Morgan Chase Bank, dated September 30, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |        |  | (7  | )
|        | 10 | .9  |             | Employment Agreement between the Company and Robert S. Cubbin,
    dated January 1, 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |        |  | (8  | )
|        | 10 | .10 |             | Employment Agreement between the Company and Michael G.
    Costello, dated January 1, 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |        |  | (8  | )
|        | 10 | .11 |             | Meadowbrook Insurance Group, Inc. Long Term Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        |  | (11 | )
|        | 10 | .12 |             | Indenture between Meadowbrook Insurance Group, Inc. and JPMorgan
    Chase Bank, as Trustee, dated April 29, 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |  | (11 | )
|        | 10 | .13 |             | Amended and Restated Loan and Security Agreement between Liberty
    Premium Finance, Inc., and Comerica Bank, dated May 7, 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |        |  | (11 | )
|        | 10 | .14 |             | Indenture between Meadowbrook Insurance Group, Inc. and
    Wilmington Trust Company, as Trustee, dated May 26, 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |        |  | (11 | )
|        | 10 | .15 |             | Land Contract between Meadowbrook Insurance Group, Inc. and MB
    Center II LLC, dated July 15, 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |        |  | (11 | )
|        | 10 | .16 |             | Loan Agreement by and between Ameritrust Insurance Corporation,
    Savers Property and Casualty Insurance Company, Star Insurance
    Company, Williamsburg National Insurance Company, Meadowbrook
    Insurance Group, Inc., and Meadowbrook, Inc., dated
    September 1, 2004                                                                                                                                                                                                                                                                                                                                           |        |  | (12 | )
|        | 10 | .17 |             | Credit Agreement among Meadowbrook Insurance Group, Inc. and
    Standard Federal Bank National Association dated as of
    November 12, 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |  | (10 | )

112



---



##### 



|        |    |     |             |                                                                                                                                                                                                                                                                                                                                                                                                     |        |  |     |  
|------- | -- | --- | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ |  | --- | -
|Exhibit |    |     |             |                                                                                                                                                                                                                                                                                                                                                                                                     | Filing | 
|No.     |    |     | Description |                                                                                                                                                                                                                                                                                                                                                                                                     | Basis  | 
|        |    |     |             |                                                                                                                                                                                                                                                                                                                                                                                                     |        | 
|        | 10 | .18 |             | Revolving Note among Meadowbrook Insurance Group, Inc. and
    Standard Federal Bank National Association dated as of
    November 12, 2004                                                                                                                                                                                                                                                         |        |  | (10 | )
|        | 10 | .19 |             | Security Agreement among Meadowbrook Insurance Group, Inc. and
    Standard Federal Bank National Association dated as of
    November 12, 2004                                                                                                                                                                                                                                                     |        |  | (10 | )
|        | 10 | .20 |             | Form of Nonqualified Stock Option Agreement under the
    Meadowbrook Insurance Group, Inc., Stock Option Plan, dated
    February 21, 2003                                                                                                                                                                                                                                                         |        |  | (12 | )
|        | 10 | .21 |             | Lease Agreement between Meadowbrook Insurance Group, Inc. and
    Meadowbrook, Inc., dated December 6, 2004                                                                                                                                                                                                                                                                                         |        |  | (12 | )
|        | 10 | .22 |             | Master Lease Agreement between LaSalle National Leasing
    Corporation and Meadowbrook Insurance Group, Inc., dated
    December 30, 2004                                                                                                                                                                                                                                                          |        |  | (12 | )
|        | 10 | .23 |             | Promissory Note between Meadowbrook Insurance Group, Inc. and
    Star Insurance Company, dated January 1, 2005                                                                                                                                                                                                                                                                                     |        |  | (12 | )
|        | 10 | .24 |             | Commercial Mortgage between Meadowbrook Insurance Group, Inc.
    and Star Insurance Company, dated January 1, 2005                                                                                                                                                                                                                                                                                 |        |  | (12 | )
|        | 10 | .25 |             | Assignment of Leases and Rents between Meadowbrook Insurance
    Group, Inc. and Star Insurance Company, dated January 1,
    2005                                                                                                                                                                                                                                                                  |        |  | (12 | )
|        | 10 | .26 |             | Form of At-Will Employment and Severance Agreement by and among
    Meadowbrook, Inc., Meadowbrook Insurance Group, Inc., and Karen
    M. Spaun, Stephen Belden, Gregory L. Wilde, Robert C. Spring,
    Archie S. McIntyre, Arthur C. Pletz, Randolph W. Fort, Angelo L.
    Williams, Susan L. Cubbin, and Kenn R. Allen, dated
    January 1, 2005 and Steven C. Divine dated March 1,
    2006 |        |  | (12 | )
|        | 10 | .27 |             | Amendment to Demand Note Addendum among the Company and
    Robert S. Cubbin and Kathleen D. Cubbin, dated February 17,
    2005                                                                                                                                                                                                                                                                    |        |  | (12 | )
|        | 10 | .28 |             | First Modification to the Amended and Restated Loan and Security
    Agreement between Liberty Premium Finance, Inc. and Comerica
    Bank, dated April 26, 2005                                                                                                                                                                                                                                    |        |  | (13 | )
|        | 10 | .29 |             | Reciprocal Easement and Operation Agreement between Meadowbrook
    Insurance Group, Inc. and MB Center II, LLC, dated
    May 9, 2005                                                                                                                                                                                                                                                              |        |  | (13 | )
|        | 10 | .30 |             | First Amendment to Land Contract between MB Center II, LLC
    and Meadowbrook Insurance Group, Inc., dated May 20, 2005                                                                                                                                                                                                                                                                            |        |  | (13 | )
|        | 10 | .31 |             | Amendment to Credit Agreement between Meadowbrook Insurance
    Group, Inc. and Standard Federal Bank National Association,
    dated May 20, 2005                                                                                                                                                                                                                                                  |        |  | (13 | )
|        | 10 | .32 |             | Second Amendment to Credit Agreement between Meadowbrook
    Insurance                                                                                                                                                                                                                                                                                                                              |        |  |     |  
|        |    |     |             | Group, Inc. and Standard Federal Bank National Association,
    dated September 8, 2005                                                                                                                                                                                                                                                                                                             |        |  | (15 | )
|        | 10 | .33 |             | Purchase Agreement among Meadowbrook Insurance Group, Inc.,
    Meadowbrook Capital Trust II, and Merrill Lynch
    International, dated as of September 16, 2005                                                                                                                                                                                                                                   |        |  | (14 | )
|        | 10 | .34 |             | Amended and Restated Trust Agreement among Meadowbrook
    Insurance Group, Inc., LaSalle Bank National Association,
    Christiana Bank & Trust Company, and The Administrative
    Trustees Named Herein, dated as of September 16, 2005                                                                                                                                                          |        |  | (14 | )
|        | 10 | .35 |             | Guarantee Agreement between Meadowbrook Insurance Group, Inc.,
    and LaSalle Bank National Association, dated as of
    September 16, 2005                                                                                                                                                                                                                                                        |        |  | (14 | )
|        | 10 | .36 |             | Convertible Note between Meadowbrook Insurance Group, Inc. and
    Renaissance Insurance Group, LLC, dated December 20, 2005                                                                                                                                                                                                                                                                        |        |  |     |  
|        | 10 | .37 |             | Third Amendment to Credit Agreement between Meadowbrook
    Insurance Group, Inc. and LaSalle Bank Midwest National
    Association, dated December 28, 2005                                                                                                                                                                                                                                        |        |  |     |  
|        | 10 | .38 |             | Inter-Company Reinsurance Agreement by and between Star
    Insurance Company and Ameritrust Insurance Company, Savers
    Property and Casualty Insurance Company, and Williamsburg
    National Insurance Company, dated January 1, 2006                                                                                                                                                          |        |  |     |  

113



---



##### 



|        |    |     |             |                                                                                                                                                                                                                                                                                                                                                               |        |  |     |  
|------- | -- | --- | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ |  | --- | -
|Exhibit |    |     |             |                                                                                                                                                                                                                                                                                                                                                               | Filing | 
|No.     |    |     | Description |                                                                                                                                                                                                                                                                                                                                                               | Basis  | 
|        |    |     |             |                                                                                                                                                                                                                                                                                                                                                               |        | 
|        | 10 | .39 |             | Form of Management Services Agreement by and between Meadowbrook
    Insurance Group, Inc., Meadowbrook, Inc., and Star Insurance
    Company, Williamsburg National Insurance Co., Ameritrust
    Insurance Corporation, American Indemnity Insurance Company,
    Ltd., and Preferred Insurance Company, Ltd., respectively, each
    dated January 1, 2006 |        |  |     |  
|        | 10 | .40 |             | Management Services Agreement by and between Savers Property and
    Casualty Insurance Company and Meadowbrook, Inc., dated
    January 1, 2006                                                                                                                                                                                                              |        |  |     |  
|        | 10 | .41 |             | Employment Agreement between Meadowbrook, Inc., and Meadowbrook
    Insurance Group, Inc. and Merton J. Segal, dated January 1,
    2006                                                                                                                                                                                                                      |        |  | (16 | )
|        | 14 |     |             | Compliance Program/ Code of Conduct                                                                                                                                                                                                                                                                                                                           |        |  |     |  
|        | 16 |     |             | PricewaterhouseCoopers Letter to the Commission dated
    August 10, 2005, filed as Exhibit 16.1 to the
    Companys Form 8-K, dated August 12, 2005                                                                                                                                                                                                        |        |  |     |  
|        | 21 |     |             | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                          |        |  |     |  
|        | 23 | .1  |             | Consent of Independent Registered Public Accounting Firm (Ernst
    & Young LLP)                                                                                                                                                                                                                                                                              |        |  |     |  
|        | 23 | .2  |             | Consent of Independent Registered Public Accounting Firm
    (PricewaterhouseCoopers LLP)                                                                                                                                                                                                                                                                     |        |  |     |  
|        | 24 |     |             | Power of Attorney                                                                                                                                                                                                                                                                                                                                             |        |  |     |  
|        | 28 | .1  |             | Star Insurance Companys 2005 Schedule P                                                                                                                                                                                                                                                                                                                      |        |  | (2  | )
|        | 28 | .2  |             | Savers Property & Casualty Insurance Companys
    2005 Schedule P                                                                                                                                                                                                                                                                                            |        |  | (2  | )
|        | 28 | .3  |             | Williamsburg National Insurance Companys 2005
    Schedule P                                                                                                                                                                                                                                                                                                 |        |  | (2  | )
|        | 28 | .4  |             | Ameritrust Insurance Corporations 2005 Schedule P                                                                                                                                                                                                                                                                                                            |        |  | (2  | )
|        | 31 | .1  |             | Certification of Robert S. Cubbin, Chief Executive Officer of
    the Corporation, pursuant to Securities Exchange Act
    Rule 13a-14(a)                                                                                                                                                                                                                     |        |  |     |  
|        | 31 | .2  |             | Certification of Karen M. Spaun, Chief Financial Officer of the
    Corporation, pursuant to Securities Exchange Act
    Rule 13a-14(a)                                                                                                                                                                                                                       |        |  |     |  
|        | 32 | .1  |             | Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002, signed by Robert S. Cubbin, Chief Executive Officer of
    the Corporation                                                                                                                                                    |        |  |     |  
|        | 32 | .2  |             | Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002, signed by Karen M. Spaun, Chief Financial Officer of
    the Corporation                                                                                                                                                      |        |  |     |  
|        | 99 | .1  |             | Rights Agreement, dated as of September 30, 1999, by and
    between Meadowbrook Insurance Group, Inc. and First Chicago
    Trust Company of New York, including the Certificate of
    Designation, the form of Rights Certificate and the Summary of
    Rights attached thereto as Exhibits A, B and C, respectively                                      |        |  | (3  | )






| |     |                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to
    Form S-1
    Registration Statement (No.
    33-2626206) of
    Meadowbrook Insurance Group, Inc. declared effective
    November 20, 1995.
|
| | (2) | Submitted in paper format under separate cover; see Form SE
    filing.                                                                                                     
|
| | (3) | Incorporated by reference to Exhibit 99.1 to the
    Companys
    Form 8-A filed
    with the Securities and Exchange Commission on October 12,
    1999.                  
|
| | (4) | Filed as Exhibit to
    Form 10-K for the
    year ending December 31, 1998.                                                                                                
|
| | (5) | Filed as Exhibit to
    Form 10-Q for the
    period ending March 31, 2002.                                                                                                 
|
| | (6) | Filed as Exhibit to
    Form 10-K for the
    year ending December 31, 2002.                                                                                                
|
| | (7) | Filed as Exhibit to
    Form 10-Q for the
    period ending September 30, 2003.                                                                                             
|
| | (8) | Filed as Exhibit to
    Form 10-K for the
    year ending December 31, 2003                                                                                                 
|
| | (9) | Filed as Appendix to Meadowbrook Insurance Group, Inc. 2004
    Proxy Statement.                                                                                            

114



---



##### 





|     |                                                                                    
|---- | -----------------------------------------------------------------------------------
|(10) | Filed as Exhibit to Current Report on
    Form 8-K filed on
    November 18, 2004. 
|    
|(11) | Filed as Exhibit to
    Form 10-Q for the
    period ending June 30, 2004.         
|    
|(12) | Filed as Exhibit to
    Form 10-K for the
    year ending December 31, 2004.       
|    
|(13) | Filed as Exhibit to
    Form 10-Q for the
    period ending June 30, 2005.         
|    
|(14) | Filed as Exhibit to Current Report on
    Form 8-K filed on
    September 22, 2005.
|    
|(15) | Filed as Exhibit to
    Form 10-Q for the
    period ending September 30, 2005.    
|    
|(16) | Filed as Exhibit to Current Report on
    Form 8-K filed on
    March 9, 2006.     

115



---



##### 



SIGNATURES






| |                                      
| | -------------------------------------
| | Meadowbrook Insurance
    Group, Inc.



| |     |                     
| | --- | --------------------
| | By: | -s- Robert S. Cubbin

| |                              
| | -----------------------------
| |                              
| | Robert S. Cubbin             
| | Chief Executive Officer      
| | (Principal Executive Officer)



| |     |                   
| | --- | ------------------
| | By: | -s- Karen M. Spaun

| |                              
| | -----------------------------
| |                              
| | Karen M. Spaun               
| | Senior Vice President and    
| | Chief Financial Officer      
| | (Principal Financial Officer)





|                                     |  |                                                                                   |  |               
|------------------------------------ |  | --------------------------------------------------------------------------------- |  | --------------
|Signature                            |  | Title                                                                             |  | Date          
|                                     |  |                                                                                   |  |               
|**Merton J. Segal                    |  | Chairman and Director                                                             |  | March 14, 2006
|                                    
|-s- Robert S. CubbinRobert S. Cubbin |  | President, Chief Executive Officer and Director (Principal
    Executive Officer) |  | March 14, 2006
|                                    
|**Joseph S. Dresner                  |  | Director                                                                          |  | March 14, 2006
|                                    
|**Hugh W. Greenberg                  |  | Director                                                                          |  | March 14, 2006
|                                    
|**Florine Mark                       |  | Director                                                                          |  | March 14, 2006
|                                    
|**Robert H. Naftaly                  |  | Director                                                                          |  | March 14, 2006
|                                    
|**David K. Page                      |  | Director                                                                          |  | March 14, 2006
|                                    
|**Robert W. Sturgis                  |  | Director                                                                          |  | March 14, 2006
|                                    
|**Bruce E. Thal                      |  | Director                                                                          |  | March 14, 2006

116



---



##### 



|                                                                |  |          |  |               
|--------------------------------------------------------------- |  | -------- |  | --------------
|Signature                                                       |  | Title    |  | Date          
|                                                                |  |          |  |               
|                                                               
|**Herbert Tyner                                                 |  | Director |  | March 14, 2006
|                                                               
|**By:-s- Robert S. CubbinRobert S. Cubbin,
    Attorney-in-fact |  |          |  |               

117