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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)

|x | Annual report pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934
|- | -------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2006.



or



| ̈ | Transition report pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934
|- | -----------------------------------------------------------------------------------------



For the transition period from
 to .



Commission file number 000-28249



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AMERINST INSURANCE GROUP, LTD.

(Exact Name of Registrant as Specified in its Charter)



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|                                                                                                               |  |                                     
|-------------------------------------------------------------------------------------------------------------- |  | ------------------------------------
|BERMUDA                                                                                                        |  | 98-0207447                          
|(State or other jurisdiction of Incorporation or Organization)                                                 |  | (I.R.S. Employer Identification No.)
|                                                                                                               | 
|c/o USA Risk Group (Bermuda) Ltd. Windsor Place, 18 Queen Street, 2ndFloor P.O. Box HM 1601, Hamilton, Bermuda |  | HMGX                                
|(Address of Principal Executive Offices)                                                                       |  | (Zip Code)                          



Registrants
telephone number, including area code: (441) 296-3973



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



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



COMMON SHARES, PAR VALUE $1.00 PER SHARE

(Title of class)



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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES ̈NO  x.



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO ̈.



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ̈



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.



|                         |  |                    |  |                          
|------------------------ |  | ------------------ |  | -------------------------
|Large accelerated filer ̈ |  | Accelerated filer ̈ |  | Non-accelerated filer  x.



Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES ̈NO  x.



As of March 1, 2007, the registrant had 995,253 common shares, $1.00 par value per share outstanding. The aggregate market value of the common stock held by non-affiliates of the Registrant as of the last
business day of the Registrants most recently completed second fiscal quarter was $18,307,356 based on book value as of June 30, 2006.



Documents Incorporated by Reference



|                                                                                                                                   |  |                                    
|---------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------
|                                                                                                                                   |  | IncorporatedBy ReferenceIn Part No.
|Portions of the Companys Proxy Statement in connection with the Annual General Meeting of Shareholders to be held on May 31,
2007 |  | III                                

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AMERINST INSURANCE GROUP, LTD.



Annual
Report on Form 10-K

For the year ended December 31, 2006



TABLE OF CONTENTS



|           |  |          |  |                                                                                                              |  |     
|---------- |  | -------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |          |  |                                                                                                              |  | Page
|PART I     |  |          |  |                                                                                                             
|           |  |          | 
|           |  | Item 1.  |  | Business                                                                                                     |  | 3   
|           |  | Item 1A. |  | Risk Factors                                                                                                 |  | 9   
|           |  | Item 1B. |  | Unresolved Staff Comments                                                                                    |  | 10  
|           |  | Item 2.  |  | Properties                                                                                                   |  | 10  
|           |  | Item 3.  |  | Legal Proceedings                                                                                            |  | 10  
|           |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                          |  | 10  
|           |  |         
|PART II    |  |          |  |                                                                                                             
|           |  |          | 
|           |  | Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 11  
|           |  | Item 6.  |  | Selected Financial Data                                                                                      |  | 13  
|           |  | Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 13  
|           |  | Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 23  
|           |  | Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  | 25  
|           |  | Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 39  
|           |  | Item 9A. |  | Controls and Procedures                                                                                      |  | 39  
|           |  | Item 9B. |  | Other Information                                                                                            |  | 39  
|           |  |         
|PART III   |  |          |  |                                                                                                             
|           |  |          | 
|           |  | Item 10. |  | Directors, Executive Officers and Corporate Governance                                                       |  | 40  
|           |  | Item 11. |  | Executive Compensation                                                                                       |  | 40  
|           |  | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 40  
|           |  | Item 13. |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 40  
|           |  | Item 14. |  | Principal Accountant Fees and Services                                                                       |  | 40  
|           |  |         
|PART IV    |  |          |  |                                                                                                             
|           |  |          | 
|           |  | Item 15. |  | Exhibits and Financial Statement Schedules                                                                   |  | 41  
|           | 
|Signatures |  | 42      





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PART I



Item 1. Business



General



Unless otherwise indicated by the context, in this annual report we refer to AmerInst Insurance Group, Ltd. and its subsidiaries as the Company, we or us. Also, unless otherwise
indicated by the context, AmerInst means the parent company, AmerInst Insurance Group, Ltd. Our principal offices are c/o USA Risk Group (Bermuda) Ltd., Windsor Place, 18 Queen Street, 2ndFloor, P.O. Box HM 1601, Hamilton HM GX, Bermuda. On December 2, 1999, AmerInst Insurance Group, Ltd. and its predecessor entity, AmerInst Insurance
Group, Inc., a Delaware corporation, consummated an exchange transaction pursuant to an Exchange Agreement, in which AmerInst Insurance Group, Inc. transferred all of its assets and liabilities to AmerInst in exchange for newly issued common shares
of AmerInst. AmerInst Insurance Group, Inc. was then liquidated and its shareholders received, on a share-for-share basis, the newly issued common shares of AmerInst.



Our primary purpose is to maintain an insurance company which is intended to exert a stabilizing influence on the design,
pricing and availability of accountants professional liability insurance. Historically, the sole business activity of our wholly owned insurance company subsidiary, AmerInst Insurance Company, Ltd., has been to act as a reinsurer of
professional liability insurance policies that are issued under the Professional Liability Insurance Plan sponsored by the American Institute of Certified Public Accountants (AICPA). The AICPA plan offers professional liability coverage
to accounting firms and individual certified public accountants (CPAs) in all 50 states. During 2003, we also reinsured attorneys professional liability. Effective June 1, 2005, we accepted a 5% share in the first excess layer
of $2,000,000 excess of $1,000,000 of CAMICO Mutual Insurance Company (CAMICO), a California-based writer of accountants professional liability business. Approximately 25,000 accounting firms and individual CPAs are insured under
these plans. We continue to look for ways in which it may be advantageous to expand our business to include the reinsurance of lines of coverage other than accountants professional liability. Any such expansion may be subject to our obtaining
regulatory approvals, among other things.



Our reinsurance
activity depends upon agreements with outside parties, among other things. In August 1993 we began the current reinsurance relationship with CNA Financial Corporation (CNA), taking a 10% participation of the first $1,000,000 of liability
of each policy written under the AICPA plan. Effective in December 1999, we began taking a 10% share of CNAs value plan business. The value plan provides for separate limits up to $1,000,000 for losses and separate
limits up to $1,000,000 for expenses per occurrence and $2,000,000 in the aggregate. The maximum limits under the value plan are $2,000,000 per occurrence and $4,000,000 in the aggregate.



We have entered into reinsurance agreements with CNA and CAMICO and intend to
cooperate with them through such reinsurance agreements, but have no contractual right to long-term involvement with either the AICPA plan or CAMICO. Similarly, other than the current terms of our reinsurance agreements, we are not obligated to use
our reinsurance capacity as part of either insurance program, which is offered to the CPA profession, and may, in the discretion of our board of directors, provide reinsurance for other coverage, including other accountants professional
liability coverage.



Third-party Managers and Service
Providers



USA Risk Group (Bermuda) Ltd. provides the
day-to-day services necessary for the administration of our business. Shareholder services are conducted by USA Risk Group of Vermont, Inc., an affiliate of USA Risk Group (Bermuda) Ltd.



The Country Club Bank of Kansas City, Missouri, provides portfolio management of fixed-income securities and directs our
investments pursuant to guidelines approved by us. Harris Associates L.P., Harris Alternatives Investment Group, and Northeast Investment Management, Inc. provide discretionary investment advice with respect to our equity investments.



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We have retained Milliman USA, an independent casualty actuarial consulting firm, to render advice
regarding actuarial matters.



Professional Liability
Coverage



The form of professional liability policy
issued by CNA, which we ultimately reinsure, is a Professional Liability Company Indemnity Policy form. The coverage provided under this policy is on a claims made basis, which means the policy covers only those losses resulting from
claims asserted against the insured during the policy period. The insuring clause of the policy, which indemnifies for losses caused by acts, errors or omissions in the insureds performance of professional accounting services for others, is in
three parts:



Clause A indemnifies the accounting firm insured
and, unless excluded by endorsements, any predecessor firms;



Clause B indemnifies any accountant or accounting firm while performing professional accounting services under contract with the insured; and



Clause C indemnifies any former or new partner, officer, director or employee of the firm or predecessor firms.



Depending on the insured, defense costs for the policies issued by CNA (and
reinsured by us) are either within the policy limits or in addition to policy limits. CNA charges an additional premium to cover the cost of providing defense costs in addition to the policy limits under its value plan. Insureds under
the value plan have separate limits for losses and defense costs. Settlements are made only with the written consent of the insured. However, if the insured contests the settlement recommended by the insurer, those policies will only cover costs
that do not exceed the lesser of the amount for which the claim could have been settled or the policy limits.



Competition



The AICPA plans current major competition comes from three large, established insurance companies. A number of smaller companies compete in the
field, but none have significant nationwide market share. Many of these companies charge lower premiums than the AICPA plan, and may provide different terms of coverage. The AICPA plans principal competitive strength is its commitment to the
use of large, financially strong and experienced primary insurers which enhances its capacity to continue to be a stable and dependable source of coverage and to pay losses as they arise.



Licensing and Regulation



The rates and terms of reinsurance agreements generally are not subject to regulation by any governmental authority. This is
in contrast to direct insurance policies, the rates and terms of which are subject to regulation by state insurance departments. As a practical matter, however, the rates charged by primary insurers place a limit upon the rates that can be charged
by reinsurers.



AmerInst, through its wholly-owned subsidiary,
AmerInst Insurance Company, Ltd., is subject to regulation under the insurance laws of Bermuda, where AmerInst Insurance Company, Ltd. and AmerInst are domiciled.



Bermuda Regulation



AmerInst Insurance Company, Ltd., as a licensed Bermuda insurance company, is subject to regulation under The Insurance Act of 1978, as amended, and
related regulations, which provide that no person shall conduct insurance business, including reinsurance, in or from Bermuda unless registered as an insurer under the Insurance Act by the Supervisor of Insurance. In deciding whether to grant
registration, the Supervisor of



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Insurance has discretion to act as he thinks fit in the public interest. The Supervisor of Insurance is required by the Insurance Act to determine whether an
applicant for registration is a fit and proper body to be engaged in insurance business and, in particular, whether it has, or has available to it, adequate knowledge and expertise. In connection with registration, the Supervisor of Insurance may
impose conditions relating to the writing of certain types of insurance.



The Insurance Act requires, among other things, that Bermuda insurance companies meet and maintain certain standards of liquidity and solvency, file periodic reports in accordance with the Bermuda Statutory Accounting
Rules, produce annual audited statutory financial statements and maintain a minimum level of statutory capital and surplus. In general, the regulation of insurers in Bermuda relies heavily upon the directors and managers of a Bermuda insurer, each
of which must certify each year that the insurer meets the solvency, liquidity and capital requirements of the Insurance Act. Furthermore, the Supervisor of Insurance is granted powers to supervise, investigate and intervene in the affairs of
insurance companies. Significant aspects of the Bermuda insurance regulatory framework are described below.



An insurers registration may be canceled by the Supervisor of Insurance on grounds specified in the Insurance Act, including the failure of the
insurer to comply with the obligations of the Insurance Act or if, in the opinion of the Supervisor of Insurance, the insurer has not been carrying on business in accordance with sound insurance principles.



Every registered insurer must appoint an independent auditor approved by the
Supervisor of Insurance. That auditor must annually audit and report on the statutory financial statements and the statutory financial return of the insurer, both of which are required to be filed annually with the Supervisor of Insurance. The
approved auditor may be the same person or firm that audits the insurers financial statements and reports for presentation to its shareholders.



The Insurance Act provides that the statutory assets of an insurer must exceed its statutory liabilities by an amount greater than the prescribed minimum
solvency margin. Pursuant to the Insurance Act, AmerInst Insurance Company, Ltd. is registered as a Class 3 insurer and, as such: (i) is required to maintain a minimum solvency margin equal to the greatest of: (x) $1,000,000, (y) 20%
of net premiums written in its current financial year up to $6,000,000 plus 15% of net premiums written in its current financial year over $6,000,000, or (z) 15% of loss reserves; (ii) is required to file annually with the Supervisor of
Insurance a statutory financial return together with a copy of its statutory financial statements which includes a report of the independent auditor concerning its statutory financial statements, a declaration of the statutory ratios, and the
related solvency certificate, and an opinion of a loss reserve specialist in respect of its loss and loss expense provisions, all within four months following the end of the relevant financial year; (iii) is prohibited from declaring or paying
any dividends during any financial year if it is in breach of its minimum solvency margin or minimum liquidity ratio or if the declaration or payment of such dividends would cause it to fail to meet such margin or ratio (if it fails to meet its
minimum solvency margin or minimum liquidity ratio on the last day of any financial year, it will be prohibited, without the approval of the Supervisor of Insurance, from declaring or paying any dividends during the next financial year);
(iv) is prohibited, without the approval of the Supervisor of Insurance, from reducing by 15% or more its total statutory capital, as set out in its previous years financial statements; and (v) if it appears to the Supervisor of
Insurance that there is a risk of an insurance company becoming insolvent or that it is in breach of the Insurance Act or any conditions imposed upon its registration, the Supervisor of Insurance may, in addition to the restrictions specified above,
direct it not to declare or pay any dividends or any other distributions or may restrict it from making such payments to such extent as the Supervisor of Insurance may think fit.



The Insurance Act also provides a minimum liquidity ratio for general business. An insurer engaged in general business is
required to maintain the value of its relevant assets at not less than 75% of the amount of its relevant liabilities. Relevant assets include cash and time deposits, quoted investments, unquoted bonds and debentures, first liens on real estate,
investment income due and accrued, accounts and premiums receivable and reinsurance balances receivable. There are certain categories of assets which, unless specifically permitted by the



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Supervisor of Insurance, do not automatically qualify such as advances to affiliates, real estate and collateral loans. The relevant liabilities are total
general business insurance reserves and total other liabilities less deferred income tax and sundry liabilities (by interpretation, those not specifically defined). Based upon the foregoing, the investment by AmerInst Insurance Company, Ltd. in an
investment subsidiary, AmerInst Investment Company, Ltd., requires the specific approval of the Supervisor of Insurance for classification as a relevant asset, which we have received.



The Supervisor of Insurance may appoint an inspector with extensive powers to investigate the affairs of an insurer if the
Supervisor of Insurance believes that an investigation is required in the interest of the insurers policyholders or persons who may become policyholders. In order to verify or supplement information otherwise provided to him, the Supervisor of
Insurance may direct an insurer to produce documents or information in relation to matters connected with the insurers business.



If it appears to the Supervisor of Insurance that there is a risk of an insurer becoming insolvent, or if the insurer is in breach of the Insurance Act or
the regulations or of any condition imposed on its registration as an insurer, the Supervisor of Insurance may direct the insurer in certain respects, including not to take on any new insurance business; not to vary any insurance contract if the
effect would be to increase the insurers liabilities; not to make certain investments; to realize certain investments; to maintain in, or transfer to and to keep in the custody of, a specified bank, certain assets; not to declare or pay any
dividends or other distributions or to restrict the making of such payments; and/or to limit its premiums.



As a Bermuda insurer, we are required to maintain a principal office in Bermuda and to appoint and
maintain a principal representative in Bermuda. For the purpose of the Insurance Act, our principal office is c/o USA Risk Group (Bermuda) Ltd., Windsor Place, 18 Queen Street, 2ndFloor, P.O. Box HM 1601, Hamilton HMGX, Bermuda, which is our principal representative in Bermuda. An insurer may only terminate the appointment of its
principal representative with a reason acceptable to the Supervisor of Insurance, and the principal representative may not cease to act as such, unless the Supervisor of Insurance is given 21 days notice in writing of the intention to do so.
It is the duty of the principal representative, upon reaching the view that there is a likelihood of the insurer for which he acts becoming insolvent or it coming to his knowledge, or his having reason to believe, that an event has
occurred, to provide verbal notification immediately, and make a report in writing to the Supervisor of Insurance setting out all the particulars of the case that are available to him within 14 days. Examples of such an event
include failure by the insurer to comply substantially with a condition imposed upon the insurer by the Supervisor of Insurance relating to a solvency margin or liquidity or other ratio.



Our business is conducted from offices in Hamilton, Bermuda. We manage our investments, directly and through AmerInst
Insurance Company, Ltd., through independent investment advisors in the U.S. or other investment markets as needed and appropriate. We do not operate as an investment manager or as a broker dealer requiring registration under investment advisory or
securities broker regulations in the U.S., Bermuda or otherwise. The directors and officers of AmerInst Insurance Company, Ltd. negotiate reinsurance treaties for acceptance in Bermuda. Among other matters, the following business functions are
conducted from our Bermuda offices: (i) communications with our shareholders, including financial reports; (ii) communications with the general public of a nature other than advertising; (iii) solicitation of the sale by us or any of
our subsidiaries of shares in any of such entities; (iv) accepting subscriptions of new shareholders of the Company; (v) maintenance of principal corporate records and original books of account; (vi) audit of original books of
account; (vii) disbursement of funds in payment of dividends, claims, legal fees, accounting fees, and officers and directors fees; (viii) arrangement for and conduct of meetings of our shareholders and directors and
shareholders and directors of our subsidiaries; and (ix) execution of repurchases of our shares and shares of our subsidiaries. We do not maintain an office or place of business in the United States.



AmerInst Insurance Company, Ltd.s ability to pay dividends to AmerInst
is subject to the provisions of the Bermuda insurance and companies laws. Under the Companies Act, that subsidiary would be prohibited from declaring or paying a dividend at December 31, 2006 if such payment would reduce the realizable value of
its



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assets to an amount less than the aggregate value of its liabilities, issued share capital, and share premium accounts. As at December 31, 2006,
approximately $18 million was available for the payment of dividends to shareholders. In addition, that subsidiary must be able to pay its liabilities as they come due after the payment of a dividend. Our ability to pay dividends to common
shareholders and to pay our operating expenses is dependent on cash dividends from our subsidiaries. The payment of such dividends by AmerInst Insurance Company, Ltd. including its subsidiary, AmerInst Investment Company, Ltd., to us is also limited
under Bermuda law by the Insurance Act and related regulations which require that AmerInst Insurance Company, Ltd. maintain minimum levels of solvency and liquidity. For the years ended December 31, 2006 and 2005 these requirements have been
met as follows:



|                  |  |                             |           |               |   |            |  |        |            |  |   |           
|----------------- |  | --------------------------- | --------- | ------------- | - | ---------- |  | ------ | ---------- |  | - | ----------
|                  |  | Statutory Capital & Surplus |           | Liquid Assets
|                  |  | Minimum                     |           | Actual        |   | Minimum    |  | Actual
|December 31, 2006 |  | $                           | 4,224,205 |               | $ | 23,118,869 |  | $      | 33,233,869 |  | $ | 67,505,696
|December 31, 2005 |  | $                           | 4,332,693 |               | $ | 18,960,063 |  | $      | 33,393,992 |  | $ | 63,485,386



Customers



Our only source of income, other than our investment
portfolio, is our reinsurance treaties. Without such reinsurance treaties, we believe current levels of investment income would provide enough revenue to continue operations while the Company evaluated other reinsurance and insurance opportunities.



Employees



We have no employees. Our operating activities, as well as certain
management functions, are performed by USA Risk Group (Bermuda) Ltd. under the direction of our board of directors pursuant to a contract. This contract may be terminated by either party on not more than 90 and not less than 60 days prior written
notice.



Loss Reserves



Our loss reserves, changes in aggregate reserves for the last three years,
and loss reserve development as of the end of each of the last ten years, are discussed in Item 7 of this Report, Managements Discussion and Analysis of Financial Condition and Results of Operations, Note 2 to our Consolidated
Financial Statements included in Item 8 of this Report, and Note 5 to our Consolidated Financial Statements.



Tender Offer



On December 17, 2004, AmerInst, through its indirect wholly owned subsidiary, AmerInst Investment Company, Ltd., commenced a modified Dutch
auction self-tender offer for AmerInst shares. Pursuant to the tender offer, which expired on January 21, 2005, 65,959 shares were accepted for purchase at a price of $60.00 per share, for a total purchase price of $4,298,238, including
tender offer expenses of $340,698. (The number of shares purchased in the tender offer and the per share price set forth in the previous sentence have not been adjusted to reflect the share dividend described below.)



Share Dividend



On March 2, 2006, the board of directors of AmerInst approved a share
dividend of two shares of common stock for every share held by shareholders of record on April 2, 2006, subject to shareholder approval of an increase in the number of our authorized shares. Such approval was received at the AmerInst 2006
Annual General Meeting on June 1, 2006, which increased the authorized share capital of the Company from $500,000 to $2,000,000. The total issued shares were 331,751 prior to the share dividend and 995,253 afterwards. Unless otherwise noted,
all share and per share numbers in our Consolidated Financial Statements and elsewhere in this annual report on Form 10-K reflect the share dividend.



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Rights Offering



AmerInst filed a registration statement on Form S-3
with the Securities and Exchange Commission (SEC or the Commission) on June 15, 2006 to register a rights offering to existing shareholders. The registration statement was amended on July 20, 2006 and declared
effective July 24, 2006. Pursuant to the rights offering, which was mailed to shareholders on July 28, 2006, each shareholder received a right to purchase one common share for each share currently owned, at a price of $23.33 per share
(after giving effect to the share dividend). Further information concerning the rights offering is contained in the prospectus dated July 28, 2006 and in our S-3 registration statement on file with the SEC. A total of 97,927 rights were
exercised prior to October 4, 2006, the expiration date of the oversubscription right under the rights offering. As a result 97,927 shares were subsequently sold by AmerInst Investment Company, Ltd. to shareholders exercising rights, for a
total purchase price of $2,284,637, before rights offering costs of $277,057. Of the shares sold in the rights offering, 21,461 shares were purchased by AmerInst directors for a total purchase price of $500,685.



Developing Business



AmerInst has filed an application for a U.S. patent on a unique financing
concept that it has developed to securitize insurance and reinsurance risk, involving property, casualty, life and health. Such securitization would be by equity and debt financing of Bermuda special purpose companies licensed as reinsurers. It is
AmerInsts intention to grant patent licenses to the special purpose companies and investment banking organizations which will market the securities. In addition to the license royalties, AmerInst would manage the special purpose companies for
a fee, and at its option could invest in them as well.



AmerInst has entered into a confidentiality agreement with several investment banking organizations. There can be no assurance that a patent will be issued or that AmerInst will be able to license the patent if it is issued.



In addition to the patent application, AmerInst has filed an application for
a trademark under which the concept will be marketed.



Effective in 2006 AmerInst has two operating segments: 1) reinsurance activity and 2) the new insurance financing product (RINITS), described in the three preceding paragraphs, which is in the initial marketing phase of development. See Note 11, Segment Information, of the notes
to the consolidated financial statements contained in Item 8 of this annual report on Form 10-K for financial information concerning these segments.



Available Information



We file annual, quarterly, and current reports, proxy statements and other information with the Commission. You may read any document we file with the
Commission at the Commissions public reference room at 100 F Street, NE, Washington, DC 20549. Please call the Commission at 1-800-SEC-0330 for information on the public reference room. The Commission maintains an internet site that contains
annual, quarterly, and current reports, proxy and information statements and other information that issuers (including AmerInst) file electronically with the Commission. The Commissions internet site is www.sec.gov.



Our internet site is www.amerinst.bm. We make available free of charge
through our internet site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as soon as reasonably
practicable after such material is electronically filed with, or furnished to, the Commission. You will need to have on your computer the Adobe Acrobat Reader® software to view these documents, which are in PDF format. If you do not have Adobe Acrobat Reader, a link to
Adobes internet site, from which you can download the software, is provided. We also make available, through our internet site, via links to the Commissions internet site, statements of beneficial ownership of our equity securities filed
by our directors, officers, 10% or greater shareholders and others under Section 16 of the Securities Exchange Act. In addition, we post on



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www.amerinst.bm our Memorandum of Association, our Bye-Laws, our Statement of Share Ownership Policy, Charters for our Audit Committee and Nominating
Committee, as well as our Code of Business Conduct and Ethics. You can request a copy of these documents, excluding exhibits, at no cost, by writing or telephoning us c/o USA Risk Group of (Bermuda) Ltd., Windsor Place, 18 Queen Street,
2ndFloor, P.O. Box HM 1601 Hamilton, Bermuda HMGX, Attention: Investor Relations (441) 296-3973. The
information on our internet site is not incorporated by reference into this report.



Item 1A. Risk Factors



We participate in a
potentially unprofitable, unstable market.



Accountants professional liability insurance is a volatile risk with fluctuations both in the frequency and severity of claims, particularly severity. This is aggravated by the casualty insurance cycle, which over a period of years
varies from a hard market with high or increasing premiums charged for risk, to a soft market with low or decreasing premiums being charged. The interaction of volatility and insurance cycle variation results in a high degree of unpredictability of
underwriting results from year to year. As a reinsurer, the Company will be directly influenced by the premium competition in the primary market. As a quota share reinsurer, it is directly dependent on the underwriting results of CNA, its primary
cedent.



Our investment return may not be sufficient to offset underwriting
losses.



Our investment income is subject to variation due
to fluctuations of market interest rates on our fixed income portfolio, and fluctuations of stock prices in our equity portfolio. There is no assurance that such investment income will be sufficient to offset potential underwriting losses or that
the capital of the Company and its subsidiaries will be sufficient to absorb adverse underwriting and/or investment results.



We are dependent on the primary insurers.



Our underwriting profitability is substantially dependent upon the policy pricing, risk selection and claims administration functions exclusively
controlled and performed by CNA, the officially endorsed insurer for the AICPA Plan.



We have no contractual right to participation in the AICPA Plan.



The AICPA has not been, and is not now, nor will it be, responsible for the control, management or obligations of the Company or any of its subsidiaries. None of the Company or any of its subsidiaries has any
contractual right to act as a reinsurer or in any other capacity incident to the AICPA Plan.



We are dependent upon parties unrelated to the Company.



Because the Company has no full-time employees, the underwriting and investment activities of the Company will depend substantially upon the services of
outside parties. Our chief executive officer and chief financial officer, who are also directors of the Company, are employees of USA Risk Group (Bermuda) Ltd., one of the principal outside service providers, and thus potential conflicts of interest
exist.



Your ownership of Company shares does not guarantee insurance
coverage.



The ownership of Company common shares by an
accounting firm or individual practitioner will not guarantee that such firm or individual will thereafter be able to obtain professional liability insurance under the AICPA Plan or other policies reinsured by AmerInst Insurance Company, Ltd., or
that such insurance will be competitively priced. In order to be eligible for coverage under the Plan, a firm or individual practice must be an acceptable risk under applicable underwriting criteria in effect from time to time.



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##### Table of Contents

There is no market for Company shares, which are subject to restrictions on transfer.



There is currently no market for the Company common shares and it is
unlikely that a market will develop. The Company common shares are not listed on any stock exchange or automated quotation system. Under the Companys Bye-Laws, its Board of Directors has the authority to prohibit all transfers of Shares.
Further, because an integral part of the value of Company common shares is the commitment of the Company to utilize the insurance capacity of AmerInst Insurance Company, Ltd. for the benefit of the Companys stockholders, it is unlikely that
any individual or entity other than sole practitioners and accounting firms would be interested in purchasing Company common shares.



Reinsurance may not be available to us.



In order to limit the effect of large and multiple losses upon the Companys financial condition, AmerInst Insurance Company, Ltd. may, in the
future, seek reinsurance for its own account. From time to time, market conditions have limited the availability of reinsurance, and in some cases have prevented insurers and reinsurers from obtaining the types and amounts of reinsurance which they
consider adequate for their business needs. There can be no assurance that AmerInst Insurance Company, Ltd. will be able to obtain the desired amounts of reinsurance, or, if it is able to obtain such reinsurance, that it will be able to negotiate
terms sufficiently favorable to operate profitably.



Item 1B. Unresolved Staff Comments



Not applicable.



Item 2. Properties



We do not
own or lease any plants, mines or physical properties.



Item 3. Legal Proceedings.



We are currently not a party to any material legal proceedings.



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



No matters were submitted to a vote of our security holders during the quarter ended December 31, 2006.



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##### Table of Contents

PART II



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



There is no established public trading market for our common shares. Our Bye-Laws provide that all transfers of our common shares must be approved by our
Board of Directors or a committee of the Board. Our Board of Directors has appointed a Shareholder Relations Committee for purposes of reviewing and approving applications for transfer. All transferees must meet the qualifications for share
ownership contained in our Share Ownership Policy.



Notwithstanding the absence of a public market for our common shares, we have a policy of having AmerInst Investment Company, Ltd., which holds our investment portfolio, purchase shares owned by our shareholders who have retired from the
practice of accounting or have died. We are currently prepared to repurchase those shares at a price equal to the greater of the last audited net book value per share or $33.37 per share.



The Bermuda Monetary Authority has authorized AmerInst Investment Company, Ltd. to purchase up to 20% of the Companys
common shares from individuals who have died or retired from the practice of public accounting and on a negotiated case-by-case basis, in addition to the shares purchased in the tender offer. Through March 1, 2007 AmerInst Investment Company,
Ltd. had purchased 75,513 common shares, as adjusted for the share dividend, from individuals who had died or retired for a total purchase price of $1,424,450. In addition, through that date, AmerInst Investment Company, Ltd. had purchased in
negotiated transactions at various prices 61,791 common shares, as adjusted for the share dividend, for a total purchase price of $755,228. See the discussion under the heading Rights Offering for a description of the sale of shares by
AmerInst Investment Company, Ltd. in connection with the rights offering in Item 1. Business of this annual report on Form 10-K for a description of the sale of shares by AmerInst Investment Company, Ltd. in connection with the rights
offering.



From time to time the Company has repurchased shares
of its common stock from individual shareholders who have died or retired from the practice of accounting. From January 1, 2000 through March 1, 2007, the Company repurchased 75,513 common shares pursuant to such program. The following
table shows information relating to the repurchase of common shares pursuant to the program during the three month period ended December 31, 2006.



|              |  |                                  |  |                              |       |                                                                                |       |                                                                              |    
|------------- |  | -------------------------------- |  | ---------------------------- | ----- | ------------------------------------------------------------------------------ | ----- | ---------------------------------------------------------------------------- | ---
|              |  | Total Number of Shares Purchased |  | Average Price Paid Per Share |       | Total Number of Shares Purchased
asPart of Publicly Announced Plans or Program |       | Maximum Number of Shares That May Yet Be Purchased Underthe Plans or Program
|October 2006  |  | 4,944                            |  | $                            | 28.08 |                                                                                | 4,944 |                                                                              | N/A
|November 2006 |  |                                 |  |                              |      |                                                                                |      |                                                                              | N/A
|December 2006 |  |                                 |  |                              |      |                                                                                |      |                                                                              | N/A
|Total         |  | 4,944                            |  | $                            | 28.08 |                                                                                | 4,944 |                                                                              | N/A



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##### Table of Contents

From time to time, the Company has also purchased common shares in privately negotiated transactions.
From January 1, 2000 through March 1, 2007 the Company repurchased 61,791 common shares in such privately negotiated transactions. The following table shows information relating to the repurchase of common shares pursuant to the program
during the three month period ended December 31, 2006.



|              |  |                                  |  |                              |       |                                                                                |       |                                                                              |    
|------------- |  | -------------------------------- |  | ---------------------------- | ----- | ------------------------------------------------------------------------------ | ----- | ---------------------------------------------------------------------------- | ---
|              |  | Total Number of Shares Purchased |  | Average Price Paid Per Share |       | Total Number of Shares Purchased
asPart of Publicly Announced Plans or Program |       | Maximum Number of Shares That May Yet Be Purchased Underthe Plans or Program
|October 2006  |  | 2,181                            |  | $                            | 22.64 |                                                                                | 2,181 |                                                                              | N/A
|November 2006 |  |                                 |  |                              |      |                                                                                |      |                                                                              | N/A
|December 2006 |  |                                 |  |                              |      |                                                                                |      |                                                                              | N/A
|Total         |  | 2,181                            |  | $                            | 22.64 |                                                                                | 2,181 |                                                                              | N/A



As of March 1,
2007 there were 1,958 holders of record of our common shares. Our Board of Directors had adopted a dividend policy to pay quarterly dividends subject to legally available funds and Board approval. Beginning in September 2005, our Board of Directors
amended the dividend policy to pay semi-annual dividends of $0.45 per share with payments in September and March. During 2006, 2005 and 2004, we paid ordinary cash dividends of $595,924, $596,029 and $449,558 (net of adjustment for special
dividend), respectively, representing two semi-annual payments of $0.45 for 2006, one semi-annual payment of $0.433 per share and two quarterly payments of $0.216 per share for 2005, and four quarterly payments of $0.216 per share for 2004. The
declaration of dividends by our Board of Directors is dependent upon our capacity to insure or reinsure business, profitability, financial condition, and other factors which the Board of Directors may deem appropriate. Under Bermuda law, AmerInst
Insurance Company, Ltd. is prohibited from declaring or paying any dividend if such payment would reduce the net realizable value of its assets to an amount less than the aggregate value of its liabilities, issued share capital and share premium
accounts. In addition, that subsidiary must be able to pay its liabilities as they come due after the payment of a dividend.



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##### Table of Contents

Item 6. Selected Financial Data



The following summary sets forth selected financial data with respect to us for the five fiscal years ended December 31, 2006. The balance sheet and income statement data have been derived from our consolidated financial statements.
The financial data set forth below should be read in conjunction with the audited financial statements and notes thereto included elsewhere in this annual report.



SELECTED FINANCIAL STATEMENT DATA



|                                           |  |      |            |      |   |            |  |      |            |      |   |            |  |   |            |  
|------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | -
|Income Statement Data                      |  | 2006 |            | 2005 |   | 2004       |  | 2003 |            | 2002 |  
|Premiums Earned                            |  | $    | 8,628,534  |      | $ | 9,075,405  |  | $    | 8,856,809  |      | $ | 8,392,172  |  | $ | 6,775,407  |  
|Net Investment Income                      |  |      | 1,365,959  |      |   | 1,116,354  |  |      | 1,227,610  |      |   | 1,495,371  |  |   | 1,887,778  |  
|Net Realized Gain (Loss)                   |  |      | 1,120,263  |      |   | 1,345,861  |  |      | 732,491    |      |   | 933,995    |  |   | (1,005,185 | )
|                                           |  |      |            |      |   |            |  |      |            |      |   |            |  |   |            |  
|Total Revenue                              |  | $    | 11,114,756 |      | $ | 11,537,620 |  | $    | 10,816,910 |      | $ | 10,821,538 |  | $ | 7,658,000  |  
|                                           |  |      |            |      |   |            |  |      |            |      |   |            |  |   |            |  
|Net Income (Loss)                          |  | $    | 3,312,962  |      | $ | 3,095,121  |  | $    | 1,749,007  |      | $ | 4,770,148  |  | $ | (741,560   | )
|                                           |  |      |            |      |   |            |  |      |            |      |   |            |  |   |            |  
|Basic Earnings (Loss) Per Share*           |  | $    | 4.76       |      | $ | 4.30       |  | $    | 1.94       |      | $ | 5.24       |  | $ | (0.80      | )
|                                           |  |      |            |      |   |            |  |      |            |      |   |            |  |   |            |  
|Cash dividends declared per common share*  |  | $    | 0.90       |      | $ | 0.86       |  | $    | 0.86       |      | $ | 4.36       |  | $ | 0.86       |  
|                                           |  |      |            |      |   |            |  |      |            |      |   |            |  |   |            |  
|                                           |  |      |            |      |  
|Balance Sheet Data                         |  | 2006 |            | 2005 |   | 2004       |  | 2003 |            | 2002 |  
|Investments                                |  | $    | 52,621,213 |      | $ | 46,252,021 |  | $    | 51,792,217 |      | $ | 52,437,053 |  | $ | 46,267,306 |  
|Other Assets                               |  |      | 5,050,097  |      |   | 5,876,181  |  |      | 4,144,094  |      |   | 4,561,581  |  |   | 5,947,257  |  
|                                           |  |      |            |      |   |            |  |      |            |      |   |            |  |   |            |  
|Total Assets                               |  | $    | 57,671,310 |      | $ | 52,128,202 |  | $    | 55,936,311 |      | $ | 56,998,634 |  | $ | 52,214,563 |  
|                                           |  |      |            |      |   |            |  |      |            |      |   |            |  |   |            |  
|Unpaid Losses and Loss Adjustment Expenses |  | $    | 28,161,369 |      | $ | 28,884,621 |  | $    | 29,701,842 |      | $ | 28,726,634 |  | $ | 30,478,843 |  
|Unearned Premiums                          |  |      | 3,790,692  |      |   | 3,843,161  |  |      | 3,890,900  |      |   | 3,861,784  |  |   | 3,350,380  |  
|Other Liabilities                          |  |      | 238,825    |      |   | 348,785    |  |      | 231,936    |      |   | 3,703,932  |  |   | 668,604    |  
|                                           |  |      |            |      |   |            |  |      |            |      |   |            |  |   |            |  
|Total Liabilities                          |  |      | 32,190,886 |      |   | 33,076,567 |  |      | 33,824,678 |      |   | 36,292,350 |  |   | 34,497,827 |  
|Stockholders Equity                       |  |      | 25,480,424 |      |   | 19,051,635 |  |      | 22,111,633 |      |   | 20,706,284 |  |   | 17,716,736 |  
|                                           |  |      |            |      |   |            |  |      |            |      |   |            |  |   |            |  
|Total Liabilities and Stockholders Equity |  | $    | 57,671,310 |      | $ | 52,128,202 |  | $    | 55,936,311 |      | $ | 56,998,634 |  | $ | 52,214,563 |  
|                                           |  |      |            |      |   |            |  |      |            |      |   |            |  |   |            |  

---

|* | The per share amounts have been adjusted retroactively for all periods presented to reflect the share dividend of two shares for every share outstanding completed in the second
quarter of 2006.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



The following discussion addresses our financial condition and results of operations for the periods and as of the dates indicated.



Business Overview



We are an insurance company owned by 1,958 accounting firms, persons
associated with accounting firms, and individual CPA practitioners. We were formed in response to concerns about the pricing and availability of accountants professional liability insurance in a difficult or hard market. Our
primary mission is to exert a stabilizing influence on the design, pricing and availability of professional liability insurance to reduce the likelihood of a hard market. We are prepared, subject to obtaining the required licenses and registrations,
to step into a hard market and act as a direct issuer of accountants professional liability insurance policies.



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We have satisfied our mission by reinsuring accountants professional liability insurance issued under a
plan sponsored by the AICPA since 1989. This plan currently insures approximately 24,000 accounting firms and individual CPAs in all 50 states of the United States, representing a broad cross section of small and mid-size firms.



In an effort to maximize the value of our shares, we have been looking at
ways to expand our business, including possibly entering into other lines of insurance business. During 2003 we provided reinsurance of attorneys professional liability policies provided by Professional Direct Insurance Company. That activity
was not a significant portion of our business in 2003 and was terminated at the end of that year. Effective June 1, 2005, we wrote a 5% share in CAMICO Mutual Insurance Companys first excess layer of $2,000,000 excess of $1,000,000.
CAMICO is a California based writer of accountants professional liability business. The premiums under the CAMICO treaty vary with the losses incurred, between a minimum and a maximum.



Effective in 2006 AmerInst has two operating segments: 1) reinsurance
activity and 2) the new insurance financing product (RINITS), described below, which is in the initial marketing phase of development. See Note 11, Segment Information, of the notes to the consolidated financial statements contained in
Item 8 of this annual report on Form 10-K for financial information concerning these segments.



AmerInst has filed an application for a U.S. patent on a unique financing concept that it has developed to securitize insurance and reinsurance risk,
involving property, casualty, life and health. Such securitization would be by equity and debt financing of Bermuda special purpose companies licensed as reinsurers. It is AmerInsts intention to grant patent licenses to the special purpose
companies and investment banking organizations which will market the securities. In addition to the license royalties, AmerInst would manage the special purpose companies for a fee, and at its option could invest in them as well.



AmerInst has entered into a confidentiality agreement with several investment
banking organizations. There can be no assurance that a patent will be issued or that AmerInst will be able to license the patent if it is issued.



In addition to the patent application, AmerInst has filed an application for a trademark under which the concept will be marketed.



We are a holding company based in Bermuda. We conduct our reinsurance
business through AmerInst Insurance Company, Ltd., our subsidiary, which is a registered insurer in Bermuda. Our investment portfolio is held in and managed by AmerInst Investment Company, Ltd., which is a subsidiary of AmerInst Insurance Company,
Ltd.



Our results of operations for the years ended
December 31, 2006, December 31, 2005 and December 31, 2004 are discussed below.



We operate our business with no long-term debt, no capital or operating lease obligations, no purchase obligations, and no off-balance sheet arrangements required to be disclosed under applicable rules of the
Securities and Exchange Commission. AmerInsts access to operating cash flows of its subsidiaries is from the payment of dividends.



Critical Accounting Policies



Basis of Presentation



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The major estimates reflected in the Companys financial statements include but are not limited to the liability for loss and loss adjustment expenses.



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##### Table of Contents

Unpaid Losses and Loss Adjustment Expense Reserves



The amount that we record as our liability for loss and loss adjustment
expenses is a major determinant of net income each year. As discussed in more detail below under the heading Losses and Loss Adjustment Expenses, the amount that we reserve is based on actuarial estimates which are prepared as of
June 30 and December 31 each year. Based on data received from the ceding companies (the insurance companies whose policies we reinsure) our independent actuary produces a range of estimates with a low, middle and
high estimate of the loss and loss adjustment expenses. As at December 31, 2006, the range of actuarially determined liability for loss and loss adjustment expense reserves was as follows: the low estimate was $16.0 million, the
high estimate was $28.3 million, and the middle estimate was $20.5 million. We selected reserves of $28.1 million as of December 31, 2006, which is near the high end of the range. Due to our concerns about the severity and volatility of the
type of business we reinsure and the length of time that it takes for claims to be reported and ultimately settled, our managements policy has been to reserve conservatively at the higher end of the actuarial estimates.



Results of Operations



Our net income increased to $3,312,962 in 2006, compared to net income of $3,095,121 in 2005. We had net income of
$1,749,007 in 2004.



The increase in net income from 2005 to
2006 is primarily due to the reduction of loss reserves by $3.1 million. In 2005 loss reserves were reduced by $2.3 million, and in 2004 loss reserves were reduced by $2.5 million. Due to the uncertainty inherent in the reinsurance policies written
by the Company, we have always adopted a conservative policy concerning our loss reserving. In the last three years, our actuary was able to obtain additional information which included breaking out loss development on CNAs premier
and value plans which we reinsure. Our actuary determined in the course of its analysis that experience under the CNA plans has been more favorable than industry performance reflected in the reserves we established for our reinsurance of
the plans. In light of this new information, we believed it was reasonable to reduce the 2004 loss reserves by $2.5 million, which resulted in an increase in net income in 2004 by that amount. For 2005, we believed it reasonable that the reduction
in loss reserves should be limited to $2.3 million, and for 2006 the reduction in loss reserves should be limited to $3.1 million. Our loss reserves are still near the high end of the reserve range provided by the actuary, which is consistent with
our long established loss reserving philosophy. The Company will continue to review loss reserves periodically and, based on the actuarial projections, determine whether reserves are required to be increased or decreased.



Net premiums earned decreased by 4.9% in 2006 to $8,628,534 from $9,075,405
in 2005. Net premiums earned for 2005 increased by 2.4% from $8,856,809 in 2004. The decrease in net premiums earned during 2006 was primarily attributable to rate decreases under the current AICPA Professional Liability Insurance Plan treaty, and
in 2005, the increase net premiums earned was primarily attributable to an increase in the number of AICPA insureds and rate increases under the current AICPA Professional Liability Insurance Plan treaty compared to the prior periods.



Net premiums written in 2006 were $8,680,603, a decrease of $347,063 from
$9,027,666 in 2005. The decrease in net premiums written was primarily attributable to rate decreases under the current AICPA Professional Liability Plan treaty. Net premiums written in 2005 increased by $141,740 to $9,027,666 from $8,885,926 in
2004. The increase in net premium written during 2005 was attributable primarily to new premiums written under the CAMICO treaty. We continue to look for ways in which it may be advantageous to expand our business to include the reinsurance of lines
of coverage other than accountants professional liability.



Net investment income includes amounts earned on the Companys investment portfolio and cash equivalents, and dividends on equity investments, net of investment expenses. Net investment income increased $249,605, or 22.4%, in 2006 to
$1,365,959 from $1,116,354 in 2005. Net investment income in 2005 decreased by $111,256, or 9.0%, from the $1,227,610 reported in 2004. The primary reason for the increase in 2006 was an increase in the dividend income on the equity portfolio due to
improvement of dividend payouts on certain



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##### Table of Contents

holdings. In addition, the general increase in interest rates in 2006 also contributed to the increase in investment income. The decrease in 2005 from 2004
was due to overall lower interest rates for the fixed income portion of the portfolio as a result of the shortening of the average duration of that portfolio in order to reduce the risk of principal loss in the expected future environment of rising
interest rates.



Net realized gains decreased $225,598 in 2006
to $1,120,263 from $1,345,861 in 2005. Net realized gains in 2005 increased $613,370 to $1,345,861 from $732,491 in 2004.



Invested assets, including investments, cash and cash equivalents and restricted cash and cash equivalents, increased by $5,762,041, or 11.6%, to
$55,461,423 in 2006 compared to $49,699,382 in 2005. The increase was due to funds received as a result of the rights offering, and an increase in market values of the investment portfolio. Investment yield of net investment income and net realized
gains and losses in 2006 as of December 31 was 4.7% as compared to 4.8% in 2005 and 3.7% in 2004. The investment yield of net investment income was 2.6% in 2006, 2.2% in 2005 and 2.3% in 2004. The increase in investment yield of net investment
income from 2005 to 2006 was due to an increase in the dividend income on the equity portfolio due to improvement of dividend payouts on certain holdings. In addition, the general increase in the interest rates in 2006 also contributed to the
increase in investment yield. The decrease from 2004 to 2005 was due to a general decrease in interest rates on investments held in our portfolio as a result of the shortening of the average duration of the fixed income portfolio in order to reduce
the risk of principal loss in the expected future environment of rising interest rates.



Unrealized gain on investments was $7,469,210 at December 31, 2006 compared to $5,422,382 at December 31, 2005. We consider our entire investment portfolio to be available for sale and accordingly all
investments are reported at market value, with changes in net unrealized gains and losses reflected as an adjustment to accumulated other comprehensive income. The 37.7% increase in unrealized gain on investments was due primarily to an improvement
in the value of the Companys equity portfolio. Unrealized gain on investments was $6,282,073 at December 31, 2004. Declines in the market value of investments below cost are evaluated for other than temporary impairment losses. The
evaluation for other than temporary impairment losses is a quantitative and qualitative process which is subject to risks and uncertainties in the determination of whether declines in the fair value of investments are other than temporary. The risks
and uncertainties include changes in general economic conditions, the issuers financial condition or near term recovery prospects, and the effects of changes in interest rates. Our accounting policy requires that a decline in the value of a
security below its cost basis be assessed to determine if the decline is other than temporary. If so, the security is deemed to be impaired, and a charge is recorded in net realized losses equal to the difference between the fair value and the cost
basis of the security. The fair value of the impaired investment becomes its new cost basis.



The composition of the investment portfolio at December 31, 2006 and 2005 is as follows:



|                                                |  |      |   |  |      |  
|----------------------------------------------- |  | ---- | - |  | ---- | -
|                                                |  | 2006 |   |  | 2005 |  
|Mortgage backed securities                      |  | 18   | % |  | 15   | %
|Corporate debt securities                       |  | 3    |   |  | 4    |  
|Obligations of state and political subdivisions |  | 31   |   |  | 33   |  
|Equity securities                               |  | 48   |   |  | 48   |  
|                                                |  |      |   |  |      |  
|                                                |  | 100  | % |  | 100  | %
|                                                |  |      |   |  |      |  



Our fixed income,
equity and hedge fund portfolios are invested in accordance with a written Investment Policy Statement adopted by our Board of Directors. We engage professional advisors to manage day to day investment matters under the oversight of our Investment
Committee.



Our fixed income portfolio is managed with the
target objectives of achieving an annualized rate of return for the trailing 5-year period of 250 basis points over the Consumer Price Index, and total returns commensurate with Merrill Lynchs U.S. Domestic Index. Our overall fixed income
portfolio is required to have at least an A S&P rating, an A2 Moodys rating or an equivalent rating from comparable rating agencies.



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##### Table of Contents

Our equity portfolios are managed with the target objectives of achieving an annualized rate of return
over a trailing 3-year to 5-year period of 400 basis points over the Consumer Price Index, total returns at least equal to representative benchmarks such as the various S&P indices, and a ranking in the top half of the universe of other actively
managed equity funds with similar objectives and risk profiles.



Our hedge fund portfolio is managed to reduce overall portfolio risk. It is required to invest over all major strategies and is limited to 10% of the total equity portfolio.



Our losses and loss adjustment expenses decreased by 20.0% to $3,287,658 in 2006 from $4,105,121 in 2005, and for 2005
decreased by 19.6% from $5,104,341 in 2004. These amounts included favorable development of prior years estimates of losses and loss adjustment expenses of $3,072,636 in 2006, $2,275,832 in 2005 and $2,494,106 in 2004. Our loss ratio,
calculated as the ratio of losses and loss adjustment expenses to net premiums earned, was 38.1% in 2006, 45.2% in 2005 and 57.6% in 2004. The reason for the favorable development of prior years estimates is discussed in more detail below
under the caption Losses and Loss Adjustment Expenses.



Policy acquisition costs of $2,546,012 were expensed in 2006 compared to $2,615,133 in 2005, a decrease of 2.6%. Policy acquisition costs, which are primarily ceding commissions paid to the ceding insurer, are established as a percentage of
premiums written; therefore, any increase or decrease in premiums written will result in a similar increase or decrease in policy acquisition costs. Policy acquisition costs expensed in 2005 reflected an increase of 1.0% from $2,591,612 in 2004.
Such costs as a percentage of premiums earned were 29.5% in 2006, 28.8% in 2005 and 29.3% in 2004. Operating and management expenses increased by 14.3% in 2006 to $1,968,124 from $1,722,245 in 2005. The primary reasons for this increase were patent
and business development expenses. The operating and management expenses relating to the RINITS segment spent in the development phase have been $554,574 (2006), $251,113 (2005) and $89,424 (2004). Operating and management expenses for
2005 increased by 25.5% from $1,371,950 in 2004 due to increased audit and legal fees, costs of SEC compliance, and expenses related to a shareholders revised offer to acquire the Company. That offer was made in September 2004 to purchase all
of AmerInsts shares for 82.54% of book value. That offer was rejected by the Board because it presented an inadequate price for control of AmerInst, and because it was inconsistent with our mission.



Liquidity and Capital Resources



Our cash needs consist of settlement of losses and expenses under our
reinsurance treaties and funding day-to-day operations. Our management expects to be able to meet these needs from premiums received and cash flows arising from our investment portfolio. Because substantially all of our assets are marketable
securities, we expect that we will have sufficient flexibility to provide for unbudgeted cash needs which may arise without resorting to borrowing, subject to regulatory limitations.



As of December 31, 2006, total investments amounted to $52,621,213, an increase of $6,369,192, or 13.8%, from
$46,252,021 at December 31, 2005. The increase was due to an increase in the purchase of investments due to funds received from the rights offering and an increase in market values of the investment portfolio. Cash and cash equivalents
decreased from $3,447,361 at December 31, 2005 to $2,840,210 at December 31, 2006. The amount of cash and cash equivalents varies depending on the maturities of fixed maturity investments and on the level of funds invested in money market
mutual funds. Our liability for unpaid losses and loss adjustment expenses at December 31, 2006 was $28,161,369.



Assumed reinsurance premiums receivable represent current assumed premiums receivable less commissions payable to the fronting carriers. This balance was
$556,822 at December 31, 2006 and $710,534 at December 31, 2005. This balance fluctuates due to the timing of renewal premiums written.



The funds deposited with a reinsurer represent cash placed with the ceding company as collateral for obligations assumed under the attorneys
liability program written in 2003.



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##### Table of Contents

Prepaid expenses and other assets were $219,132 at December 31, 2006, a decrease of 22.4% from 2005.
These expenses relate to prepaid directors and officers liability insurance costs, director fees, and management fees.



Deferred policy acquisition costs, which represent the deferral of ceding commission expense related to premiums not yet earned, decreased from
December 31, 2005 along with the decrease in unearned premiums. The current ceding commission rate, which became effective August 1, 1995, is 28.5% for CNA. The ceding rate for the carrier for the CAMICO treaty we began reinsuring in 2005
is 10% and for the attorneys professional liability we reinsured in 2003 was 10%. In addition a federal excise tax of 1% is applied on premiums earned. The 2.5% decrease in deferred policy acquisition costs in 2006 was due to the decrease in
unearned premiums compared to the prior year.



We paid two
semi-annual dividends of $0.45 per share during 2006. On March 1, 2007, the board of directors declared a semi-annual dividend of $0.45 per share and declared a special dividend of $0.70 per share, each of which were paid on March 15, 2007
to shareholders of record on February 28, 2007. Since AmerInst began paying consecutive dividends in 1995, our original shareholders have received approximately $13.48 in cumulative dividends per share, which when measured by a total rate of
return calculation has resulted in an effective annual rate of return of approximately 10.88% from the inception of the Company, based on a per share purchase price of $8.33 paid by the original shareholders, and using an unaudited book value of
$33.37 per share as of December 31, 2006.



During 2006 the
Board of Directors declared semi-annual dividends payable on March 31 and September 30 of $0.45 per share. During 2005 the Board of Directors declared quarterly dividends payable on March 15 and June 15 of $0.216 per share,
and beginning September 1, 2005 the Board of Directors declared a semi-annual dividend payable on September 30 of $0.433 per share. In 2004 the Board of Directors declared quarterly dividends payable on March 15,
June 15, September 15 and December 15 of $0.216 per share.



Total dividends declared were $595,924, $596,029 and $449,558 (net of adjustment for special dividend) in 2006, 2005 and 2004, respectively. Continuation of dividend payments is subject to the Board of Directors
continuing evaluation of our level of surplus compared to our capacity to accept more business. One of our objectives is to build surplus to retain flexibility for future business expansions.



AmerInst Insurance Company, Ltd.s ability to pay dividends to AmerInst
is subject to the provisions of the Bermuda insurance and companies laws. Under the Companies Act, that subsidiary would be prohibited from declaring or paying a dividend at December 31, 2006 if such payment would reduce the realizable value of
its assets to an amount less than the aggregate value of its liabilities, issued share capital, and share premium accounts. As at December 31, 2006, approximately $18 million was available for the payment of dividends to shareholders. In
addition, that subsidiary must be able to pay its liabilities as they come due after the payment of a dividend. Our ability to pay dividends to common shareholders and to pay our operating expenses is dependent on cash dividends from our
subsidiaries. The payment of such dividends by AmerInst Insurance Company, Ltd., including its subsidiary, AmerInst Investment Company, Ltd., to us is also limited under Bermuda law by the Insurance Act and related regulations which require that
AmerInst Insurance Company, Ltd. maintain minimum levels of solvency and liquidity. For the years ended December 31, 2006 and 2005 these requirements have been met as follows:



|                  |  |                             |           |               |   |            |  |        |            |  |   |           
|----------------- |  | --------------------------- | --------- | ------------- | - | ---------- |  | ------ | ---------- |  | - | ----------
|                  |  | Statutory Capital & Surplus |           | Liquid Assets
|                  |  | Minimum                     |           | Actual        |   | Minimum    |  | Actual
|December 31, 2006 |  | $                           | 4,224,205 |               | $ | 23,118,869 |  | $      | 33,233,869 |  | $ | 67,505,696
|December 31, 2005 |  | $                           | 4,332,693 |               | $ | 18,960,063 |  | $      | 33,393,992 |  | $ | 63,485,386



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Because AmerInst Insurance Company, Ltd. is not admitted as an insurer in Illinois, CNA has the right to
annually require AmerInst Insurance Company, Ltd. to procure a letter of credit issued by a U.S. bank in an amount equal to the total unearned premiums for the fiscal year plus CNAs share of AmerInst Insurance Company, Ltd.s loss
reserves.



The Bermuda Monetary Authority has authorized
AmerInst Investment Company, Ltd. to purchase up to 20% of the Companys common shares from individuals who have died or retired from the practice of public accounting and on a negotiated case-by-case basis. Through March 1, 2007 AmerInst
Investment Company, Ltd. had purchased 75,513 common shares, as adjusted for the share dividend, from individuals who had died or retired for a total purchase price of $1,424,450. In addition, through that date, AmerInst Investment Company, Ltd. had
purchased in negotiated transactions at various prices 61,791 common shares, as adjusted for the share dividend, for a total purchase price of $755,228. See Rights Offering below for a description of the sale of shares by AmerInst
Investment Company, Ltd. in connection with the rights offering.



Tender
Offer



On December 17, 2004, AmerInst, through its
indirect wholly owned subsidiary, AmerInst Investment Company, Ltd., commenced a modified Dutch auction self-tender offer for AmerInst shares. Pursuant to the tender offer, which expired on January 21, 2005, 65,959 shares were
accepted for purchase at a price of $60.00 per share, for a total purchase price of $4,298,238, including tender offer expenses of $340,698. (The number of shares purchased in the tender offer and the per share price set forth in the previous
sentence have not been adjusted to reflect the share dividend described below.)



Share Dividend



On March 2, 2006, the
board of directors of AmerInst approved a share dividend of two shares of common stock for every share held by shareholders of record on April 2, 2006, subject to shareholder approval of an increase in the number of our authorized shares. Such
approval was received at the AmerInst 2006 Annual General Meeting on June 1, 2006, which increased the authorized share capital of the Company from $500,000 to $2,000,000. The total issued shares were 331,751 prior to the share dividend and
995,253 afterwards. Unless otherwise noted, all share and per share numbers in these financial statements and this annual report on Form 10-K reflect the share dividend.



Rights Offering



AmerInst filed a registration statement on Form S-3 with the SEC on June 15, 2006 to register a rights offering to existing shareholders. The
registration statement was amended on July 20, 2006 and declared effective July 24, 2006. Pursuant to the rights offering, which was mailed to shareholders on July 28, 2006, each shareholder received a right to purchase one common
share for each share currently owned, at a price of $23.33 per share (after giving effect to the share dividend). Further information concerning the rights offering is contained in the prospectus dated July 28, 2006 and in our S-3 registration
statement on file with the SEC. A total of 97,927 rights were exercised prior to October 4, 2006, the expiration date of the oversubscription right under the rights offering. As a result 97,927 shares were subsequently sold by AmerInst
Investment Company, Ltd. to shareholders exercising rights, for a total purchase price of $2,284,637, before rights offering costs of $277,057. Of the shares sold in the rights offering, 21,461 shares were purchased by AmerInst directors for a total
purchase price of $500,685.



Losses and Loss Adjustment Expenses



The consolidated financial statements include our
estimated liability for unpaid losses and loss adjustment expenses (LAE) for our insurance operations. LAE is determined utilizing both case-basis evaluations and actuarial projections, which together represent an estimate of the
ultimate net cost of all unpaid losses and LAE incurred through December 31 of each year. These estimates are subject to the effect of trends in future claim



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severity and frequency. The estimates are continually reviewed and, as experience develops and new information becomes known, the liability is adjusted as
appropriate, and reflected in current financial reports.



The
anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE. Future average severity is projected based on historical trends adjusted for anticipated changes in underwriting standards, policy provisions
and general economic trends. These anticipated trends are monitored based on actual developments and are modified as necessary.



An actuarial review and projection is performed for us by our independent actuary as of June 30 and December 31 of each year. We review the
actuarial estimates throughout the year for the possible impact on our financial position. As noted in our discussion of our results of operations, based on the analysis by the Companys actuaries, a reduction of $3.1 million from unpaid losses
and loss adjustment reserves occurred in the fourth quarter of 2006. This reduction was the result of the completion of the December 31 actuarial review, which indicated positive loss development in policy years 1994 to 2001.



In preparing ultimate loss and allocated loss adjustment expenses, the
Companys actuary examined a variety of methods. The actuary applied traditional loss development and generalized Cape Cod methods separately to case incurred loss and allocated loss adjustment expense data and to paid loss and
allocated loss adjustment expense data.



The traditional loss
development method separately forecasts ultimate loss and allocated loss adjustment expense for each year on the basis of historical emergence patterns found in incurred and paid loss and allocated loss adjustment expense data. The claim count-based
Cape Cod method treats ultimate claim counts as the exposure base, and uses a claim severity index to reflect changes in expected losses per claim over time. In effect, the Cape Cod method combines a loss development approach (which forecasts future
emergence of loss and allocated loss adjustment expense based on past emergence patterns) with an expected pure premium approach (which assumes that future expected emergence can be projected based on historical pure premiums). The claim severity
index assumed a 5.0% claim severity trend, based on recent professional liability severity trend indications and judgment.



For premier plan and value plan business, many policies provide allocated loss adjustment expense coverage in addition to the standard $1 million per
claim indemnity limit. The effect of a provision for allocated loss adjustment expense in addition to limits was estimated by performing incurred and paid loss and allocated loss adjustment expense Bornhuetter-Ferguson (BF) calculations on the
incurred and paid loss and allocated loss adjustment expense in addition to the limits. Our loss reserves are still near the high end of the reserve range provided by the actuary, which is consistent with our loss reserving philosophy.



The BF method essentially blends together an expected loss result and a
loss development result. The expected losses used in the BF calculation were selected by multiplying expected claim counts by average excess of $1 million frequency and severity amounts. Based on historical allocated loss adjustment expenses data,
the actuary selected a 1.50% and a 1.65% frequency provision and a $750,000 and a $714,286 severity provision for 2006 and 2005, respectively, for allocated loss adjustment expense in addition to limits.



The projected allocated loss adjustment expense in addition to limits amounts
were then added to projected ultimate losses and allocated loss adjustment expense derived from the historical data (which exclude allocated loss adjustment expense above the $1 million limit) to obtain the selected ultimate loss and allocated loss
adjustment expense amounts including allocated loss adjustment expense in addition to limits.



Twice a year, the actuary has made recommendations of a range of ultimate loss estimate to our Board of Directors, which for each period has selected ultimate loss estimates that fall within that range. Based on this
practice, the estimated loss ratio has been updated by the Board of Directors at least once each year, and has historically been near the high end of the range.



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The attorneys professional liability coverage was a new program for the Company in 2003. The
relationship with the carrier of that insurance ended on December 31, 2003. Therefore, policies written during 2003 are the only ones we have reinsured. An estimated ultimate loss and allocated loss adjustment expense ratio of 75% was selected
for this business.



The CAMICO Mutual Insurance Company was a
new program for the Company in 2005. An estimated loss and allocated loss adjustment expense ratio of 70% was selected for this business.



The following table shows the development of the estimated liability for the previous ten years of the Companys operations:



ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSES DEVELOPMENT

(Thousands of Dollars)



|                                                         |  |                         |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |   |       
|-------------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------ |  | - | ------ |  | - | ------
|                                                         |  | Year Ended December 31,
|                                                         |  | 1996                    |        | 1997 |   | 1998   |  | 1999 |        | 2000 |   | 2001   |  | 2002 |        | 2003 |   | 2004   |  | 2005 |        | 2006
|Gross Liability for Loss and LAE Reserves                |  | $                       | 20,300 |      | $ | 20,803 |  | $    | 21,718 |      | $ | 25,037 |  | $    | 27,703 |      | $ | 29,243 |  | $    | 30,479 |      | $ | 28,726 |  | $ | 29,702 |  | $ | 28,885 |  | $ | 28,161
|Reinsurance Recoverable for Unpaid Loss and LAE Reserves |  |                         | 2,020  |      |   | 1,040  |  |      | 876    |      |   | 674    |  |      | 674    |      |   | 674    |  |      | 674    |      |   | 674    |  |   |       |  |   |       |  |   |      
|                                                         |  |                         |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |   |       
|Net Liability for Unpaid Losses and LAE Reserves         |  | $                       | 18,280 |      | $ | 19,763 |  | $    | 20,842 |      | $ | 24,363 |  | $    | 27,029 |      | $ | 28,569 |  | $    | 29,805 |      | $ | 28,727 |  | $ | 29,702 |  | $ | 28,885 |  | $ | 28,161



|                                   |  |                         |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|---------------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------ |  | - | ------ |  | -
|                                   |  | Year Ended December 31,
|                                   |  | 1996                    |        | 1997 |   | 1998   |  | 1999 |        | 2000 |   | 2001   |  | 2002 |        | 2003 |   | 2004   |  | 2005 |        | 2006
|Losses Reestimated as of:          |  |                         |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|One Year Later                     |  | $                       | 16,871 |      | $ | 14,877 |  | $    | 18,988 |      | $ | 24,368 |  | $    | 24,873 |      | $ | 27,993 |  | $    | 25,193 |      | $ | 27,210 |  | $ | 27,454 |  | $ | 26,323 |  | 
|Two Years Later                    |  |                         | 10,157 |      |   | 13,592 |  |      | 18,993 |      |   | 20,602 |  |      | 24,297 |      |   | 23,514 |  |      | 23,676 |      |   | 24,962 |  |   | 24,893 |  |   |        |  |  
|Three Years Later                  |  |                         | 10,133 |      |   | 13,597 |  |      | 15,583 |      |   | 20,026 |  |      | 21,008 |      |   | 21,997 |  |      | 21,429 |      |   | 22,400 |  |   |        |  |   |        |  |  
|Four Years Later                   |  |                         | 10,138 |      |   | 12,953 |  |      | 15,007 |      |   | 17,724 |  |      | 19,491 |      |   | 19,750 |  |      | 18,867 |      |   |        |  |   |        |  |   |        |  |  
|Five Years Later                   |  |                         | 9,000  |      |   | 12,376 |  |      | 13,686 |      |   | 16,207 |  |      | 17,244 |      |   | 17,188 |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|Six Years Later                    |  |                         | 9,824  |      |   | 11,633 |  |      | 12,807 |      |   | 14,437 |  |      | 15,215 |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|Seven Years Later                  |  |                         | 9,890  |      |   | 11,075 |  |      | 12,051 |      |   | 12,966 |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|Eight Years Later                  |  |                         | 9,389  |      |   | 10,571 |  |      | 11,163 |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|Nine Years Later                   |  |                         | 8,658  |      |   | 9,615  |  |      |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|Ten Years Later                    |  |                         | 8,592  |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|Cumulative Redundancy (Deficiency) |  |                         | 9,688  |      |   | 10,148 |  |      | 9,679  |      |   | 11,397 |  |      | 11,814 |      |   | 11,381 |  |      | 10,938 |      |   | 6,324  |  |   | 4,809  |  |   | 2,562  |  | 
|Cumulative Amount Paid Through:    |  |                         |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|One Year Later                     |  |                         | 3,027  |      |   | 3,566  |  |      | 3,024  |      |   | 3,302  |  |      | 4,340  |      |   | 3,851  |  |      | 3,697  |      |   | 3,557  |  |   | 4,678  |  |   | 3,051  |  | 
|Two Years Later                    |  |                         | 5,570  |      |   | 5,524  |  |      | 5,584  |      |   | 6,726  |  |      | 7,073  |      |   | 6,600  |  |      | 6,165  |      |   | 6,943  |  |   | 6,730  |  |   |        |  |  
|Three Years Later                  |  |                         | 6,455  |      |   | 6,913  |  |      | 7,621  |      |   | 8,592  |  |      | 8,904  |      |   | 8,145  |  |      | 7,915  |      |   | 7,982  |  |   |        |  |   |        |  |  
|Four Years Later                   |  |                         | 7,050  |      |   | 8,010  |  |      | 8,405  |      |   | 9,747  |  |      | 9,781  |      |   | 8,736  |  |      | 8,353  |      |   |        |  |   |        |  |   |        |  |  
|Five Years Later                   |  |                         | 7,445  |      |   | 8,267  |  |      | 9,105  |      |   | 10,028 |  |      | 9,906  |      |   | 8,972  |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|Six Years Later                    |  |                         | 7,636  |      |   | 8,795  |  |      | 9,271  |      |   | 9,895  |  |      | 9,999  |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|Seven Years Later                  |  |                         | 8,151  |      |   | 8,656  |  |      | 8,980  |      |   | 9,946  |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|Eight Years Later                  |  |                         | 7,880  |      |   | 8,258  |  |      | 8,994  |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|Nine Years Later                   |  |                         | 7,471  |      |   | 8,259  |  |      |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |  
|Ten Years Later                    |  |                         | 7,471  |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        |  |  



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The above table of losses re-estimated has been prepared on a net basisi.e., loss and loss
adjustment expenses and reinsurance recoveries receivable have not been grossed-up. The schedule has been prepared on a net basis due to the relative immateriality of reinsurance balances when considered in relation to total loss and loss adjustment
expense reserves, and due to the costs of providing such information relative to any benefits of providing it.



The above table presents the development of balance sheet liabilities for 1996 through 2006 as of year-end 2006. The top line of the table shows the
original recorded unpaid liability for losses and LAE recorded at the balance sheet date for each of the indicated years. This liability represents the estimated amount of losses and LAE for claims arising in all prior years, both paid and unpaid at
the balance sheet date, including losses that had been incurred, but not yet reported, to the Company. The upper portion of the table shows the experience as of the end of each succeeding year. The estimate is increased or decreased as more
information becomes known about the frequency and severity of claims.



The cumulative redundancy (deficiency) represents the aggregate change in the estimates over all prior years. For example, the 1996 liability has developed a $9,688,000 redundancy which has been reflected in income in subsequent
years as the reserves were re-estimated.



The lower section of
the table shows the cumulative amount paid in respect of the previously recorded liability as of the end of each succeeding year. For example, the 1996 year end liability was originally $18,280,000. As of December 31, 2006, we had paid
$7,471,000 of the currently estimated $8,592,000 of losses and LAE that had been incurred for 1996 and prior years through the end of 2006; thus an estimated $1,121,000 in losses incurred through 1996 remain unpaid as of the current financial
statement date.



In evaluating this information, it should be
understood that each amount includes the effects of all changes in amounts for prior periods. This table does not present accident or policy year development data, which readers may be more accustomed to analyzing. Conditions and trends that have
affected development of liabilities in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies based on this table.



Off-Balance Sheet Arrangements



We have no off-balance sheet arrangements required to be disclosed under
Item 303(a)(4) of Regulation S-K promulgated by the Securities and Exchange Commission.



Contractual Obligations



The following table provides an analysis of our contractual obligations at December 31, 2006:



|                                           |  |                                              |        |                 |   |          |  |          |       |                  |   |       |  |   |       
|------------------------------------------ |  | -------------------------------------------- | ------ | --------------- | - | -------- |  | -------- | ----- | ---------------- | - | ----- |  | - | ------
|                                           |  | Payment due by period (Thousands of dollars)
|                                           |  | Total                                        |        | Less than1 year |   | 1-3Years |  | 3-5years |       | More than5 years
|Unpaid losses and loss adjustment expenses |  | $                                            | 28,161 |                 | $ | 5,871    |  | $        | 7,670 |                  | $ | 3,100 |  | $ | 11,520



The amounts included
for unpaid losses and loss adjustment expenses reflect the estimated timing of expected loss payments on known claims and anticipated future claims. Both the amount and timing of cash flows are uncertain and do not have contractual payout terms. For
a discussion of these uncertainties, see Critical Accounting Policies  Unpaid Losses and Loss Adjustment Expense Reserves beginning page 15. Due to the inherent uncertainty in the process of estimating the timing of these payments,
there is a risk that the amounts paid in any period will differ significantly from those disclosed. Total estimated obligations will be funded by existing cash, investments and future premium income.



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##### Table of Contents

Item 7A. Quantitative and Qualitative Disclosures About Market Risk



Inflation



We do not believe our operations have been materially affected by inflation. The potential adverse impacts of inflation include: (a) a decline in the
market value of our fixed maturity investment portfolio; (b) an increase in the ultimate cost of settling claims which remain unresolved for a significant period of time; and (c) an increase in our operating expenses. However, we generally
hold our fixed term investments to maturity and currently believe that the yield is adequate to compensate us for the risk of inflation. In addition, we expect that any increase from inflation in the ultimate cost of settling unpaid claims will be
offset by investment income earned during the period that the claim is outstanding. Finally, we believe that the increase in operating expenses resulting from inflation should generally be matched by similar inflationary increases in our premium
rates.



Market Sensitive Instruments



Market risk generally represents the risk of loss that may result from
potential change in the value of a financial instrument due to a variety of market conditions. Our exposure to market risk is generally limited to potential losses arising from changes in the level of interest rates or market values of fixed term
holdings and changes in the market values of equity securities. We do not hold or issue derivative financial instruments for either trading or hedging purposes.



a) Interest Rate Risk



Interest rate risk results from our holdings in interest-rate-sensitive instruments. We are exposed to potential losses on fixed rate instruments that we
hold arising from changes in the level of interest rates. We are also exposed to credit spread risk resulting from possible changes in the issuers credit rating. To manage our exposure to interest rate risk we attempt to select investments
with characteristics that match the characteristics of our related insurance liabilities. Additionally, we generally only invest in higher-grade interest bearing instruments.



b) Foreign Exchange Risk



We only invest in U.S. dollar denominated financial instruments and do not have any exposure to foreign exchange risk.



c) Equity Price Risk



Equity price risk arises from fluctuations in the value of securities held.
We invest in equity securities in order to diversify our investment portfolio, which our management believes will assist us in achieving our goal of long-term growth of capital and surplus. Our management has adopted investment guidelines that set
out rate of return and asset allocation targets, as well as degree of risk and equity investment restrictions intended to minimize exposure to material risk from changes in equity prices.



The table below provides information about our available for sale
investments that are sensitive to changes in interest rates at December 31, 2006.



|                                       |  |                |            |                      |   |           
|-------------------------------------- |  | -------------- | ---------- | -------------------- | - | ----------
|                                       |  | Amortized Cost |            | Estimated Fair Value
|Due in one year or less                |  | $              | 4,979,402  |                      | $ | 4,961,827 
|Due after one year through five years  |  |                | 8,476,711  |                      |   | 8,461,725 
|Due after five years through ten years |  |                | 4,205,139  |                      |   | 4,228,943 
|Due after ten years                    |  |                | 0          |                      |   | 0         
|                                       |  |                |            |                      |   |           
|Subtotal                               |  |                | 17,661,252 |                      |   | 17,652,495
|Mortgage-backed securities             |  |                | 9,581,483  |                      |   | 9,520,293 
|                                       |  |                |            |                      |   |           
|Total                                  |  | $              | 27,242,735 |                      | $ | 27,172,788
|                                       |  |                |            |                      |   |           



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We have calculated the effect that an immediate parallel shift in the U.S. interest rate yield curve
would have on our fixed maturity investments at December 31, 2006. The modeling of this effect was performed on each security individually using the securitys effective duration and changes in prepayment expectations for mortgage backed
securities. The results of this analysis are summarized in the table below.



|                              |  |                                                                   |        |   |     |   |        |   |  |   |        |   |  |      |        |   |  |   |        |  
|----------------------------- |  | ----------------------------------------------------------------- | ------ | - | --- | - | ------ | - |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                              |  | Interest Rate Shift in Basis Points (Dollar Amounts in Thousands) |       
|                              |  | -100                                                              |        |   | -50 |   |        | 0 |  |   | +50    |   |  | +100 |       
|Total Market Value            |  | $                                                                 | 29,136 |   |     | $ | 28,862 |   |  | $ | 28,588 |   |  | $    | 28,235 |   |  | $ | 27,881 |  
|Market Value Change from Base |  |                                                                   | 1.92   | % |     |   | 0.96   | % |  |   | 0.00   | % |  |      | -1.23  | % |  |   | -2.47  | %
|Change in Unrealized Value    |  | $                                                                 | 548    |   |     | $ | 274    |   |  | $ |       |   |  | $    | (353   | ) |  | $ | (707   | )



Forward-Looking
Statements



Certain statements contained in this Form
10-K, or otherwise made by our officers, including statements related to our future performance and our outlook for our businesses and respective markets, projections, statements of our managements plans or objectives, forecasts of market
trends and other matters are forward-looking statements, and contain information relating to us that is based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. The words
goal, anticipate, expect, believe and similar expressions as they relate to us or our management are intended to identify forward-looking statements. No assurance can be given that the results in any
forward-looking statement will be achieved. For the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements provided in the Private Securities Litigation Reform Act of 1995. Such statements reflect our
managements current views with respect to future events and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that
might cause such actual results to differ materially from those reflected in any forward-looking statements include, but are not limited to (i) the occurrence of catastrophic events with a frequency or severity exceeding the Companys
expectations; (ii) a decrease in the level of demand for reinsurance or an increase in the supply of reinsurance capacity; (iii) increased competitive pressures, including the consolidation and increased globalization of reinsurance
providers; (iv) actual losses and loss expenses exceeding the Companys loss reserves, which are necessarily based on actuarial and statistical projections of ultimate losses; (v) changing rates of inflation and other economic
conditions; (vi) changes in the legal or regulatory environments in which we operate; and (vii) other risks including those risks identified in any of our other filings with the Securities and Exchange Commission. The foregoing review of
important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect
our managements analysis only as of the date they are made. We undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof
or to reflect the occurrence of unanticipated events.



24



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##### Table of Contents

Item 8. Financial Statements and Supplementary Data



The financial statements required by this Item are listed below:



INDEX TO FINANCIAL STATEMENTS AND SCHEDULES



|                                                                            |  |     
|--------------------------------------------------------------------------- |  | ----
|                                                                            |  | Page
|Financial Statements:                                                       |  |     
|                                                                            | 
|Report of Independent Registered Public Accounting Firm                     |  | 26  
|Consolidated Balance Sheets                                                 |  | 27  
|Consolidated Statements of Operations and Other Comprehensive Income (Loss) |  | 28  
|Consolidated Statements of Changes in Stockholders Equity                  |  | 29  
|Consolidated Statements of Cash Flows                                       |  | 30  
|Notes to the Consolidated Financial Statements                              |  | 31  
|                                                                            | 
|Financial Statement Schedules:                                              |  |     
|                                                                            | 
|Schedule I, Consolidated Summary of Investments                             |  | 41  



Schedules II, III, IV,
V, and VI are omitted as they are inapplicable, immaterial, or because the required information may be found in the audited consolidated financial statements and notes thereto.



25



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Shareholders

of AmerInst Insurance Group, Ltd.



We have audited the accompanying consolidated balance sheets of AmerInst Insurance Group, Ltd. and subsidiaries (the
Company) as at December 31, 2006 and 2005, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders equity and cash flows for each of the three years in the period ended
December 31, 2006. Our audits also included the financial statement schedule listed in the Index and included in Item 15. These financial statements and financial statement schedule are the responsibility of the Companys management.
Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of AmerInst Insurance Group, Ltd. and subsidiaries as at December 31, 2006 and 2005 and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information set forth therein.



/s/    Deloitte & Touche



Hamilton, Bermuda

March 30, 2007



26



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##### Table of Contents

AMERINST INSURANCE GROUP, LTD.



CONSOLIDATED BALANCE SHEETS

December 31, 2006 and 2005

(expressed in U.S. dollars)



|                                                                                                                                                |  |      |            |   |      |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                |  | 2006 |            |   | 2005 |  
|ASSETS                                                                                                                                          |  |      |            |   |      |   |            |  
|Investments (Notes 3 and 4):                                                                                                                    |  |      |            |   |      |   |            |  
|Fixed maturity investments, at market value (amortized cost $27,242,735 and $24,571,442)                                                        |  | $    | 27,172,788 |   |      | $ | 24,234,216 |  
|Equity securities, at market value (cost $17,909,268 and $16,258,197)                                                                           |  |      | 25,448,425 |   |      |   | 22,017,805 |  
|                                                                                                                                                |  |      |            |   |      |   |            |  
|TOTAL INVESTMENTS                                                                                                                               |  |      | 52,621,213 |   |      |   | 46,252,021 |  
|Cash and cash equivalents                                                                                                                       |  |      | 1,784,344  |   |      |   | 2,282,039  |  
|Restricted cash and cash equivalents                                                                                                            |  |      | 1,055,866  |   |      |   | 1,165,322  |  
|Assumed reinsurance premiums receivable                                                                                                         |  |      | 556,822    |   |      |   | 710,534    |  
|Funds deposited with a reinsurer (Note 3)                                                                                                       |  |      | 113,382    |   |      |   | 113,382    |  
|Accrued investment income                                                                                                                       |  |      | 229,824    |   |      |   | 203,408    |  
|Deferred policy acquisition costs                                                                                                               |  |      | 1,090,727  |   |      |   | 1,119,157  |  
|Prepaid expenses and other assets                                                                                                               |  |      | 219,132    |   |      |   | 282,339    |  
|                                                                                                                                                |  |      |            |   |      |   |            |  
|TOTAL ASSETS                                                                                                                                    |  | $    | 57,671,310 |   |      | $ | 52,128,202 |  
|                                                                                                                                                |  |      |            |   |      |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                            |  |      |            |   |      |   |            |  
|LIABILITIES                                                                                                                                     |  |      |            |   |      |   |            |  
|Unpaid losses and loss adjustment expenses (Note 5)                                                                                             |  | $    | 28,161,369 |   |      | $ | 28,884,621 |  
|Unearned premiums                                                                                                                               |  |      | 3,790,692  |   |      |   | 3,843,161  |  
|Accrued expenses and other liabilities                                                                                                          |  |      | 238,825    |   |      |   | 348,785    |  
|                                                                                                                                                |  |      |            |   |      |   |            |  
|TOTAL LIABILITIES                                                                                                                               |  | $    | 32,190,886 |   |      | $ | 33,076,567 |  
|                                                                                                                                                |  |      |            |   |      |   |            |  
|STOCKHOLDERS EQUITY                                                                                                                            |  |      |            |   |      |   |            |  
|Common shares, $1 par value, 2006 and 2005: 2,000,000 and 500,000 shares authorized, 995,253 and 995,253 * issued and outstanding,
respectively |  |      | 995,253    |   |      |   | 331,751    |  
|Additional paid-in-capital                                                                                                                      |  |      | 6,287,293  |   |      |   | 6,801,870  |  
|Retained earnings                                                                                                                               |  |      | 15,216,651 |   |      |   | 12,499,613 |  
|Accumulated other comprehensive income                                                                                                          |  |      | 7,469,210  |   |      |   | 5,422,382  |  
|Shares held by Subsidiary (231,785 and 316,785* shares) at cost                                                                                 |  |      | (4,487,983 | ) |      |   | (6,003,981 | )
|                                                                                                                                                |  |      |            |   |      |   |            |  
|TOTAL STOCKHOLDERS EQUITY                                                                                                                      |  |      | 25,480,424 |   |      |   | 19,051,635 |  
|                                                                                                                                                |  |      |            |   |      |   |            |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                      |  | $    | 57,671,310 |   |      | $ | 52,128,202 |  
|                                                                                                                                                |  |      |            |   |      |   |            |  

---

|* | The number of shares issued and outstanding and held by Subsidiary at December 31, 2005 have been adjusted retroactively to reflect the share dividend of two shares for every
share outstanding completed in the second quarter of 2006.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See accompanying notes to the consolidated financial statements.



27



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AMERINST INSURANCE GROUP, LTD.



CONSOLIDATED STATEMENTS OF OPERATIONS AND

OTHER COMPREHENSIVE INCOME (LOSS)

years ended December 31, 2006, 2005, and 2004

(expressed in U.S. dollars)



|                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                   |  | 2006 |            |   | 2005 |   |            | 2004 | 
|REVENUES                                                           |  |      |            |   |      |   |            |      |  |   |            |  
|Net premiums earned                                                |  | $    | 8,628,534  |   |      | $ | 9,075,405  |      |  | $ | 8,856,809  |  
|Net investment income (Note 4)                                     |  |      | 1,365,959  |   |      |   | 1,116,354  |      |  |   | 1,227,610  |  
|Net realized gain on investments (Note 4)                          |  |      | 1,120,263  |   |      |   | 1,345,861  |      |  |   | 732,491    |  
|                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|TOTAL REVENUES                                                     |  |      | 11,114,756 |   |      |   | 11,537,620 |      |  |   | 10,816,910 |  
|                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|LOSSES AND EXPENSES                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Losses and loss adjustment expenses (Note 5)                       |  |      | 3,287,658  |   |      |   | 4,105,121  |      |  |   | 5,104,341  |  
|Policy acquisition costs                                           |  |      | 2,546,012  |   |      |   | 2,615,133  |      |  |   | 2,591,612  |  
|Operating and management expenses (Note 7)                         |  |      | 1,968,124  |   |      |   | 1,722,245  |      |  |   | 1,371,950  |  
|                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|TOTAL LOSSES AND EXPENSES                                          |  |      | 7,801,794  |   |      |   | 8,442,499  |      |  |   | 9,067,903  |  
|                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|NET INCOME                                                         |  |      | 3,312,962  |   |      |   | 3,095,121  |      |  |   | 1,749,007  |  
|                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|OTHER COMPREHENSIVE INCOME (LOSS)                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Net unrealized holding gain arising during the period              |  |      | 3,167,091  |   |      |   | 486,170    |      |  |   | 974,948    |  
|Reclassification adjustment for (gain) included in net income      |  |      | (1,120,263 | ) |      |   | (1,345,861 | )    |  |   | (732,491   | )
|                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|OTHER COMPREHENSIVE INCOME (LOSS)                                  |  |      | 2,046,828  |   |      |   | (859,691   | )    |  |   | 242,457    |  
|                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|COMPREHENSIVE INCOME                                               |  | $    | 5,359,790  |   |      | $ | 2,235,430  |      |  | $ | 1,991,464  |  
|                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|BASIC AND DILUTED EARNINGS PER SHARE*                              |  | $    | 4.76       |   |      | $ | 4.30       |      |  | $ | 1.94       |  
|                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|Weighted average number of common shares* outstanding for the year |  |      | 695,404    |   |      |   | 719,220    |      |  |   | 897,327    |  
|                                                                   |  |      |            |   |      |   |            |      |  |   |            |  

---

|* | The per share amounts and number of shares outstanding have been adjusted retroactively for all periods presented to reflect the share dividend of two shares for every share
outstanding completed in the second quarter of 2006.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





See accompanying notes to the consolidated financial statements.



28



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AMERINST INSURANCE GROUP, LTD.



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

years ended December 31, 2006, 2005 and 2004

(expressed in U.S. dollars)



|                                                                           |  |              |         |                            |   |           |                   |  |   |                                                   |   |  |                          |           |   |                            |   |            |   |  |   |            |  
|-------------------------------------------------------------------------- |  | ------------ | ------- | -------------------------- | - | --------- | ----------------- |  | - | ------------------------------------------------- | - |  | ------------------------ | --------- | - | -------------------------- | - | ---------- | - |  | - | ---------- | -
|                                                                           |  | Common Stock |         | Additional Paid-in Capital |   |           | Retained Earnings |  |   | Accumulated Other Comprehensive Income, Net ofTax |   |  | Shares Held bySubsidiary |           |   | Total Stockholders Equity |  
|BALANCE AT JANUARY 1, 2004                                                 |  | $            | 331,751 |                            | $ | 6,801,870 |                   |  | $ | 8,701,072                                         |   |  | $                        | 6,039,616 |   |                            | $ | (1,168,025 | ) |  | $ | 20,706,284 |  
|Net income                                                                 |  |              |        |                            |   |          |                   |  |   | 1,749,007                                         |   |  |                          |          |   |                            |   |           |   |  |   | 1,749,007  |  
|Other comprehensive income                                                 |  |              |         |                            |   |           |                   |  |   |                                                   |   |  |                          |           |   |                            |   |            |   |  |   |            |  
|Unrealized gains on securities, net of reclassification adjustment         |  |              |        |                            |   |          |                   |  |   |                                                  |   |  |                          | 242,457   |   |                            |   |           |   |  |   | 242,457    |  
|Purchases of shares by subsidiary                                          |  |              |        |                            |   |          |                   |  |   |                                                  |   |  |                          |          |   |                            |   | (136,557   | ) |  |   | (136,557   | )
|Dividends ($0.86 per share*)                                               |  |              |        |                            |   |          |                   |  |   | (449,558                                          | ) |  |                          |          |   |                            |   |           |   |  |   | (449,558   | )
|                                                                           |  |              |         |                            |   |           |                   |  |   |                                                   |   |  |                          |           |   |                            |   |            |   |  |   |            |  
|BALANCE AT DECEMBER 31, 2004                                               |  | $            | 331,751 |                            | $ | 6,801,870 |                   |  | $ | 10,000,521                                        |   |  | $                        | 6,282,073 |   |                            | $ | (1,304,582 | ) |  | $ | 22,111,633 |  
|Net income                                                                 |  |              |        |                            |   |          |                   |  |   | 3,095,121                                         |   |  |                          |          |   |                            |   |           |   |  |   | 3,095,121  |  
|Other comprehensive income                                                 |  |              |         |                            |   |           |                   |  |   |                                                   |   |  |                          |           |   |                            |   |            |   |  |   |            |  
|Unrealized loss on securities, net of reclassification adjustment          |  |              |        |                            |   |          |                   |  |   |                                                  |   |  |                          | (859,691  | ) |                            |   |           |   |  |   | (859,691   | )
|Purchases of shares by subsidiary                                          |  |              |        |                            |   |          |                   |  |   |                                                  |   |  |                          |          |   |                            |   | (4,699,399 | ) |  |   | (4,699,399 | )
|Dividends ($0.86 per share*) (net of adjustment for special dividend)      |  |              |        |                            |   |          |                   |  |   | (596,029                                          | ) |  |                          |          |   |                            |   |           |   |  |   | (596,029   | )
|                                                                           |  |              |         |                            |   |           |                   |  |   |                                                   |   |  |                          |           |   |                            |   |            |   |  |   |            |  
|BALANCE AT DECEMBER 31, 2005                                               |  | $            | 331,751 |                            | $ | 6,801,870 |                   |  | $ | 12,499,613                                        |   |  | $                        | 5,422,382 |   |                            | $ | (6,003,981 | ) |  | $ | 19,051,635 |  
|Net income                                                                 |  |              |        |                            |   |          |                   |  |   | 3,312,962                                         |   |  |                          |          |   |                            |   |           |   |  |   | 3,312,962  |  
|Other comprehensive income                                                 |  |              |         |                            |   |           |                   |  |   |                                                   |   |  |                          |           |   |                            |   |            |   |  |   |            |  
|Unrealized gains on securities, net of reclassification adjustment         |  |              |        |                            |   |          |                   |  |   |                                                  |   |  |                          | 2,046,828 |   |                            |   |           |   |  |   | 2,046,828  |  
|Purchase of shares by subsidiary                                           |  |              |        |                            |   |          |                   |  |   |                                                  |   |  |                          |          |   |                            |   | (342,657   | ) |  |   | (342,657   | )
|Sale of shares by subsidiary under rights offering (net of issuance costs) |  |              |        |                            |   | 148,925   |                   |  |   |                                                  |   |  |                          |          |   |                            |   | 1,858,655  |   |  |   | 2,007,580  |  
|Dividends ($0.90 per share)                                                |  |              |        |                            |   |          |                   |  |   | (595,924                                          | ) |  |                          |          |   |                            |   |           |   |  |   | (595,924   | )
|Share Dividend (2 for 1)                                                   |  |              | 663,502 |                            |   | (663,502  | )                 |  |   |                                                  |   |  |                          |          |   |                            |   |           |   |  |   |           |  
|                                                                           |  |              |         |                            |   |           |                   |  |   |                                                   |   |  |                          |           |   |                            |   |            |   |  |   |            |  
|BALANCE AT DECEMBER 31, 2006                                               |  | $            | 995,253 |                            | $ | 6,287,293 |                   |  | $ | 15,216,651                                        |   |  | $                        | 7,469,210 |   |                            | $ | (4,487,983 | ) |  | $ | 25,480,424 |  
|                                                                           |  |              |         |                            |   |           |                   |  |   |                                                   |   |  |                          |           |   |                            |   |            |   |  |   |            |  

---

|* | The dividends per share amounts have been adjusted retroactively for all periods presented to reflect the share dividend of two shares for every share outstanding completed in the
second quarter of 2006.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See accompanying notes to
the consolidated financial statements.



29



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##### Table of Contents

AMERINST INSURANCE GROUP, LTD.



CONSOLIDATED STATEMENTS OF CASH FLOWS

years ended December 31, 2006, 2005 and 2004

(expressed in U.S. dollars)



|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |  
|-------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                       |  | 2006 |             |   | 2005 |   |             | 2004 | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                                   |  |      |             |   |      |   |             |      |  |   |             |  
|Net income                                                                             |  | $    | 3,312,962   |   |      | $ | 3,095,121   |      |  | $ | 1,749,007   |  
|Adjustments to reconcile net income to net cash provided by operating activities:      |  |      |             |   |      |   |             |      |  |   |             |  
|Amortization of net discounts (premiums) on investments                                |  |      | 24,138      |   |      |   | (5,447      | )    |  |   | (233,363    | )
|Net realized (gains) on sale of investments                                            |  |      | (1,120,263  | ) |      |   | (1,345,861  | )    |  |   | (732,491    | )
|Changes in assets and liabilities:                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|Assumed reinsurance premiums receivable                                                |  |      | 153,712     |   |      |   | 167,312     |      |  |   | (307,537    | )
|Funds deposited with a reinsurer                                                       |  |      |            |   |      |   | 23,946      |      |  |   |            |  
|Accrued investment income                                                              |  |      | (26,416     | ) |      |   | 38,501      |      |  |   | 154,264     |  
|Deferred policy acquisition costs                                                      |  |      | 28,430      |   |      |   | 28,658      |      |  |   | (28,949     | )
|Prepaid expenses and other assets                                                      |  |      | 63,207      |   |      |   | (67,071     | )    |  |   | (56,405     | )
|Liability for losses and loss adjustment expenses                                      |  |      | (723,252    | ) |      |   | (817,221    | )    |  |   | 975,208     |  
|Unearned premiums                                                                      |  |      | (52,469     | ) |      |   | (47,739     | )    |  |   | 29,116      |  
|Accrued expenses and other liabilities                                                 |  |      | (109,960    | ) |      |   | 116,849     |      |  |   | 11,390      |  
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |  
|Net cash provided by operating activities                                              |  |      | 1,550,089   |   |      |   | 1,187,048   |      |  |   | 1,560,240   |  
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                   |  |      |             |   |      |   |             |      |  |   |             |  
|Movement in restricted cash and cash equivalents                                       |  |      | 109,456     |   |      |   | (809,051    | )    |  |   | (60,658     | )
|Purchases of investments                                                               |  |      | (29,948,218 | ) |      |   | (31,080,509 | )    |  |   | (35,715,388 | )
|Proceeds from sales of investments                                                     |  |      | 21,461,979  |   |      |   | 31,436,322  |      |  |   | 27,638,535  |  
|Proceeds from maturities of fixed maturity investments                                 |  |      | 5,260,000   |   |      |   | 5,676,000   |      |  |   | 9,930,000   |  
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |  
|Net cash provided by (used in) investing activities                                    |  |      | (3,116,783  | ) |      |   | 5,222,762   |      |  |   | 1,792,489   |  
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                   |  |      |             |   |      |   |             |      |  |   |             |  
|Dividends paid                                                                         |  |      | (595,924    | ) |      |   | (596,029    | )    |  |   | (3,932,944  | )
|Purchase of shares by subsidiary                                                       |  |      | (342,657    | ) |      |   | (4,699,399  | )    |  |   | (136,557    | )
|Proceeds on sale of shares by subsidiary under rights offering (net of issuance costs) |  |      | 2,007,580   |   |      |   |            |      |  |   |            |  
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |  
|Net cash provided by (used in) financing activities                                    |  |      | 1,068,999   |   |      |   | (5,295,428  | )    |  |   | (4,069,501  | )
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                                |  |      | (497,695    | ) |      |   | 1,114,382   |      |  |   | (716,772    | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                           |  |      | 2,282,039   |   |      |   | 1,167,657   |      |  |   | 1,884,429   |  
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                                 |  | $    | 1,784,344   |   |      | $ | 2,282,039   |      |  | $ | 1,167,657   |  
|                                                                                       |  |      |             |   |      |   |             |      |  |   |             |  



See accompanying notes
to the consolidated financial statements.



30



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##### Table of Contents

AMERINST INSURANCE GROUP, LTD.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



1. DESCRIPTION OF BUSINESS



AmerInst Insurance
Group, Ltd., (AMIG Ltd. or the Company) was formed under the laws of Bermuda on July 16, 1998. The Company, through its wholly-owned subsidiary AmerInst Insurance Company, Ltd. (AMIC Ltd.) and its predecessor
(AIIC Inc.), has been engaged in the reinsurance of claims-made insurance policies of participants in an AICPA-sponsored insurance program that provides accountants professional liability insurance coverage (AICPA
Plan).



The reinsurance activity of AMIC Ltd. depends
upon agreements entered into with outside parties. In August 1993, the AICPA Plan endorsed the CNA Financial Corporation (CNA) insurance group as its insurance carrier. AIIC Inc. then began a reinsurance relationship with CNA, taking a
10% participation of the first $1,000,000 of liability of each policy written under the plan. Effective in December 1999, the Company began taking a 10% share of the value plan business from CNA. The value plan provides for
separate $1,000,000 limits for losses and separate $1,000,000 limits for expenses per occurrence and $2,000,000 in the aggregate. Our maximum limits under the value plan are $2,000,000 per occurrence and $4,000,000 in the aggregate.



AMIC Ltd. entered into an excess loss arrangement with
Professional Direct Insurance Company (PDIC) for a 15% quota share participation in the 1st excess layer of $500,000 excess of $500,000 of the attorneys professional liability coverage provided by PDIC. The participation commenced
January 1, 2003 and terminated December 31, 2003.



Effective June 1, 2005, AMIC Ltd. entered into a 5% share in CAMICO Mutual Insurance Companys first excess layer of $2,000,000 excess of $1,000,000. CAMICO is a California-based writer of accountants professional liability
business. This contract renewed on June 1, 2006.



2. SIGNIFICANT
ACCOUNTING POLICIES



Basis of presentation



The accompanying consolidated financial statements have
been prepared in conformity with accounting principles generally accepted in the United States of America and include the accounts of AMIG Ltd. and its wholly-owned subsidiaries, AmerInst Mezco, Ltd. (Mezco), AMIC Ltd. and AmerInst
Investment Company, Ltd. (Investco). Intercompany accounts and transactions have been eliminated in consolidation.



The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The major estimates reflected in the Companys financial statements include but are not limited to the liability for loss and loss adjustment expenses.



Premiums



Premiums assumed are earned on a pro rata basis over the terms of the
underlying policies to which they relate. Premiums assumed relating to the unexpired portion of policies in force at the balance sheet date are recorded as unearned premiums.



Deferred policy acquisition costs



Ceding commissions related to assumed reinsurance agreements are deferred and amortized pro rata over the terms of the
underlying policies to which they relate.



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Liability for losses and loss adjustment expenses



The liability for unpaid losses and loss adjustment expenses includes case
basis estimates of reported losses plus supplemental amounts for projected losses incurred but not reported (IBNR), calculated based upon loss projections utilizing certain actuarial assumptions and AMIC Ltd.s historical loss experience
supplemented with industry data. Management believes that its aggregate liability for unpaid losses and loss adjustment expenses at year end represents its best estimate, based upon the available data, of the amount necessary to cover the ultimate
cost of loss, based upon an actuarial analysis prepared by independent actuaries. However, because of the volatility inherent in professional liability coverage, actual loss experience may not conform to the assumptions used in determining the
estimated amounts for such liability at the balance sheet date. Accordingly, the ultimate liability could be significantly in excess of or less than the amount indicated in the financial statements. As adjustments to these estimates become
necessary, such adjustments are reflected in current operations. AMIC Ltd. does not discount its loss reserves for purposes of these financial statements.



The anticipated effect of inflation is implicitly considered when estimating liabilities for unpaid losses and loss adjustment expenses. Future average
severities are projected based on historical trends adjusted for anticipated trends, are monitored based on actual developments and are modified if necessary.



Investments



AMIG Ltd. classifies all of its investments as available-for-sale. Accordingly, AMIG Ltd. reports these securities at their estimated fair values with
unrealized holding gains and losses being reported as other comprehensive income. Fair value of investments is based on market quotations. Realized gains and losses on sales of investments are accounted for by specifically identifying the cost and
are reflected in the income statement in the period of sale.



Declines in the market value of investments below cost are evaluated for other than temporary impairment losses. The evaluation for other than temporary impairment losses is a quantitative and qualitative process which is subject to risks
and uncertainties in the determination of whether declines in the fair value of investments are other than temporary. The risks and uncertainties include the Companys intent and ability to hold the security, changes in general economic
conditions, the issuers financial condition or near term recovery prospects, and the effects of changes in interest rates. AMIG Ltd.s accounting policy requires that a decline in the value of a security below its cost basis be assessed
to determine if the decline is other than temporary. If so, the security is deemed to be impaired and a charge is recorded in net realized losses equal to the difference between the fair value and the cost basis of the security. The fair value of
the impaired investment becomes its new cost basis.



Cash
and cash equivalents



For purposes of the statements of
cash flows, AMIG Ltd. considers all money market funds and highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.



Net income per common share



Basic earnings per share is determined as net income available to common shareholders divided by the weighted average number of common shares
outstanding for the period. There are no dilutive securities.



New Accounting Pronouncements



In September
2006, the FASB issued FAS 157, Fair Value Measurement. This Statement provides guidance for using fair value to measure assets and liabilities. Under this standard, the definition of fair value focuses on



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset
or received to assume the liability (an entry price). FAS 157 clarifies that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active
markets and the lowest priority to unobservable data. Further, FAS 157 requires tabular disclosures of the fair value measurements by level within the fair value hierarchy. FAS 157 is effective for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year. The Company is currently evaluating the potential impact of FAS 157 on its financial statements when adopted.



In February 2007, FASB issued FAS 159, The Fair Value Option for Financial
Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected
to expand the use of fair value measurement, which is consistent with the FASBs long-term measurement objectives for accounting for financial instruments. The fair value option established will permit all entities to choose to measure eligible
items at fair value at specified election dates. An entity shall record unrealized gains and losses on items for which the fair value option has been elected through net income in the statement of operations at each subsequent reporting date. This
statement is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. The Company is currently evaluating the potential impact of FAS 159 on its financial statements.



3. PLEDGED ASSETS



Pursuant to the reinsurance agreements, AMIC Ltd. is required to provide the ceding companies with collateral for AMIC
Ltd.s liabilities to them. At December 31, 2006 and 2005 $113,382 was held in deposits pursuant to the 2003 excess reinsurance agreement with PDIC. Also at December 31, 2006 and 2005, the carrying value of investments in a trust
account held by Bank of New York pursuant to reinsurance agreements in effect from 1989 to mid-1993 was $115,273 and $123,856, respectively. Additionally, at December 31, 2006 and 2005, AMIC Ltd. had provided CNA with a Section 114 Trust,
held by JPMorgan Chase Bank, with restricted cash and cash equivalents and investments with a carrying value of $19,922,503 and $18,336,207, respectively. At December 31, 2006 and 2005 AMIC Ltd. provided CAMICO with a Letter of Credit held by
National City Bank with supporting investments with a carrying value of $4,110,082 and $2,350,053, respectively.



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



4. INVESTMENTS



The cost or amortized cost, gross unrealized holding gains and losses, and estimated fair value of investments in fixed maturity investments, by major
security type, and equity securities at December 31, 2006 and 2005 are as follows:



|                                                 |  |                      |            |                      |   |                       |  |   |                     |   |  |   |           
|------------------------------------------------ |  | -------------------- | ---------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | ----------
|                                                 |  | Cost orAmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|December 31, 2006 Fixed maturity investments:    |  |                      |            |                      |   |                       |  |   |                     |   |  |   |           
|Obligations of states and political subdivisions |  | $                    | 16,159,160 |                      | $ | 91,552                |  | $ | (98,280             | ) |  | $ | 16,152,432
|Corporate debt securities                        |  |                      | 1,502,092  |                      |   |                      |  |   | (2,028              | ) |  |   | 1,500,064 
|Mortgage-backed securities                       |  |                      | 9,581,483  |                      |   | 23,668                |  |   | (84,859             | ) |  |   | 9,520,292 
|                                                 |  |                      |            |                      |   |                       |  |   |                     |   |  |   |           
|Total fixed maturity investments                 |  |                      | 27,242,735 |                      |   | 115,220               |  |   | (185,167            | ) |  |   | 27,172,788
|                                                 |  |                      |            |                      |   |                       |  |   |                     |   |  |   |           
|Equity securities                                |  |                      | 16,909,268 |                      |   | 7,245,864             |  |   | (19,429             | ) |  |   | 24,135,703
|Hedge fund                                       |  |                      | 1,000,000  |                      |   | 312,722               |  |   |                    |   |  |   | 1,312,722 
|                                                 |  |                      |            |                      |   |                       |  |   |                     |   |  |   |           
|Total equity securities                          |  |                      | 17,909,268 |                      |   | 7,558,586             |  |   | (19,429             | ) |  |   | 25,448,425
|                                                 |  |                      |            |                      |   |                       |  |   |                     |   |  |   |           
|Total investments                                |  | $                    | 45,152,003 |                      | $ | 7,673,806             |  | $ | (204,596            | ) |  | $ | 52,621,213
|                                                 |  |                      |            |                      |   |                       |  |   |                     |   |  |   |           



|                                                 |  |                        |            |                        |   |                         |  |   |                      |   |  |   |           
|------------------------------------------------ |  | ---------------------- | ---------- | ---------------------- | - | ----------------------- |  | - | -------------------- | - |  | - | ----------
|                                                 |  | Cost or Amortized Cost |            | Gross Unrealized Gains |   | Gross Unrealized Losses |  |   | Estimated Fair Value
|December 31, 2005                                |  |                        |            |                        |   |                         |  |   |                      |   |  |   |           
|Fixed maturity investments:                      |  |                        |            |                        |   |                         |  |   |                      |   |  |   |           
|Obligations of states and political subdivisions |  | $                      | 5,037,282  |                        | $ | 13,244                  |  | $ | (102,246             | ) |  | $ | 4,948,280 
|Corporate debt securities                        |  |                        | 2,061,032  |                        |   |                        |  |   | (23,868              | ) |  |   | 2,037,164 
|Mortgage-backed securities                       |  |                        | 17,473,128 |                        |   | 51,056                  |  |   | (275,412             | ) |  |   | 17,248,772
|                                                 |  |                        |            |                        |   |                         |  |   |                      |   |  |   |           
|Total fixed maturity investments                 |  |                        | 24,571,442 |                        |   | 64,300                  |  |   | (401,526             | ) |  |   | 24,234,216
|                                                 |  |                        |            |                        |   |                         |  |   |                      |   |  |   |           
|Equity securities                                |  |                        | 15,258,197 |                        |   | 5,669,003               |  |   | (113,074             | ) |  |   | 20,814,126
|Hedge fund                                       |  |                        | 1,000,000  |                        |   | 203,679                 |  |   |                     |   |  |   | 1,203,679 
|                                                 |  |                        |            |                        |   |                         |  |   |                      |   |  |   |           
|Total equity securities                          |  |                        | 16,258,197 |                        |   | 5,872,682               |  |   | (113,074             | ) |  |   | 22,017,805
|                                                 |  |                        |            |                        |   |                         |  |   |                      |   |  |   |           
|Total investments                                |  | $                      | 40,829,639 |                        | $ | 5,936,982               |  | $ | (514,600             | ) |  | $ | 46,252,021
|                                                 |  |                        |            |                        |   |                         |  |   |                      |   |  |   |           



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AMERINST INSURANCE GROUP, LTD.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The gross unrealized loss on investments at December 31, 2006 and 2005 are categorized as
follows:



|                                                 |  |                      |            |                  |                     |          |                     |       |                  |           |  |                     |         |                  |  |   |            |  |   |          |  
|------------------------------------------------ |  | -------------------- | ---------- | ---------------- | ------------------- | -------- | ------------------- | ----- | ---------------- | --------- |  | ------------------- | ------- | ---------------- |  | - | ---------- |  | - | -------- | -
|                                                 |  | 12 months or greater |            |                  | Less than 12 months |          |                     | Total |                 
|                                                 |  | EstimatedFair Value  |            | UnrealizedLosses |                     |          | EstimatedFair Value |       | UnrealizedLosses |           |  | EstimatedFair Value |         | UnrealizedLosses | 
|December 31, 2006                                |  |                      |            |                  |                     |          |                     |       |                  |           |  |                     |         |                  |  |   |            |  |   |          |  
|Fixed maturity investments:                      |  |                      |            |                  |                     |          |                     |       |                  |           |  |                     |         |                  |  |   |            |  |   |          |  
|Obligations of states and political subdivisions |  | $                    | 6,559,302  |                  | $                   | (91,893  | )                   |       | $                | 2,354,271 |  | $                   | (6,387  | )                |  | $ | 8,913,573  |  | $ | (98,280  | )
|Corporate debt securities                        |  |                      | 499,991    |                  |                     | (2,028   | )                   |       |                  |          |  |                     |        |                  |  |   | 499,991    |  |   | (2,028   | )
|Mortgage-backed securities                       |  |                      | 5,024,060  |                  |                     | (84,260  | )                   |       |                  | 1,652,523 |  |                     | (599    | )                |  |   | 6,676,583  |  |   | (84,859  | )
|                                                 |  |                      |            |                  |                     |          |                     |       |                  |           |  |                     |         |                  |  |   |            |  |   |          |  
|Total fixed maturity investments                 |  |                      | 12,083,353 |                  |                     | (178,181 | )                   |       |                  | 4,006,794 |  |                     | (6,986  | )                |  |   | 16,090,147 |  |   | (185,167 | )
|                                                 |  |                      |            |                  |                     |          |                     |       |                  |           |  |                     |         |                  |  |   |            |  |   |          |  
|Equity securities                                |  |                      |           |                  |                     |         |                     |       |                  | 564,043   |  |                     | (19,429 | )                |  |   | 564,043    |  |   | (19,429  | )
|Hedge fund                                       |  |                      |           |                  |                     |         |                     |       |                  |          |  |                     |        |                  |  |   |           |  |   |         |  
|                                                 |  |                      |            |                  |                     |          |                     |       |                  |           |  |                     |         |                  |  |   |            |  |   |          |  
|Total equity securities                          |  |                      |           |                  |                     |         |                     |       |                  | 564,043   |  |                     | (19,429 | )                |  |   | 564,043    |  |   | (19,429  | )
|                                                 |  |                      |            |                  |                     |          |                     |       |                  |           |  |                     |         |                  |  |   |            |  |   |          |  
|Total investments                                |  | $                    | 12,083,353 |                  | $                   | (178,181 | )                   |       | $                | 4,570,837 |  | $                   | (26,415 | )                |  | $ | 16,654,190 |  | $ | (204,596 | )
|                                                 |  |                      |            |                  |                     |          |                     |       |                  |           |  |                     |         |                  |  |   |            |  |   |          |  



As of
December 31, 2006, there were approximately 31 securities in an unrealized loss position with an estimated fair value of $16,654,190. Of these securities, there are 19 securities that have been in an unrealized loss position for 12 months or
greater with an estimated fair value of $12,083,353. As of December 31, 2006, none of these securities were considered to be other than temporarily impaired. The unrealized losses from these securities were not a result of credit, collateral or
structural issues.



|                                                 |  |                      |           |                  |                     |          |                     |       |                  |            |  |                     |          |                  |  |   |            |  |   |          |  
|------------------------------------------------ |  | -------------------- | --------- | ---------------- | ------------------- | -------- | ------------------- | ----- | ---------------- | ---------- |  | ------------------- | -------- | ---------------- |  | - | ---------- |  | - | -------- | -
|                                                 |  | 12 months or greater |           |                  | Less than 12 months |          |                     | Total |                 
|                                                 |  | EstimatedFair Value  |           | UnrealizedLosses |                     |          | EstimatedFair Value |       | UnrealizedLosses |            |  | EstimatedFair Value |          | UnrealizedLosses | 
|December 31, 2005                                |  |                      |           |                  |                     |          |                     |       |                  |            |  |                     |          |                  |  |   |            |  |   |          |  
|Fixed maturity investments:                      |  |                      |           |                  |                     |          |                     |       |                  |            |  |                     |          |                  |  |   |            |  |   |          |  
|Obligations of states and political subdivisions |  | $                    | 498,614   |                  | $                   | (1,387   | )                   |       | $                | 3,535,284  |  | $                   | (100,859 | )                |  | $ | 4,033,898  |  | $ | (102,246 | )
|Corporate debt securities                        |  |                      | 1,036,931 |                  |                     | (23,868  | )                   |       |                  |           |  |                     |         |                  |  |   | 1,036,931  |  |   | (23,868  | )
|Mortgage-backed securities                       |  |                      | 7,643,387 |                  |                     | (153,474 | )                   |       |                  | 6,898,992  |  |                     | (121,938 | )                |  |   | 14,542,379 |  |   | (275,412 | )
|                                                 |  |                      |           |                  |                     |          |                     |       |                  |            |  |                     |          |                  |  |   |            |  |   |          |  
|Total fixed maturity investments                 |  |                      | 9,178,932 |                  |                     | (178,729 | )                   |       |                  | 10,434,276 |  |                     | (222,797 | )                |  |   | 19,613,208 |  |   | (401,526 | )
|                                                 |  |                      |           |                  |                     |          |                     |       |                  |            |  |                     |          |                  |  |   |            |  |   |          |  
|Equity securities                                |  |                      |          |                  |                     |         |                     |       |                  | 1,935,566  |  |                     | (113,074 | )                |  |   | 1,935,566  |  |   | (113,074 | )
|Hedge fund                                       |  |                      |          |                  |                     |         |                     |       |                  |           |  |                     |         |                  |  |   |           |  |   |         |  
|                                                 |  |                      |           |                  |                     |          |                     |       |                  |            |  |                     |          |                  |  |   |            |  |   |          |  
|Total equity securities                          |  |                      |          |                  |                     |         |                     |       |                  | 1,935,566  |  |                     | (113,074 | )                |  |   | 1,935,566  |  |   | (113,074 | )
|                                                 |  |                      |           |                  |                     |          |                     |       |                  |            |  |                     |          |                  |  |   |            |  |   |          |  
|Total investments                                |  | $                    | 9,178,932 |                  | $                   | (178,729 | )                   |       | $                | 12,369,842 |  | $                   | (335,871 | )                |  | $ | 21,548,774 |  | $ | (514,600 | )
|                                                 |  |                      |           |                  |                     |          |                     |       |                  |            |  |                     |          |                  |  |   |            |  |   |          |  



As of
December 31, 2005, there were approximately 37 securities in an unrealized loss position with an estimated fair value of $21,548,774. Of these securities, there are 11 securities that have been in an unrealized loss position for 12 months or
greater with an estimated fair value of $9,178,932. As of December 31, 2005, none of these securities were considered to be other than temporarily impaired. The unrealized losses from these securities were not a result of credit, collateral or
structural issues.



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AMERINST INSURANCE GROUP, LTD.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The cost or amortized cost and estimated fair value of fixed maturity investments at
December 31, 2006 by contractual maturity are shown below. Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations without penalties.



|                                       |  |                |            |                      |   |           
|-------------------------------------- |  | -------------- | ---------- | -------------------- | - | ----------
|                                       |  | Amortized Cost |            | Estimated Fair Value
|Due in one year or less                |  | $              | 4,979,402  |                      | $ | 4,961,827 
|Due after one year through five years  |  |                | 8,476,711  |                      |   | 8,461,725 
|Due after five years through ten years |  |                | 4,205,139  |                      |   | 4,228,943 
|Due after ten years                    |  |                | 0          |                      |   | 0         
|                                       |  |                |            |                      |   |           
|Subtotal                               |  |                | 17,661,252 |                      |   | 17,652,495
|Mortgage-backed securities             |  |                | 9,581,483  |                      |   | 9,520,293 
|                                       |  |                |            |                      |   |           
|Total                                  |  | $              | 27,242,735 |                      | $ | 27,172,788
|                                       |  |                |            |                      |   |           



Information on sales
and maturities of investments are as follows:



|                                                             |  |      |            |   |      |   |            |      |  |   |            |  
|------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                             |  | 2006 |            |   | 2005 |   |            | 2004 | 
|Total proceeds on sales of securities                        |  | $    | 21,461,979 |   |      | $ | 31,436,322 |      |  | $ | 27,638,535 |  
|Total proceeds from maturities of fixed maturity investments |  |      | 5,260,000  |   |      |   | 5,676,000  |      |  |   | 9,930,000  |  
|Gross gains                                                  |  |      | 1,411,563  |   |      |   | 2,118,709  |      |  |   | 1,030,563  |  
|Gross losses                                                 |  |      | (291,300   | ) |      |   | (772,848   | )    |  |   | (298,072   | )



Major categories of
net interest and dividend income, and net realized gains (losses) on sales of investments are summarized as follows:



|                                                     |  |      |           |   |      |   |           |      |  |   |           |  
|---------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                     |  | 2006 |           |   | 2005 |   |           | 2004 | 
|Interest earned:                                     |  |      |           |   |      |   |           |      |  |   |           |  
|Fixed maturity investments                           |  | $    | 1,008,181 |   |      | $ | 891,317   |      |  | $ | 1,028,487 |  
|Short term investments and cash and cash equivalents |  |      | 198,326   |   |      |   | 95,745    |      |  |   | 110,733   |  
|Dividends earned                                     |  |      | 377,959   |   |      |   | 337,626   |      |  |   | 298,644   |  
|Investment expenses                                  |  |      | (218,507  | ) |      |   | (208,334  | )    |  |   | (210,254  | )
|                                                     |  |      |           |   |      |   |           |      |  |   |           |  
|Net investment income                                |  | $    | 1,365,959 |   |      | $ | 1,116,354 |      |  | $ | 1,227,610 |  
|                                                     |  |      |           |   |      |   |           |      |  |   |           |  



5. LIABILITY FOR UNPAID LOSSES AND
LOSS ADJUSTMENT EXPENSES



Details of the liability for
unpaid losses and loss adjustment expenses and related reinsurance recoveries receivable at December 31, 2006 and 2005 are as follows:



|                          |  |      |            |      |   |           
|------------------------- |  | ---- | ---------- | ---- | - | ----------
|                          |  | 2006 |            | 2005
|Case basis estimates      |  | $    | 5,765,798  |      | $ | 5,201,890 
|Incurred But Not Reported |  |      | 22,395,571 |      |   | 23,682,731
|                          |  |      |            |      |   |           
|Totals                    |  | $    | 28,161,369 |      | $ | 28,884,621
|                          |  |      |            |      |   |           



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AMERINST INSURANCE GROUP, LTD.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Liability for losses and loss adjustment expense activity is as follows:



|                            |  |      |            |   |      |   |            |      |  |   |            |  
|--------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                            |  | 2006 |            |   | 2005 |   |            | 2004 | 
|Liabilitybeginning of year |  | $    | 28,884,621 |   |      | $ | 29,701,842 |      |  | $ | 28,726,634 |  
|                            |  |      |            |   |      |   |            |      |  |   |            |  
|Incurred related to:        |  |      |            |   |      |   |            |      |  |   |            |  
|Current year                |  |      | 6,360,294  |   |      |   | 6,380,953  |      |  |   | 7,598,446  |  
|Prior years                 |  |      | (3,072,636 | ) |      |   | (2,275,832 | )    |  |   | (2,494,106 | )
|                            |  |      |            |   |      |   |            |      |  |   |            |  
|Total incurred              |  |      | 3,287,658  |   |      |   | 4,105,121  |      |  |   | 5,104,340  |  
|                            |  |      |            |   |      |   |            |      |  |   |            |  
|Paid related to:            |  |      |            |   |      |   |            |      |  |   |            |  
|Current year                |  |      | (73,768    | ) |      |   | (787,471   | )    |  |   | (154,413   | )
|Prior years                 |  |      | (3,937,142 | ) |      |   | (4,134,871 | )    |  |   | (3,974,719 | )
|                            |  |      |            |   |      |   |            |      |  |   |            |  
|Total paid                  |  |      | (4,010,910 | ) |      |   | (4,922,342 | )    |  |   | (4,129,132 | )
|                            |  |      |            |   |      |   |            |      |  |   |            |  
|Liabilityend of year       |  | $    | 28,161,369 |   |      | $ | 28,884,621 |      |  | $ | 29,701,842 |  
|                            |  |      |            |   |      |   |            |      |  |   |            |  



As a result of the
change in estimates of insured events in prior years, the provision for losses and loss expenses decreased by $3,072,636, $2,275,832 and $2,494,106 in 2006, 2005 and 2004, respectively. The 2006 decrease related mainly to positive loss development
in the policy years 1994 to 2001. The 2005 decrease related mainly to positive loss development in the policy years 1993 to 2000. The 2004 decrease related mainly to positive loss development in the fiscal years 1995 to 2002.



6. STOCKHOLDERS EQUITY



Share Dividend



On March 2, 2006, the board of directors of AMIG approved a share dividend of two shares of common stock for every
share held by shareholders of record on April 2, 2006, subject to shareholder approval of an increase in the number of our authorized shares. Such approval was received at the AMIG 2006 Annual General Meeting on June 1, 2006, which
increased the authorized share capital of the Company from $500,000 to $2,000,000. The total issued shares were 331,751 prior to the share dividend and 995,253 afterwards.



Rights Offering



AMIG filed a registration statement on Form S-3 with the Securities and Exchange Commission on June 15, 2006 to register a rights offering to
existing shareholders. The registration statement was amended on July 20, 2006 and declared effective July 24, 2006. Each shareholder received a right to purchase one common share for each share currently owned, at a price of $23.33 per
share (after giving effect to the share dividend). A total of 97,927 rights were exercised under the rights offering, and 97,927 shares were subsequently sold by Investco for a total purchase price of $2,284,637, before rights offering costs of
$277,057. AmerInst recognized the excess in proceeds over the cost of these shares as an increase in additional paid-in capital of $148,925.



Of the shares sold in the rights offering, 21,461 shares were purchased by AMIG directors for a total purchase price of $500,685.



7. PREMIUMS WRITTEN



Premiums written were $8,680,603, $9,027,666, and $8,885,926 during 2006, 2005 and 2004, respectively.



37



---

##### Table of Contents

AMERINST INSURANCE GROUP, LTD.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



8. OPERATING, MANAGEMENT EXPENSES AND TAXATION



AMIG Ltd., AMIC Ltd., Mezco and Investco have no employees. Their operating activities, as well as certain management
functions, are performed by contracted professional service providers. USA Risk Group (Bermuda) Ltd. provides AMIG Ltd. and AMIC Ltd. certain management, administrative and operations services under the direction of AMIG Ltd.s Board of
Directors pursuant to an agreement. The agreement may be terminated by either party upon not more than 90 days nor less than 60 days prior written notice. Mr. Grayston, a director and President of the Company, and Mr. Nicol, a director,
Vice President and Treasurer of the Company, are the President and Senior Account Manager and Vice President, respectively, of USA Risk Group (Bermuda) Ltd. The company paid $255,000 in fees pursuant to this agreement during 2006. Operating and
management expenses include compensation paid to members of the Board of Directors and various committees of the Board totaling $424,258 in 2006, $360,435 in 2005 and $312,848 in 2004.



Under current Bermuda law, the Company and its subsidiaries are not required to pay taxes in Bermuda on either income or
capital gains. The Company has received an undertaking from the Bermuda government that, in the event of income or capital gains taxes being imposed, the Company will be exempted from such taxes until the year 2016.



9. DIVIDEND RESTRICTIONS AND STATUTORY REQUIREMENTS



Under the Bermuda Companies Act, AMIG Ltd. is prohibited from declaring or
paying a dividend at December 31, 2006 if such payment would reduce the realizable value of its assets to an amount less than the aggregate value of its liabilities, issued share capital, and share premium accounts. In addition, it must be able
to pay its liabilities as they come due after the payment of a dividend. As at December 31, 2006, $18,197,878 was available to stockholders in accordance with these provisions.



AMIG Ltd.s ability to pay common shareholders dividends and its operating expenses is dependent on cash
dividends from AMIC Ltd. including its subsidiary, Investco (collectively the reinsurance subsidiaries). The payment of such dividends by the reinsurance subsidiaries to AMIG Ltd. is limited under Bermuda law by the Bermuda Insurance Act
1978 and related regulations, as amended, which require that AMIC Ltd. maintain minimum levels of solvency and liquidity. For the years ended December 31, 2006 and 2005 these requirements have been met. The minimum required statutory capital
and surplus was $4,224,205 and $4,332,693 and actual statutory capital and surplus was $23,118,869 and $18,960,063 at December 31, 2006 and 2005, respectively. The minimum required level of liquid assets was $33,233,869 and $33,393,992 and
actual liquid assets were $67,505,696 and $63,485,386 at December 31, 2006 and 2005, respectively. Statutory income for the years ended December 31, 2006 & 2005 was $2,382,272 and $1,994,906.



10. UNAUDITED CONDENSED QUARTERLY FINANCIAL DATA



|                                              |  |               |           |                |   |               |  |   |                |   |  |   |          
|--------------------------------------------- |  | ------------- | --------- | -------------- | - | ------------- |  | - | -------------- | - |  | - | ---------
|2006                                          |  | FIRST QUARTER |           | SECOND QUARTER |   | THIRD QUARTER |  |   | FOURTH QUARTER
|Net premiums earned                           |  | $             | 2,049,657 |                | $ | 2,205,374     |  | $ | 2,187,221      |   |  | $ | 2,186,282
|Net investment income                         |  |               | 296,789   |                |   | 352,236       |  |   | 334,998        |   |  |   | 381,936  
|Net realized gain (loss)                      |  |               | 419,736   |                |   | 545,466       |  |   | (127,357       | ) |  |   | 282,418  
|                                              |  |               |           |                |   |               |  |   |                |   |  |   |          
|Total revenues                                |  |               | 2,766,182 |                |   | 3,103,076     |  |   | 2,394,862      |   |  |   | 2,850,636
|                                              |  |               |           |                |   |               |  |   |                |   |  |   |          
|Net income (loss)                             |  | $             | 142,003   |                | $ | 249,984       |  | $ | (219,743       | ) |  | $ | 3,140,718
|Basic and diluted net income (loss) per share |  | $             | 0.21      |                | $ | 0.37          |  | $ | (0.32          | ) |  | $ | 4.50     



38



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##### Table of Contents

AMERINST INSURANCE GROUP, LTD.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                       |  |               |           |                |   |               |  |                |           |  |   |          
|-------------------------------------- |  | ------------- | --------- | -------------- | - | ------------- |  | -------------- | --------- |  | - | ---------
|2005                                   |  | FIRST QUARTER |           | SECOND QUARTER |   | THIRD QUARTER |  | FOURTH QUARTER
|Net premiums earned                    |  | $             | 2,164,916 |                | $ | 2,301,932     |  | $              | 2,226,448 |  | $ | 2,382,109
|Net investment income                  |  |               | 235,174   |                |   | 302,878       |  |                | 281,948   |  |   | 296,354  
|Net realized gain                      |  |               | 425,409   |                |   | 536,815       |  |                | 287,127   |  |   | 96,510   
|                                       |  |               |           |                |   |               |  |                |           |  |   |          
|Total revenues                         |  |               | 2,825,499 |                |   | 3,141,625     |  |                | 2,795,523 |  |   | 2,774,973
|                                       |  |               |           |                |   |               |  |                |           |  |   |          
|Net income                             |  | $             | 317,736   |                | $ | 285,592       |  | $              | 289,507   |  | $ | 2,202,286
|Basic and diluted net income per share |  | $             | 0.43      |                | $ | 0.41          |  | $              | 0.42      |  | $ | 3.04     



11. Segment Information



Effective in 2006 AmerInst has two operating segments: 1)
reinsurance activity and 2) the new insurance financing product (RINITS) which is in the initial marketing phase of development. The reinsurance segment had revenues of $11,114,756 (2006) $11,537,620 (2005) and $10,816,910 (2004). Total
losses and expenses for this segment were $7,247,220 (2006), $8,191,386 (2005) and $8,978,479 (2004), resulting in segment income of $3,867,536, $3,346,234 and $1,838,431 in each year. Net premium earned in the reinsurance segment from a single
insurance carrier was $8,412,855 for the year ended December 31, 2006.



The RINITS segment offers a mechanism to securitize insurance and reinsurance risk, involving property, casualty, life and health lines of insurance. This segment as of December 31, 2006 had no revenue. Operating and management
expenses spent in the development phase have been $554,574 (2006), $251,113 (2005) and $89,424 (2004).



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



There have been no changes in, or disagreements with, accountants on accounting and financial disclosure. Our retention of Deloitte & Touche has
been approved by our Audit Committee and our shareholders. There have been no disagreements with Deloitte & Touche with respect to any matter of accounting principles or practices, financial statement disclosure or auditing scope or
procedure.



Item 9A. Controls and Procedures



An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined
in Rule 13a-15(e) of the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.



No change in our internal control over financial reporting (as
defined in Rule 13a-15(f) of the Exchange Act) occurred during the quarter ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



Item 9B. Other Information



None



39



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##### Table of Contents

PART III



Item 10. Directors, Executive Officers and Corporate Governance



The information required by Item 10 of Form 10-K with respect to identification of directors and officers is incorporated by reference from the
information contained in the section captioned Election of Directors in the Companys definitive Proxy Statement for the Annual General Meeting of Shareholders to be held on May 31, 2007 (the Proxy Statement), a
copy of which we intend to file with the Securities and Exchange Commission within 120 days after the end of the year covered by this Annual Report on Form 10-K. The company has two executive officers, both of whom are directors of the Company.



Code of Ethics



We have a Code of Business Conduct and Ethics that applies to all directors,
officers and employees, including our principal executive officer, our principal financial officer and our principal accounting officer. You can find our Code of Business Conduct and Ethics on our internet site, www.amerinst.bm. We will post
any amendments to the Code of Business Conduct and Ethics and any waivers that are required to be disclosed by the rules of the Securities Exchange Commission on our internet site.



Section 16 Compliance



Information appearing under the caption Other MattersSection 16(a) Beneficial Ownership Reporting Compliance in the Proxy Statement is
incorporated herein by reference.



Audit Committee



Information appearing under the captions Election of
DirectorsMeetings and Committees of the Board and Report of the Audit Committee in the Proxy Statement is incorporated herein by reference.



Item 11. Executive Compensation



The information required by Item 11 of the Form 10-K is incorporated by reference from the information contained in the section captioned Election of DirectorsExecutive and Director Compensation in the Proxy
Statement.



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



The information required by Item 12 of Form 10-K is incorporated by reference from the information contained in the
section captioned Other MattersSecurity Ownership of Certain Beneficial Owners and Management in the Proxy Statement.



Item 13. Certain Relationships and Related Transactions, and Director Independence



The information required by Item 13 of Form 10-K is incorporated by reference from the information contained in the sections captioned Other
MattersCertain Relationships and Related Transactions and Election of Directors in the Proxy Statement.



Item 14. Principal Accountant Fees and Services



The information required by Item 14 of Form 10-K is incorporated by reference from the information in the section captioned Appointment of Auditors in the Proxy Statement.



40



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##### Table of Contents

PART IV



Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

|   |      |  |                                                            
|-- | ---- |  | -----------------------------------------------------------
|   |     
|(a | )(1) |  | See Index to Financial Statements and Schedules on page 25.
|   |     
|(a | )(2) |  | See Index to Financial Statements and Schedules on page 25.
|   |     
|(a | )(3) |  | See Index to Exhibits set forth on pages 43  44.          
|   |     
|(b | )    |  | See Index to Exhibits.                                     
|   |     
|(c | )    |  | See Index to Financial Statements and Schedules on page 25.



INVESTMENTSSCHEDULE I



AmerInst Insurance Group, Ltd.



Consolidated
Summary of Investments

as of December 31, 2006



|                                                      |  |          |            |              |   |                                            |  |   |           
|----------------------------------------------------- |  | -------- | ---------- | ------------ | - | ------------------------------------------ |  | - | ----------
|Type of investment                                    |  | Cost (1) |            | Market Value |   | Amount at which shown on the Balance
Sheet
|Fixed maturity investments:                           |  |          |            |              |   |                                            |  |   |           
|Bonds:                                                |  |          |            |              |   |                                            |  |   |           
|United States government and agencies and authorities |  | $        | 20,521,571 |              | $ | 20,451,278                                 |  | $ | 20,451,278
|States, municipalities and political subdivisions     |  |          | 5,219,073  |              |   | 5,221,447                                  |  |   | 5,221,447 
|All other corporate bonds                             |  |          | 1,502,091  |              |   | 1,500,063                                  |  |   | 1,502,091 
|                                                      |  |          |            |              |   |                                            |  |   |           
|Total fixed maturities                                |  |          | 27,242,735 |              |   | 27,172,788                                 |  |   | 27,172,788
|                                                      |  |          |            |              |   |                                            |  |   |           
|Equities:                                             |  |          |            |              |   |                                            |  |   |           
|Common stocks:                                        |  |          |            |              |   |                                            |  |   |           
|Bank, trust and insurance companies                   |  |          | 2,313,825  |              |   | 3,042,174                                  |  |   | 3,042,174 
|Hedge fund, industrial, miscellaneous and all other   |  |          | 15,595,443 |              |   | 22,406,251                                 |  |   | 22,406,251
|                                                      |  |          |            |              |   |                                            |  |   |           
|Total equity securities                               |  |          | 17,909,268 |              |   | 25,448,425                                 |  |   | 25,448,425
|                                                      |  |          |            |              |   |                                            |  |   |           
|Total investments                                     |  | $        | 45,152,003 |              | $ | 52,621,213                                 |  | $ | 52,621,213
|                                                      |  |          |            |              |   |                                            |  |   |           

---

|(1) | Original cost of equity securities and, as to fixed maturities, original cost reduced by repayments and adjusted for amortization of premiums or accrual of discounts.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------





41



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of
Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                     |  |                                |  |                                                          
|-------------------- |  | ------------------------------ |  | ---------------------------------------------------------
|Dated: April 2, 2007 |  | AMERINST INSURANCE GROUP, LTD.
|                     |  |                               
|                     |  | By:                            |  | /s/    STUART H.
GRAYSTON                                
|                     |  |                                |  | Stuart H. Grayston, President and chief executive officer



Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and as of the dates indicated.



|                                               |  |                                                                                     |  |              
|---------------------------------------------- |  | ----------------------------------------------------------------------------------- |  | -------------
|Signature                                      |  | Title                                                                               |  | Date         
|                                               |  |                                                                                    
|/s/    STUART H.
GRAYSTON Stuart H. Grayston   |  | President and Director (Principal Executive Officer)                                |  | April 2, 2007
|                                               |  |                                                                                    
|/s/    MURRAY
NICOL Murray Nicol               |  | Vice-President, Treasurer and Director (Principal Financial and Accounting Officer) |  | April 2, 2007
|                                               |  |                                                                                    
|/s/    RONALD S.
KATCH Ronald S. Katch         |  | Director and Chairman of the Board                                                  |  | April 2, 2007
|                                               |  |                                                                                    
|/s/    JEROME A.
HARRIS Jerome A. Harris       |  | Director and Vice-Chairman of the Board                                             |  | April 2, 2007
|                                               |  |                                                                                    
|/s/    DAVID N.
THOMPSON David N. Thompson     |  | Director                                                                            |  | April 2, 2007
|                                               |  |                                                                                    
|/s/    JOHN T.
SCHIFFMAN John T. Schiffman     |  | Director                                                                            |  | April 2, 2007
|                                               |  |                                                                                    
|/s/    IRVIN F.
DIAMOND Irvin F. Diamond       |  | Director                                                                            |  | April 2, 2007
|                                               |  |                                                                                    
|/s/    JEFFRY I.
GILLMAN Jeffry I. Gillman     |  | Director                                                                            |  | April 2, 2007
|                                               |  |                                                                                    
|/s/    JERRELL A.
ATKINSON Jerrell A. Atkinson |  | Director                                                                            |  | April 2, 2007



42



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##### Table of Contents

INDEX TO EXHIBITS



Year ended December 31, 2006



|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|3(i)           |  | Memorandum of Association of AmerInst Insurance Group Ltd. (AmerInst or the Company) (1)                                                                                                                                                                                                                                                                                                                                                                                                       
|               | 
|3(ii)          |  | Bye-laws of the Company (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|               | 
|4.1            |  | Section 47 of the Companys Bye-lawsincluded in Exhibit 3(ii) above                                                                                                                                                                                                                                                                                                                                                                                                                               
|               | 
|4.2            |  | Statement of Share Ownership Policy, as Amended (9)                                                                                                                                                                                                                                                                                                                                                                                                                                                
|               | 
|10.1           |  | Reinsurance Treaty between AmerInst Insurance Company, Inc. (AIIC) and Virginia Surety Company, Inc. (2)                                                                                                                                                                                                                                                                                                                                                                                         
|               | 
|10.2           |  | Agreement between Country Club Bank and AIIC (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|               | 
|10.3           |  | Agreement between Country Club Bank and AmerInst Insurance Group, Inc. (AMIG) (2)                                                                                                                                                                                                                                                                                                                                                                                                                
|               | 
|10.4           |  | Reinsurance Treaty between AIIC and CNA Insurance Companies (3), 1994 placement slip (4), 1995 placement slip (5), 1996 placement slip (6), 1997 placement slip (8), 1998 placement slip (10),
and Endorsement No. 1 to the Treaty effective July 1, 1999 (11)                                                                                                                                                                                                                                     
|               | 
|10.5           |  | Revised Management Agreement between Vermont Insurance Management, Inc. and AIIC dated May 1, 1997(7), Addenda to Management Agreement dated July 1, 1997 (8), Addenda to Management Agreement
dated July 1, 1998 (10), Management Agreement between USA Offshore Management, Ltd. and AmerInst Insurance Company Ltd. (AMIC Ltd.) dated as of December 2, 1999 (12), and Addenda to Agreement between AmerInst Insurance Company Ltd. and
USA Offshore Management, Ltd. dated June 2, 2000 (12).
|               | 
|10.6           |  | Escrow Agreement among AIIC, United States Fire Insurance Company and Harris Trust and Savings Bank dated March 7, 1995 (5)                                                                                                                                                                                                                                                                                                                                                                        
|               | 
|10.7           |  | Security Trust Agreement among AIIC, Harris Trust and Savings Bank and Virginia Surety Company, Inc. dated March 9, 1995 (5) and Agreement of Resignation, Appointment and Acceptance by and
among AMIC Ltd., Harris Trust and Savings Bank and The Bank of New York dated as of May 8, 2000 (13)                                                                                                                                                                                                  
|               | 
|10.8           |  | Investment Advisory Agreement For Discretionary Accounts between Amerinst Insurance Company and Harris Associates L.P. dated as of January 22, 1996, as amended by the Amendment to Investment
Advisory Agreement for Discretionary Accounts dated as of April 2, 1996 (1)                                                                                                                                                                                                                         
|               | 
|10.9           |  | Exchange Agreement between the Company and AMIG, dated as of January 20, 1999 (1)                                                                                                                                                                                                                                                                                                                                                                                                                  
|               | 
|10.10          |  | Reinsurance Treaty between AMIC Ltd. and CNA Insurance Companies, effective December 1, 1999 (11)                                                                                                                                                                                                                                                                                                                                                                                                  
|               | 
|10.11          |  | Value Plan Reinsurance Treaty between AMIC Ltd. and CNA Insurance Companies, effective December 1, 1999 (11)                                                                                                                                                                                                                                                                                                                                                                                       
|               | 
|10.12          |  | Trust Agreement among AMIC Ltd., Continental Casualty Company and Chase Manhattan Bank dated as of December 21, 2000 (12)                                                                                                                                                                                                                                                                                                                                                                          
|               | 
|10.13          |  | Investment Counsel Agreement between AMIC Ltd. and Northwest Investment Management, Inc. dated August 1, 2000 (13)                                                                                                                                                                                                                                                                                                                                                                                 
|               | 
|10.14          |  | Registrar and Transfer Agent Agreement between the Company and Butterfield Corporate Services Limited dated as of January 1, 2001 (14)                                                                                                                                                                                                                                                                                                                                                             



43



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##### Table of Contents

|               |  |                                                                                                                                          
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                              
|10.15          |  | Reinsurance Treaty between AMIC Ltd. and CNA Insurance Companies, effective January 1, 2002 (15)                                         
|               | 
|10.17          |  | Reinsurance Placement Slip between AMIC Ltd. and Professional Direct Insurance Company (PDIC) effective January 1, 2003 (16)             
|               | 
|10.18          |  | Director Compensation Summary                                                                                                            
|               | 
|10.19          |  | Addenda to Agreement between AMIC Ltd. and USA Offshore Management, Ltd dated January 1, 2002.                                           
|               | 
|10.20          |  | Addenda to Agreement between AMIC Ltd. and USA Offshore Management, Ltd dated January 1, 2005.                                           
|               | 
|21             |  | Subsidiaries of the Registrant                                                                                                           
|               | 
|31.1           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                 
|               | 
|31.2           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                 
|               | 
|32.1           |  | Certification of Stuart Grayston pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|               | 
|32.2           |  | Certification of Murray Nicol pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   

---

|(1) | Filed with the Companys Registration Statement on Form S-4, Registration No. 333-64929 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------

|(2) | Filed with AMIGs Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(3) | Filed with AMIGs Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(4) | Filed with AMIGs Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(5) | Filed with AMIGs Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(6) | Filed with AMIGs Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(7) | Filed with AMIGs Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference.
|--- | -------------------------------------------------------------------------------------------------------------------------

|(8) | Filed with AMIGs Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(9) | Filed with AMIGs Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(10) | Filed with AMIGs Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 and incorporated herein by reference.
|---- | ------------------------------------------------------------------------------------------------------------------------------

|(11) | Filed with the Companys Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference.
|---- | -------------------------------------------------------------------------------------------------------------------------------

|(12) | Filed with the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference.
|---- | --------------------------------------------------------------------------------------------------------------------------------

|(13) | Filed with the Companys Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference.
|---- | ------------------------------------------------------------------------------------------------------------------------------

|(14) | Filed with the Companys Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference.
|---- | ------------------------------------------------------------------------------------------------------------------------------

|(15) | Filed with the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 and incorporated herein by reference.
|---- | ---------------------------------------------------------------------------------------------------------------------------------

|(16) | Filed with the Companys Quarterly Report on Form 10-Q for the quarter ended March 31-, 2003 and incorporated herein by reference.
|---- | ----------------------------------------------------------------------------------------------------------------------------------



44