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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2007

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 1-6026



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The Midland Company

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Ohio                                                           |  | 31-0742526                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

7000 Midland Boulevard, Amelia, Ohio 45102-2607

(Address of principal executive offices) (Zip Code)

(513) 943-7100

(Registrants telephone number, including area code)

N/A

(Former name, former address
and former fiscal year, if changed since last report)



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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, and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈.

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  x    Non-accelerated filer ̈

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

The number of common shares outstanding as of August 3, 2007 was 19,357,102.



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PART I.

ITEM I. FINANCIAL INFORMATION

THE MIDLAND COMPANY

AND SUBSIDIARIES

CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited)

JUNE 30, 2007 AND DECEMBER 31, 2006

Amounts in 000s



|                                                                                 |  |              |           |                  |   |          
|-------------------------------------------------------------------------------- |  | ------------ | --------- | ---------------- | - | ---------
|                                                                                 |  | June 30,2007 |           | December 31,2006
|ASSETS                                                                           |  |              |           |                  |   |          
|MARKETABLE SECURITIES AVAILABLE FOR SALE:                                        |  |              |           |                  |   |          
|Fixed income (cost, $785,487 at June 30, 2007 and $792,998 at December 31, 2006) |  | $            | 780,388   |                  | $ | 801,682  
|Equity (cost, $149,036 at June 30, 2007 and $117,659 at December 31, 2006)       |  |              | 257,733   |                  |   | 229,695  
|                                                                                 |  |              |           |                  |   |          
|Total                                                                            |  |              | 1,038,121 |                  |   | 1,031,377
|                                                                                 |  |              |           |                  |   |          
|CASH                                                                             |  |              | 7,219     |                  |   | 5,059    
|ACCOUNTS RECEIVABLE - NET                                                        |  |              | 160,907   |                  |   | 148,204  
|REINSURANCE RECOVERABLES AND PREPAID REINSURANCE PREMIUMS                        |  |              | 130,991   |                  |   | 128,506  
|PROPERTY, PLANT AND EQUIPMENT - NET                                              |  |              | 132,808   |                  |   | 118,879  
|DEFERRED INSURANCE POLICY ACQUISITION COSTS                                      |  |              | 106,706   |                  |   | 99,277   
|OTHER ASSETS                                                                     |  |              | 36,263    |                  |   | 38,226   
|                                                                                 |  |              |           |                  |   |          
|TOTAL ASSETS                                                                     |  | $            | 1,613,015 |                  | $ | 1,569,528
|                                                                                 |  |              |           |                  |   |          

See notes to condensed consolidated financial statements.



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THE MIDLAND COMPANY

AND SUBSIDIARIES

CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited)

JUNE 30, 2007 AND DECEMBER 31, 2006

Amounts in 000s



|                                                                                                                                                                                           |  |               |           |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                           |  | June 30, 2007 |           |   | December 31,2006 |  
|LIABILITIES & SHAREHOLDERS EQUITY                                                                                                                                                         |  |               |           |   |                  |   |           |  
|UNEARNED INSURANCE PREMIUMS                                                                                                                                                                |  | $             | 472,623   |   |                  | $ | 445,324   |  
|INSURANCE LOSS RESERVES                                                                                                                                                                    |  |               | 223,652   |   |                  |   | 221,639   |  
|INSURANCE COMMISSIONS PAYABLE                                                                                                                                                              |  |               | 48,114    |   |                  |   | 46,593    |  
|FUNDS HELD UNDER REINSURANCE AGREEMENTS AND REINSURANCE PAYABLES                                                                                                                           |  |               | 16,975    |   |                  |   | 15,139    |  
|LONG-TERM DEBT                                                                                                                                                                             |  |               | 65,854    |   |                  |   | 66,508    |  
|NOTES PAYABLE                                                                                                                                                                              |  |               | 8,426     |   |                  |   | 17,937    |  
|DEFERRED FEDERAL INCOME TAX                                                                                                                                                                |  |               | 40,973    |   |                  |   | 47,197    |  
|OTHER PAYABLES AND ACCRUALS                                                                                                                                                                |  |               | 98,248    |   |                  |   | 110,445   |  
|JUNIOR SUBORDINATED DEBENTURES                                                                                                                                                             |  |               | 24,000    |   |                  |   | 24,000    |  
|                                                                                                                                                                                           |  |               |           |   |                  |   |           |  
|TOTAL LIABILITIES                                                                                                                                                                          |  |               | 998,865   |   |                  |   | 994,782   |  
|                                                                                                                                                                                           |  |               |           |   |                  |   |           |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                              |  |               |          |   |                  |   |          |  
|SHAREHOLDERS EQUITY:                                                                                                                                                                      |  |               |           |   |                  |   |           |  
|Common stock (issued and outstanding: 19,351 shares at June 30, 2007 and 19,224 shares at December 31, 2006 after deducting treasury
stock of 3,655 shares and 3,782 shares, respectively) |  |               | 959       |   |                  |   | 959       |  
|Additional paid-in capital                                                                                                                                                                 |  |               | 71,461    |   |                  |   | 65,669    |  
|Retained earnings                                                                                                                                                                          |  |               | 521,733   |   |                  |   | 477,145   |  
|Accumulated other comprehensive income                                                                                                                                                     |  |               | 61,217    |   |                  |   | 72,346    |  
|Treasury stock - at cost                                                                                                                                                                   |  |               | (41,220   | ) |                  |   | (41,373   | )
|                                                                                                                                                                                           |  |               |           |   |                  |   |           |  
|TOTAL SHAREHOLDERS EQUITY                                                                                                                                                                 |  |               | 614,150   |   |                  |   | 574,746   |  
|                                                                                                                                                                                           |  |               |           |   |                  |   |           |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                 |  | $             | 1,613,015 |   |                  | $ | 1,569,528 |  
|                                                                                                                                                                                           |  |               |           |   |                  |   |           |  

See notes to condensed consolidated financial statements.



2



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THE MIDLAND COMPANY

AND SUBSIDIARIES

CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2007 AND 2006

Amounts in 000s (except per share information)



|                                                  |  |                         |         |                           |   |         |  |      |         |  |   |        
|------------------------------------------------- |  | ----------------------- | ------- | ------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                                                  |  | Six-Mos. Ended June 30, |         | Three-Mos. Ended June 30,
|                                                  |  | 2007                    |         | 2006                      |   | 2007    |  | 2006
|REVENUES:                                         |  |                         |         |                           |   |         |  |      |         |  |   |        
|Premiums earned                                   |  | $                       | 368,525 |                           | $ | 321,500 |  | $    | 188,581 |  | $ | 162,273
|Other insurance income                            |  |                         | 6,695   |                           |   | 6,463   |  |      | 3,348   |  |   | 3,286  
|Net investment income                             |  |                         | 23,173  |                           |   | 20,504  |  |      | 11,747  |  |   | 10,224 
|Net realized investment gains                     |  |                         | 8,133   |                           |   | 4,398   |  |      | 5,643   |  |   | 1,931  
|Transportation                                    |  |                         | 29,163  |                           |   | 24,240  |  |      | 16,372  |  |   | 12,459 
|                                                  |  |                         |         |                           |   |         |  |      |         |  |   |        
|Total                                             |  |                         | 435,689 |                           |   | 377,105 |  |      | 225,691 |  |   | 190,173
|                                                  |  |                         |         |                           |   |         |  |      |         |  |   |        
|COSTS AND EXPENSES:                               |  |                         |         |                           |   |         |  |      |         |  |   |        
|Losses and loss adjustment expenses               |  |                         | 159,439 |                           |   | 152,839 |  |      | 85,503  |  |   | 91,941 
|Commissions and other policy acquisition costs    |  |                         | 120,584 |                           |   | 97,929  |  |      | 59,234  |  |   | 43,708 
|Operating and administrative expenses             |  |                         | 63,746  |                           |   | 58,313  |  |      | 32,945  |  |   | 29,464 
|Transportation operating expenses                 |  |                         | 20,092  |                           |   | 20,468  |  |      | 11,102  |  |   | 10,996 
|Interest expense                                  |  |                         | 2,111   |                           |   | 2,735   |  |      | 1,076   |  |   | 1,356  
|                                                  |  |                         |         |                           |   |         |  |      |         |  |   |        
|Total                                             |  |                         | 365,972 |                           |   | 332,284 |  |      | 189,860 |  |   | 177,465
|                                                  |  |                         |         |                           |   |         |  |      |         |  |   |        
|INCOME BEFORE FEDERAL INCOME TAX                  |  |                         | 69,717  |                           |   | 44,821  |  |      | 35,831  |  |   | 12,708 
|PROVISION FOR FEDERAL INCOME TAX                  |  |                         | 20,972  |                           |   | 12,581  |  |      | 10,847  |  |   | 2,903  
|                                                  |  |                         |         |                           |   |         |  |      |         |  |   |        
|NET INCOME                                        |  | $                       | 48,745  |                           | $ | 32,240  |  | $    | 24,984  |  | $ | 9,805  
|                                                  |  |                         |         |                           |   |         |  |      |         |  |   |        
|BASIC EARNINGS PER SHARE OF COMMON STOCK:         |  | $                       | 2.53    |                           | $ | 1.70    |  | $    | 1.29    |  | $ | 0.51   
|DILUTED EARNINGS PER SHARE OF COMMON STOCK:       |  | $                       | 2.45    |                           | $ | 1.65    |  | $    | 1.25    |  | $ | 0.50   
|CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK |  | $                       | 0.2000  |                           | $ | 0.1225  |  | $    | 0.1000  |  | $ | 0.06125

See notes to condensed consolidated financial statements.



3



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THE MIDLAND COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (Unaudited)

Amounts in
000s



|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------ |  | ----------- | --- | ------------------------ | - | ---------------- |  | - | ----------------------------------- | - |  | ------------- | ------- | - | ----- | - | ------- | ------------------- |  | - | ------- | - |  | - | ------- | -
|                                                                                                 |  | CommonStock |     | AdditionalPaid-InCapital |   | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome |   |  | TreasuryStock |         |   | Total |   |         | ComprehensiveIncome | 
|BALANCE, DECEMBER 31, 2005                                                                       |  | $           | 959 |                          | $ | 57,061           |  | $ | 411,210                             |   |  | $             | 57,863  |   |       | $ | (42,716 | )                   |  | $ | 484,377 |   |  |   |         |  
|Comprehensive income:                                                                            |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|Net income                                                                                       |  |             |     |                          |   |                  |  |   | 32,240                              |   |  |               |         |   |       |   |         |                     |  |   | 32,240  |   |  | $ | 32,240  |  
|Decrease in unrealized gain on marketable securities, net of related income tax effect of $4,810 |  |             |     |                          |   |                  |  |   |                                     |   |  |               | (8,935  | ) |       |   |         |                     |  |   | (8,935  | ) |  |   | (8,935  | )
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|Total comprehensive income                                                                       |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  | $ | 23,305  |  
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|Purchase of treasury stock                                                                       |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   | (1,492  | )                   |  |   | (1,492  | ) |  |   |         |  
|Issuance of treasury stock for options exercised and employee savings plan                       |  |             |     |                          |   | 2,944            |  |   |                                     |   |  |               |         |   |       |   | 1,806   |                     |  |   | 4,750   |   |  |   |         |  
|Cash dividends declared                                                                          |  |             |     |                          |   |                  |  |   | (2,335                              | ) |  |               |         |   |       |   |         |                     |  |   | (2,335  | ) |  |   |         |  
|Federal income tax benefit related to the exercise or granting of stock awards                   |  |             |     |                          |   | 361              |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   | 361     |   |  |   |         |  
|Stock option expense                                                                             |  |             |     |                          |   | 1,440            |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   | 1,440   |   |  |   |         |  
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|BALANCE, JUNE 30, 2006                                                                           |  | $           | 959 |                          | $ | 61,806           |  | $ | 441,115                             |   |  | $             | 48,928  |   |       | $ | (42,402 | )                   |  | $ | 510,406 |   |  |   |         |  
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|BALANCE, DECEMBER 31, 2006                                                                       |  | $           | 959 |                          | $ | 65,669           |  | $ | 477,145                             |   |  | $             | 72,346  |   |       | $ | (41,373 | )                   |  | $ | 574,746 |   |  |   |         |  
|Cumulative effect of FIN 48 adoption                                                             |  |             |     |                          |   |                  |  |   | (290                                | ) |  |               |         |   |       |   |         |                     |  |   | (290    | ) |  |   |         |  
|Comprehensive income:                                                                            |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|Net income                                                                                       |  |             |     |                          |   |                  |  |   | 48,745                              |   |  |               |         |   |       |   |         |                     |  |   | 48,745  |   |  | $ | 48,745  |  
|Decrease in unrealized gain on marketable securities, net of related income tax effect of $5,993 |  |             |     |                          |   |                  |  |   |                                     |   |  |               | (11,129 | ) |       |   |         |                     |  |   | (11,129 | ) |  |   | (11,129 | )
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|Total comprehensive income                                                                       |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  | $ | 37,616  |  
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|Purchase of treasury stock                                                                       |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   | (1,666  | )                   |  |   | (1,666  | ) |  |   |         |  
|Issuance of treasury stock for options exercised and employee savings plan                       |  |             |     |                          |   | 3,503            |  |   |                                     |   |  |               |         |   |       |   | 1,819   |                     |  |   | 5,322   |   |  |   |         |  
|Cash dividends declared                                                                          |  |             |     |                          |   |                  |  |   | (3,867                              | ) |  |               |         |   |       |   |         |                     |  |   | (3,867  | ) |  |   |         |  
|Federal income tax benefit related to the exercise or granting of stock awards                   |  |             |     |                          |   | 586              |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   | 586     |   |  |   |         |  
|Stock option expense                                                                             |  |             |     |                          |   | 1,703            |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   | 1,703   |   |  |   |         |  
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|BALANCE, JUNE 30, 2007                                                                           |  | $           | 959 |                          | $ | 71,461           |  | $ | 521,733                             |   |  | $             | 61,217  |   |       | $ | (41,220 | )                   |  | $ | 614,150 |   |  |   |         |  
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  

See notes to condensed consolidated financial statements.



4



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THE MIDLAND COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

FOR THE SIX-MONTHS ENDED JUNE 30, 2007 AND 2006

Amount in 000s



|                                                                                  |  |      |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                                                                  |  | 2007 |          |   | 2006 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |      |          |   |      |   |          |  
|Net income                                                                        |  | $    | 48,745   |   |      | $ | 32,240   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |          |   |      |   |          |  
|Depreciation and amortization                                                     |  |      | 4,390    |   |      |   | 5,005    |  
|Stock-based compensation                                                          |  |      | 3,067    |   |      |   | 2,340    |  
|Net realized investment gains                                                     |  |      | (6,859   | ) |      |   | (3,514   | )
|Changes in:                                                                       |  |      |          |   |      |   |          |  
|Unearned insurance premiums                                                       |  |      | 27,299   |   |      |   | 24,952   |  
|Deferred insurance policy acquisition costs                                       |  |      | (7,429   | ) |      |   | (4,397   | )
|Reinsurance recoverables and prepaid reinsurance premiums                         |  |      | (2.485   | ) |      |   | 16,143   |  
|Net accounts receivable                                                           |  |      | (12,703  | ) |      |   | (9,080   | )
|Insurance loss reserves                                                           |  |      | 2,013    |   |      |   | (34,598  | )
|Funds held under reinsurance agreements and reinsurance payables                  |  |      | 1,836    |   |      |   | 3,187    |  
|Other accounts payable and accruals                                               |  |      | (12,713  | ) |      |   | (1,685   | )
|Other assets                                                                      |  |      | 1,789    |   |      |   | (1,787   | )
|Insurance commissions payable                                                     |  |      | 1,521    |   |      |   | 944      |  
|Other-net                                                                         |  |      | 235      |   |      |   | 455      |  
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |      | 48,706   |   |      |   | 30,205   |  
|                                                                                  |  |      |          |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |      |          |   |      |   |          |  
|Purchase of marketable securities                                                 |  |      | (174,964 | ) |      |   | (208,360 | )
|Sale of marketable securities                                                     |  |      | 131,792  |   |      |   | 183,380  |  
|Decrease in cash equivalent marketable securities                                 |  |      | 8,853    |   |      |   | 10,504   |  
|Maturity of marketable securities                                                 |  |      | 16,596   |   |      |   | 12,810   |  
|Acquisition of property, plant and equipment                                      |  |      | (18,192  | ) |      |   | (13,758  | )
|Proceeds from sale of property, plant and equipment                               |  |      | 858      |   |      |   | 204      |  
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash used in investing activities                                             |  |      | (35,057  | ) |      |   | (15,220  | )
|                                                                                  |  |      |          |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |      |          |   |      |   |          |  
|Decrease in net short-term borrowings                                             |  |      | (9,511   | ) |      |   | (10,675  | )
|Issuance of treasury stock                                                        |  |      | 2,940    |   |      |   | 2,772    |  
|Dividends paid                                                                    |  |      | (3,107   | ) |      |   | (2,233   | )
|Purchase of treasury stock                                                        |  |      | (1,666   | ) |      |   | (1,492   | )
|Repayment of long-term debt                                                       |  |      | (654     | ) |      |   | (621     | )
|Excess tax benefits from exercise of stock options                                |  |      | 509      |   |      |   | 267      |  
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash used in financing activities                                             |  |      | (11,489  | ) |      |   | (11,982  | )
|                                                                                  |  |      |          |   |      |   |          |  
|NET INCREASE IN CASH                                                              |  |      | 2,160    |   |      |   | 3,003    |  
|CASH AT BEGINNING OF PERIOD                                                       |  |      | 5,059    |   |      |   | 3,368    |  
|                                                                                  |  |      |          |   |      |   |          |  
|CASH AT END OF PERIOD                                                             |  | $    | 7,219    |   |      | $ | 6,371    |  
|                                                                                  |  |      |          |   |      |   |          |  
|INTEREST PAID                                                                     |  | $    | 2,635    |   |      | $ | 3,049    |  
|INCOME TAXES PAID                                                                 |  | $    | 22,391   |   |      | $ | 18,050   |  

Treasury Stock issued under the Companys performance stock award plan amounted to $2,382 and $1,978 for 2007
and 2006 respectively.

See notes to the condensed consolidated financial statements.



5



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THE MIDLAND COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

JUNE 30, 2007

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of The Midland Company and subsidiaries (Midland) have been prepared in accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted
in the United States of America for complete annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Financial information
as of December 31, 2006 has been derived from the audited consolidated financial statements of the Company. Revenue and operating results for the six and three month periods ended June 30, 2007 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2007. For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended December 31, 2006 included in Midlands Annual Report
on Form 10-K.

2. EARNINGS PER SHARE

Earnings per
share (EPS) of common stock amounts are computed by dividing net income by the weighted average number of shares outstanding during the period for basic EPS, plus the dilutive share equivalents for stock options and performance based stock awards
for diluted EPS. Shares used for EPS calculations were as follows (000s):



|                            |  |               |  |                
|--------------------------- |  | ------------- |  | ---------------
|                            |  | For Basic EPS |  | For Diluted EPS
|Six months ended June 30:   |  |               |  |                
|2007                        |  | 19,297        |  | 19,903         
|                            |  |               |  |                
|2006                        |  | 19,020        |  | 19,557         
|                            |  |               |  |                
|Three months ended June 30: |  |               |  |                
|2007                        |  | 19,334        |  | 19,943         
|                            |  |               |  |                
|2006                        |  | 19,055        |  | 19,585         
|                            |  |               |  |                

3. INCOME TAXES

The federal income tax provisions for the six and three month periods ended June 30, 2007 and 2006 are different from amounts derived by applying the statutory tax rates to income before federal income tax as follows (000s):



|                                                   |  |                         |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------------- |  | ----------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                   |  | Six-Mos. Ended June 30, |        |   | Three-Mos. Ended June 30, |  
|                                                   |  | 2007                    |        |   | 2006                      |   |        | 2007 |  |   | 2006   |  
|Federal income tax at statutory rate               |  | $                       | 24,401 |   |                           | $ | 15,687 |      |  | $ | 12,541 |   |  | $ | 4,448  |  
|Tax effect of:                                     |  |                         |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Tax exempt interest and excludable dividend income |  |                         | (3,495 | ) |                           |   | (3,894 | )    |  |   | (1,725 | ) |  |   | (1,950 | )
|Other - net                                        |  |                         | 66     |   |                           |   | 788    |      |  |   | 31     |   |  |   | 405    |  
|                                                   |  |                         |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Provision for federal income tax                   |  | $                       | 20,972 |   |                           | $ | 12,581 |      |  | $ | 10,847 |   |  | $ | 2,903  |  
|                                                   |  |                         |        |   |                           |   |        |      |  |   |        |   |  |   |        |  



6



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The Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48), on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized approximately a $290,000 decrease in retained earnings as of January 1, 2007, for taxes, interest
and penalties. A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows: (000s)



|                                                             |  |   |    
|------------------------------------------------------------ |  | - | ---
|Balance at January 1, 2007                                   |  | $ | 331
|Additions based on tax positions related to the current year |  |   | 89 
|Additions for tax positions of prior years                   |  |   |   
|Reductions for tax positions of prior years                  |  |   |   
|Settlements                                                  |  |   |   
|                                                             |  |   |    
|Balance at June 30, 2007                                     |  | $ | 420
|                                                             |  |   |    

The FIN 48 liability is a component of other payables and accruals on the Balance Sheet. Of the total $420,000
liability, the entire balance would affect the effective tax rate if recognized.

The Company recognizes interest and penalties accrued related to
unrecognized tax benefits as a part of income tax expense. During the six and three month periods ended June 30, 2007, the Company recognized approximately $9,000, and $5,000, respectively, in interest and penalties, net of the federal tax
benefit. The Company had accrued approximately $779,000 and $770,000 for interest and penalties at June 30, 2007, and January 1, 2007, respectively.

The Company files income tax returns in the U.S. federal jurisdiction. Generally, the Company is no longer subject to U.S. federal, state and local, examinations by tax authorities for years before 2003. The Internal Revenue Service (IRS)
is currently performing an examination of the Companys U.S. income tax return for 2004 that is anticipated to be completed by the end of 2007. As of June 30, 2007, the IRS has not proposed any adjustments to the Companys tax
position. It is reasonably possible an increase or reduction in the unrecognized tax benefits may occur once settlement of issues has occurred. However, neither an estimated date for settlement or quantification of an estimated range in the change
of unrecognized tax benefits can be made at this time.

4. SEGMENT DISCLOSURES

Since the Companys annual report for 2006, there have been no changes in reportable segments or the manner in which Midland determines reportable segments or measures segment profit or loss. Summarized segment
information for the interim periods for 2007 and 2006 is as follows (000s):



|                          |  |                                |           |   |                                |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|------------------------- |  | ------------------------------ | --------- | - | ------------------------------ | - | ------------------- |  | - | ------------ | - |  | -------------------------- | --------- | ------------------- |  | - | ------- |  | - | ------ | -
|                          |  | Six Months Ended June 30, 2007 |           |   | Six Months Ended June 30, 2006 |  
|                          |  | Total Assets                   |           |   | Revenues-ExternalCustomers     |   | Pre-TaxIncome(Loss) |  |   | Total Assets |   |  | Revenues-ExternalCustomers |           | Pre-TaxIncome(Loss) | 
|Reportable Segments:      |  |                                |           |   |                                |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|Insurance:                |  |                                |           |   |                                |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|Residential property      |  |                                | n/a       |   |                                | $ | 194,203             |  | $ | 27,527       |   |  |                            | n/a       |                     |  | $ | 195,090 |  | $ | 13,304 |  
|Recreational casualty     |  |                                | n/a       |   |                                |   | 47,253              |  |   | 3,094        |   |  |                            | n/a       |                     |  |   | 49,224  |  |   | 7,860  |  
|Financial institutions    |  |                                | n/a       |   |                                |   | 87,274              |  |   | 9,870        |   |  |                            | n/a       |                     |  |   | 43,921  |  |   | 5,183  |  
|All other insurance       |  |                                | n/a       |   |                                |   | 46,490              |  |   | 15,502       |   |  |                            | n/a       |                     |  |   | 39,728  |  |   | 14,549 |  
|Unallocated insurance     |  | $                              | 1,460,013 |   |                                |   |                    |  |   | 7,886        |   |  | $                          | 1,313,849 |                     |  |   |        |  |   | 4,160  |  
|Transportation            |  |                                | 58,418    |   |                                |   | 29,163              |  |   | 9,063        |   |  |                            | 51,302    |                     |  |   | 24,240  |  |   | 3,648  |  
|Corporate and all other   |  |                                | 105,015   |   |                                |   |                    |  |   | (3,225       | ) |  |                            | 110,918   |                     |  |   |        |  |   | (3,883 | )
|Intersegment Eliminations |  |                                | (10,431   | ) |                                |   |                    |  |   |             |   |  |                            | (46,303   | )                   |  |   |        |  |   |       |  
|                          |  |                                |           |   |                                |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|Total                     |  | $                              | 1,613,015 |   |                                | $ | 404,383             |  | $ | 69,717       |   |  | $                          | 1,429,766 |                     |  | $ | 352,203 |  | $ | 44,821 |  
|                          |  |                                |           |   |                                |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  



7



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|                          |  |                                  |           |   |                                  |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|------------------------- |  | -------------------------------- | --------- | - | -------------------------------- | - | ------------------- |  | - | ------------ | - |  | -------------------------- | --------- | ------------------- |  | - | ------- |  | - | ------ | -
|                          |  | Three Months Ended June 30, 2007 |           |   | Three Months Ended June 30, 2006 |  
|                          |  | Total Assets                     |           |   | Revenues-ExternalCustomers       |   | Pre-TaxIncome(Loss) |  |   | Total Assets |   |  | Revenues-ExternalCustomers |           | Pre-TaxIncome(Loss) | 
|Reportable Segments:      |  |                                  |           |   |                                  |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|Insurance:                |  |                                  |           |   |                                  |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|Residential property      |  |                                  | n/a       |   |                                  | $ | 97,909              |  | $ | 14,415       |   |  |                            | n/a       |                     |  | $ | 98,791  |  | $ | (1,129 | )
|Recreational casualty     |  |                                  | n/a       |   |                                  |   | 23,913              |  |   | (1,048       | ) |  |                            | n/a       |                     |  |   | 24,544  |  |   | 1,392  |  
|Financial institutions    |  |                                  | n/a       |   |                                  |   | 46,306              |  |   | 4,820        |   |  |                            | n/a       |                     |  |   | 21,938  |  |   | 4,002  |  
|All other insurance       |  |                                  | n/a       |   |                                  |   | 23,801              |  |   | 8,344        |   |  |                            | n/a       |                     |  |   | 20,286  |  |   | 7,565  |  
|Unallocated insurance     |  | $                                | 1,460,013 |   |                                  |   |                    |  |   | 5,559        |   |  | $                          | 1,313,849 |                     |  |   |        |  |   | 1,811  |  
|Transportation            |  |                                  | 58,418    |   |                                  |   | 16,372              |  |   | 5,312        |   |  |                            | 51,302    |                     |  |   | 12,459  |  |   | 1,387  |  
|Corporate and all other   |  |                                  | 105,015   |   |                                  |   |                    |  |   | (1,571       | ) |  |                            | 110,918   |                     |  |   |        |  |   | (2,320 | )
|Intersegment Eliminations |  |                                  | (10,431   | ) |                                  |   |                    |  |   |             |   |  |                            | (46,303   | )                   |  |   |        |  |   |       |  
|                          |  |                                  |           |   |                                  |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|Total                     |  | $                                | 1,613,015 |   |                                  | $ | 208,301             |  | $ | 35,831       |   |  | $                          | 1,429,766 |                     |  | $ | 178,018 |  | $ | 12,708 |  
|                          |  |                                  |           |   |                                  |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  

The amounts shown for residential property, recreational casualty, financial institutions, all other insurance and
unallocated insurance comprise the consolidated amounts for Midlands insurance operations subsidiary, American Modern Insurance Group, Inc. Intersegment revenues were insignificant for the six and three month periods ended June 30, 2007
and 2006.

Revenues reported above, by definition, exclude investment income and realized gains. For pre-tax income reported above, insurance investment
income is allocated to the insurance segments while realized gains and losses are included in unallocated insurance. The Company allocates insurance investment income to the segments based primarily on written premium volume. The Company does not
allocate realized gains or losses to the segments as the Company evaluates the performance of the segments exclusive of the impact of realized gains or losses due to potential timing issues. Certain other amounts are also not allocated to segments
(n/a above) by the Company.

5. STOCK OPTIONS AND AWARD PLANS

The Company expenses stock options and awards in accordance with SFAS 123(R). The compensation cost for the awards has been based on the grant-date fair value of those awards. For the six and three month periods ended
June 30, 2007, the Company recognized $1,703,000 and $743,000, respectively, of expense related to stock options compared to $1,440,000 and $546,000 for the six and three month periods ended June 30, 2006, respectively.

The Company also has a performance stock award program. Under this program, shares vest after a three-year performance measurement period and will only be awarded if
pre-established performance levels have been achieved. The expected fair value of these awards is charged to compensation expense over the performance period. The Company recognized $1,364,000 and $774,000 of expense related to performance stock
awards for the six and three month periods ended June 30, 2007 compared to $900,000 and $450,000 for the six and three month periods ended June 30, 2006.

6. DERIVATIVE FINANCIAL INSTRUMENTS

At June 30, 2007 and 2006, Midlands investment portfolio included approximately $17.6
million and $24.5 million, respectively, of convertible securities, some of which contain embedded derivatives. The embedded conversion options are valued separately, and the change in the market value on the embedded options is reported in net
realized investment gains (losses). For the six and three month periods ended June 30, 2007, Midland recorded pre-tax realized gains on these securities of $920,000 and $1,266,000, respectively. For the six and three month periods ended
June 30, 2006, Midland recorded pre-tax realized gains on these securities of $884,000 and $392,000, respectively.



8



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7. DEFINED BENEFIT PENSION PLANS

Midland has a funded qualified defined benefit pension plan and an unfunded non-qualified defined benefit pension plan. The measurement date for Midlands defined benefit retirement plans is December 31. The
components of net periodic pension cost related to both plans for the six and three month periods ended June 30, 2007 and 2006 are (000s):



|                                   |  |                          |      |   |                            |   |      |      |  |   |      |   |  |   |      |  
|---------------------------------- |  | ------------------------ | ---- | - | -------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                   |  | Six Months EndedJune 30, |      |   | Three Months EndedJune 30, |  
|                                   |  | 2007                     |      |   | 2006                       |   |      | 2007 |  |   | 2006 |  
|Service cost                       |  | $                        | 475  |   |                            | $ | 454  |      |  | $ | 238  |   |  | $ | 227  |  
|Interest cost                      |  |                          | 973  |   |                            |   | 862  |      |  |   | 486  |   |  |   | 431  |  
|Expected return on assets          |  |                          | (886 | ) |                            |   | (810 | )    |  |   | (452 | ) |  |   | (405 | )
|Amortization of prior service cost |  |                          | 15   |   |                            |   | 16   |      |  |   | 7    |   |  |   | 8    |  
|Amortization of net loss           |  |                          | 245  |   |                            |   | 238  |      |  |   | 123  |   |  |   | 119  |  
|                                   |  |                          |      |   |                            |   |      |      |  |   |      |   |  |   |      |  
|Net periodic cost                  |  | $                        | 822  |   |                            | $ | 760  |      |  | $ | 402  |   |  | $ | 380  |  
|                                   |  |                          |      |   |                            |   |      |      |  |   |      |   |  |   |      |  

The Company has no required cash contribution for the 2007 or 2006 plan years. However, the Company contributed
$1.5 million to its qualified defined benefit pension plan in July 2007 for the 2006 plan year.

8. RELATED PARTY TRANSACTIONS

The Company has a commercial paper program under which qualified purchasers may invest in the short-term unsecured notes of Midland. Many of the investors in this program
are executive officers and directors of the Company. Total commercial paper debt outstanding at June 30, 2007 was $8.4 million, $7.4 million of which represented notes held either directly or indirectly by our executive officers and directors.
The effective annual yield paid to all participants in this program was 5.40% as of June 30, 2007, a rate that is considered to be competitive with the market rates offered for similar instruments.

9. NEW ACCOUNTING STANDARDS

In September 2006, the FASB issued
Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and
expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years. The Company is assessing the impact that SFAS
157 will have on its consolidated financial statements.

Also in September 2006, the FASB issued Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  an amendment of FASB Statement No. 87, 88, 106 and 132 (R) (SFAS 158). This Standard requires recognition of the funded status
of a benefit plan in the statement of financial position. The Standard also requires recognition in other comprehensive income certain gains and losses that arise during the period but are deferred under pension accounting rules, as well as modifies
the timing of reporting and adds certain disclosures. The recognition and disclosure elements of SFAS 158 were effective for fiscal years ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the
date of the employers fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The adoption of SFAS 158 resulted in a reduction of shareholders equity of $3.6 million, net of tax,
at December 31, 2006.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS 159). This Standard allows the valuation of certain financial assets and liabilities to be measured at fair value. SFAS 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007 and interim periods within those years. The Company is assessing the impact that SFAS 159 will have on its consolidated financial statements.

In May 2007, the FASB issued FASB Staff Position No. FIN 48-1, Definition of Settlementin FASB Interpretation No. 48. (FSP FIN 48-1) This FSP amends FASB Interpretation No. 48 to
provide guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The interpretation is effective upon initial adoption of FIN 48. As the Company
had applied Interpretation 48 in a manner consistent with the provisions of this FSP there was no impact of this new pronouncement on its consolidated financial statements.



9



---

---

ITEM 2. THE MIDLAND COMPANY AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain statements made in this report are forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These statements include, but are not limited to, certain discussions relating to future revenue, underwriting income, premium volume, investment income and other investment results, business strategies, profitability, liquidity, capital adequacy,
anticipated capital expenditures and business relationships, as well as any other statements concerning the year 2007 and beyond. In some cases you can identify forward-looking statements by such terms as may, will,
should, could, would, expect, plan, intend, anticipate, believe, estimate, project, predict, potential
and similar expressions or the negative versions of such expressions. These forward-looking statements reflect Midlands current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties
that may cause results to differ materially from those anticipated in those statements. Many of the factors that will determine future events or achievements are beyond Midlands ability to control or predict. Factors that might cause results
to differ from those anticipated include, without limitation, adverse weather conditions, changes in underwriting results affected by adverse economic conditions, fluctuations in the investment markets, changes in the retail marketplace, changes in
the laws or regulations affecting the operations of the Company or its subsidiaries, changes in the business tactics or strategies of the Company, its subsidiaries or its current or anticipated business partners, the financial condition of the
Companys business partners, acquisitions or divestitures, changes in market forces, litigation and the other risk factors that have been identified in the Companys filings with the SEC, especially our Form 10-Ks Risk Factors
section, any one of which might materially affect the operations of the Company or its subsidiaries. We incorporate that section of that Form 10-K in this filing and investors should refer to it. You should understand that it is not possible to
predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties. Any forward-looking statements speak only as of the date made. We undertake no obligation to
update any forward-looking statements to reflect events or circumstances arising after the date on which they are made. Midland qualifies all of its forward-looking statements by these cautionary statements.

INTRODUCTION

The Midland Company (Midland or the
Company) is a highly focused provider of specialty insurance products and services through its American Modern Insurance Group (AMIG or American Modern) subsidiary, which contributes approximately 93% of the
Companys revenues. The Company also maintains an investment in a niche river transportation business, M/G Transport Services, Inc. The Company has divided its insurance products into four distinct groups: residential property, recreational
casualty, financial institutions, and all other insurance products. The discussions of Results of Operations and Liquidity, Capital Resources and Changes in Financial Condition address these four reportable insurance segments
and our transportation business. A summary description of the operations of each of these segments is included below.

Our residential property segment
includes primarily manufactured housing and site-built dwelling insurance products. Approximately 38% of American Moderns direct and assumed written premiums relate to physical damage insurance and related coverages on manufactured homes,
generally written for a term of 12 months with many coverages similar to homeowners insurance policies. Our recreational casualty segment includes specialty insurance products such as motorcycle, watercraft, recreational vehicle, collector car
and snowmobile. Our financial institutions segment includes specialty insurance products such as mortgage fire, collateral protection and debt cancellation, which are sold to financial service institutions or their customers. The all other insurance
segment includes products such as credit life, long-haul truck physical damage, commercial, excess and surplus lines and also includes the results of our fee producing subsidiaries.

Our specialty insurance operations are conducted through our wholly owned American Modern subsidiary which controls eight property and casualty insurance companies, seven credit life insurance companies, three
licensed insurance agencies and three service companies. American Modern is licensed, through its subsidiaries, to write insurance premiums in all 50 states and the District of Columbia.



10



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M/G Transport Services, Inc and MGT Services, Inc. (collectively M/G Transport) operates a fleet of dry cargo barges for
the movement of dry bulk commodities such as petroleum coke, ores, barite, sugar and other dry cargoes primarily on the lower Mississippi River and its tributaries and manages river transportation equipment owned by others on a fee based
arrangement.

EXECUTIVE OVERVIEW OF RECENT TRENDS AND OTHER DEVELOPMENTS

Diversification  Growth of Non-Manufactured Housing Products

American Modern has continued to
experience significant premium growth in non-manufactured housing product lines, including collateral protection, mortgage fire, credit life and excess and surplus lines. Collectively, our non-manufactured housing property and casualty direct and
assumed written premiums grew 25.2% and 21.2% in the six and three month periods ending June 30, 2007 compared to similar periods in 2006. For the first half of 2007, non-manufactured housing products represented 60% of both American
Moderns property and casualty direct and assumed written premiums and pre-tax profit.

Our financial institutions product lines continue to see
strong growth, led by our mortgage fire and collateral protection products, which saw increases of $21.0 million and $7.6 million, respectively, in direct and assumed written premium in the second quarter of 2007 compared to the second quarter of
2006. On a year to date basis, our mortgage fire and collateral protection direct and assumed written premiums increased $37.7 million and $17.4 million respectively, compared to the similar period in 2006. These increases are partially due to
several significant business relationships that were initiated during the second and third quarters of 2006. Therefore, we would expect these premium growth rates to moderate over the second half of 2007.

Additionally, we are building momentum in several of our recreational casualty product lines; motorcycle, recreational vehicle, and collector car achieved strong growth
in the six and three month periods ended June 30, 2007 compared to the similar periods in 2006. In addition, we continue to make significant gains in marketplace brand awareness and are sustaining very favorable policyholder retention levels in
all of our product lines.

Exposure Management

American Moderns catastrophe reinsurance program is a significant aspect of our exposure management. Our 2007 reinsurance structure is similar to the 2006 structure, but includes an additional $50 million layer of protection on top of
our previous $150 million cover. The cost of our base catastrophe reinsurance program, which includes the purchase of additional cover, will increase approximately $3 million on an after-tax basis, or $0.16 per share in 2007. The cost of our
catastrophe reinsurance program has increased significantly in 2006 and 2007 due to the volatile weather patterns experienced in 2005. However, we have implemented appropriate rate increases and/or product changes in order to recoup a substantial
portion of these increased costs.

RESULTS OF OPERATIONS

The Midland Company reported net income of $25.0 million, or $1.25 per diluted share, for the second quarter of 2007 compared with $9.8 million, or $.50 per diluted share, for the second quarter of 2006. Revenue for the second quarter of
2007 was $225.7 million compared to $190.2 million in the second quarter of 2006.

On a year to date basis, net income was $48.7 million, or $2.45 per
diluted share, compared with $32.2 million, or $1.65 per diluted share, for the first six months of 2006. Revenue for the first six months of 2007 was $435.7 million compared to $377.1 million for the first half of 2006.



11



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Financial Highlights

(amounts in thousands except per share data)



|                                        |  |                           |           |   |                             |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|--------------------------------------- |  | ------------------------- | --------- | - | --------------------------- | - | --------- | - |  | ---- | ---- |  | - | ------- | - |  | - | ------- | - |  | ---- | -
|                                        |  | Six Months Ended June 30, |           |   | Three Months Ended June 30, |  
|                                        |  | 2007                      |           |   | 2006                        |   |           | % |  |      | 2007 |  |   | 2006    |   |  | % |        
|Income Statement Data                   |  |                           |           |   |                             |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Insurance Revenue                       |  | $                         | 406,526   |   |                             | $ | 352,865   |   |  | 15.2 | %    |  | $ | 209,319 |   |  | $ | 177,714 |   |  | 17.8 | %
|Transportation Revenue                  |  |                           | 29,163    |   |                             |   | 24,240    |   |  | 20.3 | %    |  |   | 16,372  |   |  |   | 12,459  |   |  | 31.4 | %
|                                        |  |                           |           |   |                             |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Total Revenue                           |  | $                         | 435,689   |   |                             | $ | 377,105   |   |  | 15.5 | %    |  | $ | 225,691 |   |  | $ | 190,173 |   |  | 18.7 | %
|                                        |  |                           |           |   |                             |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Net Income                              |  | $                         | 48,745    |   |                             | $ | 32,240    |   |  |      |      |  | $ | 24,984  |   |  | $ | 9,805   |   |  |      |  
|Balance Sheet Data                      |  |                           |           |   |                             |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Cash & Invested Assets                  |  | $                         | 1,045,340 |   |                             | $ | 944,274   |   |  | 10.7 | %    |  |   |         |   |  |   |         |   |  |      |  
|Total Assets                            |  | $                         | 1,613,015 |   |                             | $ | 1,429,766 |   |  | 12.8 | %    |  |   |         |   |  |   |         |   |  |      |  
|Total Debt                              |  | $                         | 98,280    |   |                             | $ | 100,475   |   |  | (2.2 | )%   |  |   |         |   |  |   |         |   |  |      |  
|Shareholders Equity                    |  | $                         | 614,150   |   |                             | $ | 510,406   |   |  | 20.3 | %    |  |   |         |   |  |   |         |   |  |      |  
|Common Shares Outstanding               |  |                           | 19,351    |   |                             |   | 19,089    |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Per Share Data                          |  |                           |           |   |                             |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Net Income (Diluted)                    |  | $                         | 2.45      |   |                             | $ | 1.65      |   |  |      |      |  | $ | 1.25    |   |  | $ | 0.50    |   |  |      |  
|Dividends Declared                      |  | $                         | 0.2000    |   |                             | $ | 0.1225    |   |  | 63.3 | %    |  | $ | 0.10000 |   |  | $ | 0.06125 |   |  | 63.3 | %
|Market Value                            |  | $                         | 46.94     |   |                             | $ | 37.98     |   |  | 23.6 | %    |  |   |         |   |  |   |         |   |  |      |  
|Book Value                              |  | $                         | 31.74     |   |                             | $ | 26.74     |   |  | 18.7 | %    |  |   |         |   |  |   |         |   |  |      |  
|AMIGs Property and Casualty Operations |  |                           |           |   |                             |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Direct and Assumed Written Premiums     |  | $                         | 443,615   |   |                             | $ | 384,465   |   |  | 15.4 | %    |  | $ | 238,234 |   |  | $ | 209,357 |   |  | 13.8 | %
|Net Written Premium                     |  | $                         | 383,055   |   |                             | $ | 336,251   |   |  | 13.9 | %    |  | $ | 206,805 |   |  | $ | 183,707 |   |  | 12.6 | %
|Combined Ratio Before Catastrophes      |  |                           | 90.0      | % |                             |   | 86.9      | % |  |      |      |  |   | 90.6    | % |  |   | 87.9    | % |  |      |  
|Catastrophe Effects on Combined Ratio   |  |                           | 2.4       | % |                             |   | 7.6       | % |  |      |      |  |   | 2.8     | % |  |   | 12.2    | % |  |      |  
|Combined Ratio                          |  |                           | 92.4      | % |                             |   | 94.5      | % |  |      |      |  |   | 93.4    | % |  |   | 100.1   | % |  |      |  

Overview of Revenues

The following chart provides detail related to the Companys revenues for the six and three month periods ended June 30, 2007 and 2006 ($000s):

Revenues



|                              |  |                         |         |                           |   |         |  |      |         |  |   |        
|----------------------------- |  | ----------------------- | ------- | ------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                              |  | Six-Mos. Ended June 30, |         | Three-Mos. Ended June 30,
|                              |  | 2007                    |         | 2006                      |   | 2007    |  | 2006
|Insurance:                    |  |                         |         |                           |   |         |  |      |         |  |   |        
|Residential property          |  |                         | 194,203 |                           |   | 195,090 |  |      | 97,909  |  |   | 98,791 
|Recreational casualty         |  |                         | 47,253  |                           |   | 49,224  |  |      | 23,913  |  |   | 24,544 
|Financial institutions        |  |                         | 87,274  |                           |   | 43,921  |  |      | 46,306  |  |   | 21,938 
|All other insurance           |  |                         | 46,490  |                           |   | 39,728  |  |      | 23,801  |  |   | 20,286 
|                              |  |                         |         |                           |   |         |  |      |         |  |   |        
|Total insurance               |  |                         | 375,220 |                           |   | 327,963 |  |      | 191,929 |  |   | 165,559
|                              |  |                         |         |                           |   |         |  |      |         |  |   |        
|Net investment income         |  |                         | 23,173  |                           |   | 20,504  |  |      | 11,747  |  |   | 10,224 
|Net realized investment gains |  |                         | 8,133   |                           |   | 4,398   |  |      | 5,643   |  |   | 1,931  
|Transportation                |  |                         | 29,163  |                           |   | 24,240  |  |      | 16,372  |  |   | 12,459 
|                              |  |                         |         |                           |   |         |  |      |         |  |   |        
|Total revenues                |  | $                       | 435,689 |                           | $ | 377,105 |  | $    | 225,691 |  | $ | 190,173
|                              |  |                         |         |                           |   |         |  |      |         |  |   |        

Insurance

Overview of Premium Volume

The following charts show American Moderns gross written premium, net written premium and
net earned premium by business segment for the six and three month periods ended June 30, 2007 and 2006 (millions). Gross written premium, also described as direct and assumed written premium, is the amount of premium charged for policies
issued during a fiscal period. Net written premium is the amount of premium that American Modern retains after ceding varying portions of its gross written premium to other insurance companies. Net earned premium is the amount included in our
condensed consolidated statements of operations. Premiums for physical damage and other property and casualty related coverages, net of premium ceded to reinsurers, are considered earned and



12



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are included in the financial results on a pro-rata basis over the lives of the policies. Credit accident and health and credit life premiums are recognized
as income over the lives of the policies in proportion to the amount of insurance protection provided. The portion of written premium applicable to the unexpired terms of the policies is recorded as unearned premium in our condensed consolidated
balance sheets.



|                       |  |                              |       |                              |   |                  |  |                     |       |                   |   |                  |  |   |       |  |   |      
|---------------------- |  | ---------------------------- | ----- | ---------------------------- | - | ---------------- |  | ------------------- | ----- | ----------------- | - | ---------------- |  | - | ----- |  | - | -----
|                       |  | Six-Mos. Ended June 30, 2007 |       | Six-Mos. Ended June 30, 2006
|Business Segment       |  | GrossWrittenPremium          |       | NetWrittenPremium            |   | NetEarnedPremium |  | GrossWrittenPremium |       | NetWrittenPremium |   | NetEarnedPremium
|Residential Property   |  | $                            | 233.9 |                              | $ | 201.9            |  | $                   | 191.2 |                   | $ | 229.5            |  | $ | 208.0 |  | $ | 192.0
|Recreational Casualty  |  |                              | 55.7  |                              |   | 54.9             |  |                     | 46.3  |                   |   | 54.3             |  |   | 53.5  |  |   | 48.4 
|Financial Institutions |  |                              | 100.6 |                              |   | 94.7             |  |                     | 87.3  |                   |   | 48.2             |  |   | 42.8  |  |   | 43.9 
|All Other Insurance    |  |                              | 83.4  |                              |   | 43.3             |  |                     | 43.7  |                   |   | 71.8             |  |   | 36.8  |  |   | 37.2 
|                       |  |                              |       |                              |   |                  |  |                     |       |                   |   |                  |  |   |       |  |   |      
|Total                  |  | $                            | 473.6 |                              | $ | 394.8            |  | $                   | 368.5 |                   | $ | 403.8            |  | $ | 341.1 |  | $ | 321.5
|                       |  |                              |       |                              |   |                  |  |                     |       |                   |   |                  |  |   |       |  |   |      



|                       |  |                                |       |                                |   |                  |  |                     |       |                   |   |                  |  |   |       |  |   |      
|---------------------- |  | ------------------------------ | ----- | ------------------------------ | - | ---------------- |  | ------------------- | ----- | ----------------- | - | ---------------- |  | - | ----- |  | - | -----
|                       |  | Three Mos. Ended June 30, 2007 |       | Three Mos. Ended June 30, 2006
|Business Segment       |  | GrossWrittenPremium            |       | NetWrittenPremium              |   | NetEarnedPremium |  | GrossWrittenPremium |       | NetWrittenPremium |   | NetEarnedPremium
|Residential Property   |  | $                              | 123.4 |                                | $ | 106.8            |  | $                   | 96.4  |                   | $ | 124.5            |  | $ | 112.0 |  | $ | 97.3 
|Recreational Casualty  |  |                                | 34.1  |                                |   | 33.7             |  |                     | 23.5  |                   |   | 33.2             |  |   | 32.8  |  |   | 24.2 
|Financial Institutions |  |                                | 51.8  |                                |   | 49.2             |  |                     | 46.3  |                   |   | 24.2             |  |   | 21.7  |  |   | 21.9 
|All Other Insurance    |  |                                | 45.1  |                                |   | 23.6             |  |                     | 22.4  |                   |   | 37.5             |  |   | 19.9  |  |   | 18.9 
|                       |  |                                |       |                                |   |                  |  |                     |       |                   |   |                  |  |   |       |  |   |      
|Total                  |  | $                              | 254.4 |                                | $ | 213.3            |  | $                   | 188.6 |                   | $ | 219.4            |  | $ | 186.4 |  | $ | 162.3
|                       |  |                                |       |                                |   |                  |  |                     |       |                   |   |                  |  |   |       |  |   |      

For the second quarter of 2007, American Moderns gross written premiums increased 16.0% to $254.4 million
compared to $219.4 million in last years second quarter. This increase was driven by strong triple-digit growth in our collateral protection and mortgage fire lines.

For the first six months of 2007, American Modern has continued to experience significant premium growth in non-manufactured housing product lines, including collateral protection and mortgage fire, both of which
experienced triple digit growth in the first six months of 2007 as compared to last years first six months. Manufactured housing gross written premiums increased 3.1% to $176.8 million compared to $171.5 million in the first six months of
2006.

Residential Property

The
following chart is an overview of the results of operations of the Companys residential property segment (in 000s).



|                                    |  |                         |         |   |                          |   |         |   |  |      |      |  |   |         |   |  |   |         |   |  |      |   
|----------------------------------- |  | ----------------------- | ------- | - | ------------------------ | - | ------- | - |  | ---- | ---- |  | - | ------- | - |  | - | ------- | - |  | ---- | --
|                                    |  | Six-Mos. Ended June 30, |         |   | Three-Mos Ended June 30, |  
|                                    |  | 2007                    |         |   | 2006                     |   |         |   |  |      | 2007 |  |   | 2006    |   |  |   |        
|Residential Property                |  |                         |         |   |                          |   |         |   |  |      |      |  |   |         |   |  |   |         |   |  |      |   
|Direct and Assumed Written Premiums |  | $                       | 233,916 |   |                          | $ | 229,494 |   |  | 1.9  | %    |  | $ | 123,382 |   |  | $ | 124,426 |   |  | (0.8 | )%
|Net Written Premiums                |  | $                       | 201,942 |   |                          | $ | 207,971 |   |  | (2.9 | )%   |  | $ | 106,841 |   |  | $ | 111,948 |   |  | (4.6 | )%
|Net Earned Premium                  |  | $                       | 191,153 |   |                          | $ | 192,001 |   |  | (0.4 | )%   |  |   | 96,370  |   |  |   | 97,254  |   |  | (0.9 | )%
|Service Fees                        |  |                         | 3,050   |   |                          |   | 3,089   |   |  | (1.3 | )%   |  |   | 1,539   |   |  |   | 1,537   |   |  | 0.1  | % 
|                                    |  |                         |         |   |                          |   |         |   |  |      |      |  |   |         |   |  |   |         |   |  |      |   
|Total Revenues                      |  | $                       | 194,203 |   |                          | $ | 195,090 |   |  | (0.5 | )%   |  | $ | 97,909  |   |  | $ | 98,791  |   |  | (0.9 | )%
|Pre-Tax Income (Loss)               |  | $                       | 27,527  |   |                          | $ | 13,304  |   |  |      |      |  | $ | 14,415  |   |  | $ | (1,129  | ) |  |      |   
|Combined Ratio                      |  |                         | 93.1    | % |                          |   | 99.2    | % |  |      |      |  |   | 92.3    | % |  |   | 103.7   | % |  |      |   

On a year-to-date basis, manufactured housing direct and assumed written premiums increased 3.1% to $176.8 million
compared to $171.5 million in the first six months of 2006. For the three month period ended June 30, 2007, manufactured housing direct and assumed written premiums increased 4.0% to $94.1 million compared to $90.5 in last years second
quarter. Site built dwelling premiums increased 6.4% and 5.9% in the first six and three month periods of 2007, respectively. These increases were offset by a decrease of $8.7 million associated with the termination of the strategic alliance with
Homesite Insurance Company at the end of 2006 under which we assumed personal lines homeowners business through a quota share reinsurance contract in the second quarter of 2006.



13



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The increase in pre-tax income for both the six and three month periods ended June 30, 2007 was due to the decrease
in catastrophe losses in the second quarter of 2007 compared to the second quarter of 2006. Catastrophe losses, which were mainly attributable to our residential property segment, decreased American Moderns property and casualty pre-tax income
by $5.2 million for the second quarter of 2007 compared to $19.5 million for the second quarter of 2006. On a year-to-date basis, catastrophe losses decreased American Moderns property and casualty pre-tax income by $8.5 million compared to
$24.0 million for the six months ended June 30, 2006.

Recreational Casualty

The following chart is an overview of the results of operations of the Companys recreational casualty segment (in 000s).



|                                    |  |                         |        |   |                          |   |        |   |  |      |    |  |   |        |   |  |      |        |   |  |      |   
|----------------------------------- |  | ----------------------- | ------ | - | ------------------------ | - | ------ | - |  | ---- | -- |  | - | ------ | - |  | ---- | ------ | - |  | ---- | --
|                                    |  | Six-Mos. Ended June 30, |        |   | Three-Mos Ended June 30, |  
|                                    |  | 2007                    |        |   | 2006                     |   |        |   |  |      |    |  |   | 2007   |   |  | 2006 |       
|Recreational Casualty               |  |                         |        |   |                          |   |        |   |  |      |    |  |   |        |   |  |      |        |   |  |      |   
|Direct and Assumed Written Premiums |  | $                       | 55,748 |   |                          | $ | 54,274 |   |  | 2.7  | %  |  | $ | 34,183 |   |  | $    | 33,169 |   |  | 3.1  | % 
|Net Written Premiums                |  | $                       | 54,871 |   |                          | $ | 53,517 |   |  | 2.5  | %  |  | $ | 33,717 |   |  | $    | 32,797 |   |  | 2.8  | % 
|Net Earned Premium                  |  | $                       | 46,362 |   |                          | $ | 48,341 |   |  | (4.1 | )% |  | $ | 23,463 |   |  | $    | 24,105 |   |  | (2.7 | )%
|Service Fees                        |  |                         | 891    |   |                          |   | 883    |   |  | 0.9  | %  |  |   | 450    |   |  |      | 439    |   |  | 2.5  | % 
|                                    |  |                         |        |   |                          |   |        |   |  |      |    |  |   |        |   |  |      |        |   |  |      |   
|Total Revenues                      |  | $                       | 47,253 |   |                          | $ | 49,224 |   |  | (4.0 | )% |  | $ | 23,913 |   |  | $    | 24,544 |   |  | (2.6 | )%
|Pre-Tax Income (Loss)               |  | $                       | 3,094  |   |                          | $ | 7,860  |   |  |      |    |  | $ | (1,048 | ) |  | $    | 1,393  |   |  |      |   
|Combined Ratio                      |  |                         | 101.6  | % |                          |   | 91.3   | % |  |      |    |  |   | 113.1  | % |  |      | 100.9  | % |  |      |   

The increase in direct and assumed written premiums for our recreational casualty insurance products was driven by
the motorcycle, collector car, and recreation vehicle products which increased $1.5 million, $2.1 million and $1.7 million, respectively, on a year-to-date basis and $1.0 million and $1.3 million and $0.9 million, respectively, for the second
quarter compared to similar periods in 2006. These increases were offset by decreases in our watercraft product, which decreased $4.0 million on a year-to-date basis and $2.2 million for the second quarter compared to similar periods in 2006. The
decrease in watercraft was due to continuing underwriting actions to balance coastal exposures.

The pre-tax income decreased for the second quarter and
year-to-date due partially to an increase in the motorcycle combined ratios for the six and three month periods ending June 30, 2007 compared to the same periods in 2006. We have identified certain product classes and other factors contributing
to the recent rise in combined ratios and we are currently in the process of developing corrective actions within this product line. In addition, our watercraft product profitability decreased during the six and three month periods ended
June 30, 2007 compared to 2006 due to increased losses experienced related to books of business that are in run-off as we terminated agreements with certain agents as part of our coastal exposure balancing.

Financial Institutions

The following chart is an
overview of the results of operations of the Companys financial institutions insurance segment (in 000s).



|                                    |  |                         |         |   |                           |   |        |   |  |       |      |  |   |        |   |  |   |        |   |  |       |  
|----------------------------------- |  | ----------------------- | ------- | - | ------------------------- | - | ------ | - |  | ----- | ---- |  | - | ------ | - |  | - | ------ | - |  | ----- | -
|                                    |  | Six-Mos. Ended June 30, |         |   | Three-Mos. Ended June 30, |  
|                                    |  | 2007                    |         |   | 2006                      |   |        |   |  |       | 2007 |  |   | 2006   |   |  |   |       
|Financial Institutions              |  |                         |         |   |                           |   |        |   |  |       |      |  |   |        |   |  |   |        |   |  |       |  
|Direct and Assumed Written Premiums |  | $                       | 100,577 |   |                           | $ | 48,160 |   |  | 108.8 | %    |  | $ | 51,756 |   |  | $ | 24,191 |   |  | 113.9 | %
|Net Written Premiums                |  | $                       | 94,713  |   |                           | $ | 42,821 |   |  | 121.2 | %    |  | $ | 49,163 |   |  | $ | 21,713 |   |  | 126.4 | %
|Net Earned Premium/Total Revenues   |  | $                       | 87,274  |   |                           | $ | 43,921 |   |  | 98.7  | %    |  | $ | 46,306 |   |  | $ | 21,938 |   |  | 111.1 | %
|Pre-Tax Income                      |  | $                       | 9,870   |   |                           | $ | 5,183  |   |  |       |      |  | $ | 4,820  |   |  | $ | 4,002  |   |  |       |  
|Combined Ratio                      |  |                         | 92.9    | % |                           |   | 93.0   | % |  |       |      |  |   | 93.9   | % |  |   | 86.3   | % |  |       |  

The increase in direct and assumed written premiums for our financial institutions insurance products was driven
by the mortgage fire and collateral protection products which increased $37.7 million and $17.4 million, respectively, on a year-to-date basis and $21.0 million and $7.6 million, respectively, for the second quarter of 2007 compared to the similar
period in 2006. This growth was mainly due to the addition of several significant business relationships that were initiated during the second and third quarters of 2006. Profitability increased for the six and three month periods ended
June 30, 2007 due primarily to the increased premium volume offset by the increase in combined ratio for the second quarter of 2007.



14



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All Other Insurance

The following chart is an overview of the results of operations of the Companys all other insurance segment (in 000s).



|                                    |  |                         |        |      |                           |        |  |        |      |  |      |        |  |   |        |  |        |   
|----------------------------------- |  | ----------------------- | ------ | ---- | ------------------------- | ------ |  | ------ | ---- |  | ---- | ------ |  | - | ------ |  | ------ | --
|                                    |  | Six-Mos. Ended June 30, |        |      | Three-Mos. Ended June 30, |       
|                                    |  | 2007                    |        | 2006 |                           |        |  |        | 2007 |  | 2006 |        |  |  
|All Other Insurance                 |  |                         |        |      |                           |        |  |        |      |  |      |        |  |   |        |  |        |   
|Direct and Assumed Written Premiums |  | $                       | 83,397 |      | $                         | 71,836 |  | 16.1   | %    |  | $    | 45,111 |  | $ | 37,550 |  | 20.1   | % 
|Net Written Premiums                |  | $                       | 43,328 |      | $                         | 36,791 |  | 17.8   | %    |  | $    | 23,622 |  | $ | 19,949 |  | 18.4   | % 
|Net Earned Premium                  |  | $                       | 43,738 |      | $                         | 37,239 |  | 17.5   | %    |  | $    | 22,442 |  | $ | 18,977 |  | 18.3   | % 
|Agency Revenues                     |  |                         | 2,752  |      |                           | 2,486  |  | 10.7   | %    |  |      | 1,359  |  |   | 1,307  |  | 4.0    | % 
|Service Fees                        |  |                         |       |      |                           | 3      |  | (100.0 | )%   |  |      |       |  |   | 2      |  | (100.0 | )%
|                                    |  |                         |        |      |                           |        |  |        |      |  |      |        |  |   |        |  |        |   
|Total Revenues                      |  | $                       | 46,490 |      | $                         | 39,728 |  | 17.0   | %    |  | $    | 23,801 |  | $ | 20,286 |  | 17.3   | % 
|Pre-Tax Income                      |  | $                       | 15,502 |      | $                         | 14,549 |  |        |      |  | $    | 8,344  |  | $ | 7,565  |  |        |   

American Moderns excess and surplus lines and credit life products were the primary drivers of the increase
in gross written premiums in the second quarter of 2007 compared to the second quarter of 2006. Excess and surplus lines direct and assumed written premiums increased 24.8% to $19.1 million in the second quarter of 2007 from $15.3 million in the
second quarter of 2006. Credit life direct and assumed written premiums increased $6.2 million to $16.2 million in the second quarter of 2007 from $10.0 million in 2006.

On a year-to-date basis, direct and assumed written premiums increased due primarily to a $3.9 million increase in excess and surplus lines premiums combined with a $10.7 million increase in credit life premiums. The
increases in credit life direct and assumed written premiums are mainly due to the acquisition of Southern Pioneer Life Insurance Company in July 2006.

Profitability increased in the first six months of 2007 compared to 2006 due partially to improved results in our excess and surplus lines and credit life products, as well as a larger premium base. The combined ratio for the first six
months of 2007 for our excess and surplus and credit life products both decreased to 85.9% from 87.4% and 96.4%, respectively, in the comparable 2006 period

Midland Consolidated

Investment Income and Realized Capital Gains

Second quarter net investment income increased to $11.7 million in 2007 from $10.2 million in 2006. On a year-to-date basis, net investment income increased to $23.2
million in 2007 compared to $20.5 million in the prior year. This increase is due primarily to a larger base of invested assets and the increase in the annualized pre-tax equivalent investment yield. The annualized pre-tax equivalent investment
yield, on a cost basis, of Midlands fixed income portfolio was 6.0% for the first six months of 2007 compared to 5.6% for the first six months of 2006.

Realized investment gains and losses are comprised of three items; capital gains and losses from the sale of securities, derivative features of certain convertible securities and other-than-temporary impairments. The following chart shows
the gain or loss from these sources as well as their impact on diluted earnings per share (amounts in $000s except per share amounts):



|                                |  |                                |       |                                |   |                   |  |                    |      |                      |   |                   |  |   |       |  |   |     
|------------------------------- |  | ------------------------------ | ----- | ------------------------------ | - | ----------------- |  | ------------------ | ---- | -------------------- | - | ----------------- |  | - | ----- |  | - | ----
|                                |  | Six Months Ended June 30, 2007 |       | Six Months Ended June 30, 2006
|                                |  | Pre-TaxGain (Loss)             |       | After-TaxGain (Loss)           |   | EarningsPer Share |  | Pre-TaxGain (Loss) |      | After-TaxGain (Loss) |   | EarningsPer Share
|Capital Gains, net              |  | $                              | 7,213 |                                | $ | 4,688             |  | $                  | 0.24 |                      | $ | 3,514             |  | $ | 2,284 |  | $ | 0.12
|Derivatives                     |  |                                | 920   |                                |   | 598               |  |                    | 0.03 |                      |   | 884               |  |   | 575   |  |   | 0.03
|                                |  |                                |       |                                |   |                   |  |                    |      |                      |   |                   |  |   |       |  |   |     
|Total Realized Investment Gains |  | $                              | 8,133 |                                | $ | 5,286             |  | $                  | 0.27 |                      | $ | 4,398             |  | $ | 2,859 |  | $ | 0.15
|                                |  |                                |       |                                |   |                   |  |                    |      |                      |   |                   |  |   |       |  |   |     



|                                |  |                                  |       |                                  |   |                   |  |                    |      |                      |   |                   |  |   |       |  |   |     
|------------------------------- |  | -------------------------------- | ----- | -------------------------------- | - | ----------------- |  | ------------------ | ---- | -------------------- | - | ----------------- |  | - | ----- |  | - | ----
|                                |  | Three Months Ended June 30, 2007 |       | Three Months Ended June 30, 2006
|                                |  | Pre-TaxGain (Loss)               |       | After-TaxGain (Loss)             |   | EarningsPer Share |  | Pre-TaxGain (Loss) |      | After-TaxGain (Loss) |   | EarningsPer Share
|Capital Gains, net              |  | $                                | 4,377 |                                  | $ | 2,845             |  | $                  | 0.14 |                      | $ | 1,539             |  | $ | 1,000 |  | $ | 0.05
|Derivatives                     |  |                                  | 1,266 |                                  |   | 823               |  |                    | 0.04 |                      |   | 392               |  |   | 255   |  |   | 0.01
|                                |  |                                  |       |                                  |   |                   |  |                    |      |                      |   |                   |  |   |       |  |   |     
|Total Realized Investment Gains |  | $                                | 5,643 |                                  | $ | 3,668             |  | $                  | 0.18 |                      | $ | 1,931             |  | $ | 1,255 |  | $ | 0.06
|                                |  |                                  |       |                                  |   |                   |  |                    |      |                      |   |                   |  |   |       |  |   |     



15



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The Company experienced no other-than-temporary impairments during the six or three month periods ended June 30,
2007 or 2006.

Embedded derivatives relate to the equity conversion features attributable to the convertible preferred stocks and convertible debentures
held in American Moderns convertible security portfolio. The Companys investment portfolio does not currently include any other types of derivative investments.

Commissions and other policy acquisition costs

Commissions and other policy acquisition costs increased $22.7 and
$15.5 for the six and three month periods ended June 30, 2007 as compared to the same periods in 2006. These increases were due partially to the increase in earned premium in 2007 compared to 2006. However, commissions also increased as a
percentage of premiums earned. The increase in our commission rate was due primarily to the significant growth in our Financial Institutions operating segment which typically has a higher commission rate than our other products.

M/G Transport

M/G Transport, Midlands transportation
subsidiary, reported revenues for the second quarter of 2007 of $16.4 million compared to $12.5 million in the prior years second quarter. Pre-tax income was $5.3 million for the second quarter of 2007 compared to $1.4 million in second
quarter of 2006. On a year-to-date basis, M/G Transport reported revenues of $29.2 million in 2007 compared to $24.2 million in 2006. Pre-tax income was $9.1 million for the first six months of 2007 compared to $3.6 million for the first six months
of 2006. The increases in transportation revenues and pre-tax income are primarily due to an improved freight rate environment. We expect the improved rate environment to continue at least through the remainder of 2007.

Outlook

As we look to the remainder of 2007, we continue to have a
very positive outlook and are confident in the fundamentals driving our business results. While we achieved significant double digit premium growth for the first half of the year, our growth expectations for the full year are moderated somewhat by
the fact that several significant business relationships were initiated during the second and third quarters of 2006, making the 2007 comparisons for quarters in the second half of the year a bit more difficult. As such, we would expect premium
growth rates in the low to mid-single digits for the third and fourth quarters, resulting in a high single digit or perhaps low double digit growth rate for the full year.

Given the strong results that we have posted in the first half of 2007, we anticipate a property and casualty combined ratio in the range of 92.5 percent to 94.0 percent, assuming normal weather for the remainder of
the year. Based on these levels of underwriting profit, we estimate our full year earnings, will be in the range of $4.20 to $4.50 per share, which includes $0.35 per share of realized capital gains.

LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION

Consolidated Operations

Aggregate Contractual Obligations

We have certain obligations and commitments to make future payments under contracts. As of June 30, 2007, the aggregate obligations on a consolidated basis were as follows (amounts in $000s):



|                                               |  |       |         |                        |   |           |  |              |         |  |   |       
|---------------------------------------------- |  | ----- | ------- | ---------------------- | - | --------- |  | ------------ | ------- |  | - | ------
|                                               |  |       |         | Payments Due by Period
|                                               |  | Total |         | Less than1 Year        |   | 1-5 Years |  | After 5Years
|Long-term debt and interest                    |  | $     | 105,315 |                        | $ | 20,980    |  | $            | 84,335  |  | $ |      
|Other notes payable                            |  |       | 8,426   |                        |   | 8,426     |  |              |        |  |   |      
|Annual commitments under non-cancelable leases |  |       | 31,787  |                        |   | 2,671     |  |              | 10,037  |  |   | 19,079
|Purchase obligations                           |  |       | 16,212  |                        |   | 13,248    |  |              | 2,964   |  |   |      
|Insurance policy loss reserves                 |  |       | 223,652 |                        |   | 123,903   |  |              | 85,658  |  |   | 14,091
|                                               |  |       |         |                        |   |           |  |              |         |  |   |       
|Total                                          |  | $     | 385,392 |                        | $ | 169,228   |  | $            | 182,994 |  | $ | 33,170
|                                               |  |       |         |                        |   |           |  |              |         |  |   |       



16



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The table above excludes contracts and agreements that relate to maintenance and service agreements which, individually
and in the aggregate, are not material to the Companys operations or financial condition, and are terminable by the Company with minimal advance notice and at little or no cost to the Company. The above table also excludes interest and
penalties related to the Companys FIN 48 liability as they are not material to the Companys operations or financial condition.

The interest
rates related to portions of the long-term debt in the above table are variable in nature and the interest payments included in the table have been calculated using the rates in effect at June 30, 2007.

The insurance policy loss reserve payment projections in the above table are based on actuarial assumptions. The actual payments will vary, in both amount and time
periods, from the estimated amounts represented in this table. See further discussion regarding insurance policy loss reserves under the Critical Accounting Policies section in our 2006 Form 10-K.

The Company is currently in the process of significantly expanding its headquarters. The expansion, which is scheduled for completion in September 2007, will add
approximately 205,000 square feet of new office space and will expand an existing training center by approximately 20,000 square feet. The new facility, which is expected to cost approximately $29 million ($26.2 has been capitalized through
June 30, 2007 with the remaining $2.8 million included in the purchase obligations line in the above table), is being financed through short term debt borrowings and operating cash flows during the construction phase. The Company is currently
considering various financing options for the building after construction is completed.

Also included in the above table are four fifteen-year operating
lease arrangements related to the lease of 80 barges used in the transportation operations. The barges can be purchased near the end of the fifteen-year terms at predetermined prices or, at the end of each lease period, the company can either return
the barges or purchase the equipment at fair market value. For all aforementioned operating leases, the 15-year lease periods were more attractive at the time than the traditional 5-year financing term for conventional long-term debt. As of
June 30, 2007 future lease payments required under these operating lease arrangements are (000s): within 1 year  $2,443; 1 through 3 years  $4,955; 3 through 5 years  $5,069; after 5 years  $19,079. M/G
Transports operating cash flow is currently sufficient to pay the financial obligations under this agreement. Also included under purchase obligations in the above table is $8.8 million related to a contract to acquire an additional 20 jumbo
open barges in 2007.

Off Balance Sheet Arrangements

We do not utilize any special-purpose financing vehicles or have any undisclosed off balance sheet arrangements. Similarly, the Company holds no fair-value contracts for which a lack of marketplace quotations would necessitate the use of
fair value techniques.

Other Items

No shares were
repurchased in the open market under the Companys share repurchase program during the first six months of 2007 and a total of 1,086,000 shares remain authorized to repurchase under terms of this authority. On April 27, 2006, the
Companys Board of Directors approved a two-year extension to the share repurchase program that will run through the date of the Boards second quarterly meeting in 2008. The resolution does not require the repurchase of shares, but rather
gives management discretion to make purchases based on market conditions and the Companys capital requirements.

The share repurchase program
pertains exclusively to shares to be purchased on the open market. This program specifically excludes shares repurchased in connection with stock incentive plans. The Company may periodically repurchase stock awarded to associates in connection with
stock incentive programs. Such repurchase transactions essentially accommodate associates funding of the exercise price and any tax liabilities arising from the exercise or receipt of equity based incentive awards. During the six and three month
periods ended June 30, 2007, the Company repurchased approximately $1.7 million and $0.6 million, respectively, of treasury shares in connection with associate stock incentive programs.

We expect that our existing cash and other liquid investments, coupled with future operating cash flows and our short-term borrowing capacity, will meet our operating
cash requirements for the next 12 months.



17



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Holding Company Operations

Midland and American Modern are holding companies which rely primarily on dividends and management fees from subsidiaries to assist in servicing debt, paying operating expenses and paying dividends to the respective
shareholders. The payment of dividends to these holding companies from American Moderns insurance subsidiaries is restricted by state regulatory agencies. Such restrictions, however, have not had, and are not expected to have, a significant
impact on the Companys, or American Moderns, liquidity or ability to meet their respective long or short-term operating, financing or capital obligations.

Midland has a commercial paper program under which qualified purchasers may invest in the short-term unsecured notes of Midland. As of June 30, 2007, Midland had $8.4 million of commercial paper debt outstanding,
$7.4 million of which represented notes held either directly or indirectly by our executive officers and directors. The effective annual yield paid to all participants in this program was 5.40% as of June 30, 2007, a rate that management
considers to be competitive with the market rates offered for similar instruments. As of June 30, 2007, Midland also had $83.0 million of conventional short-term credit lines available at costs not exceeding prime borrowing rates, none of which
was outstanding at June 30, 2007. These short-term borrowings decreased $9.5 million since December 31, 2006. Proceeds derived from the sale or maturity of marketable securities were used to reduce these short-term borrowings. These lines
of credit contain minimally restrictive covenants and are typically drawn and repaid over periods ranging from two weeks to three months.

The Company also
has a mortgage obligation related to the financing of our corporate headquarters building. As of June 30, 2007, the outstanding balance of this mortgage was $13.9 million. This mortgage obligation includes normal and customary debt covenants
for instruments of this type. Monthly interest payments are required until maturity in December 2007. The effective interest rate on this obligation is based on LIBOR plus 1% and was 6.31% at June 30, 2007.

In 2004, Midland, through wholly owned trusts, issued $24.0 million of junior subordinated debt securities ($12.0 million on April 29 and $12.0 million on
May 26). These transactions were part of the Companys participation in pooled trust preferred offerings. The proceeds from these transactions were used to increase the capital of the insurance subsidiaries to fund future growth and for
general corporate purposes. The debt issues have 30-year terms and are callable after five years. The interest related to the debt is variable in nature and was 8.86% at June 30, 2007. The debt contains certain provisions which are typical and
customary for this type of security.

Investment in Marketable Securities

The market value of Midlands consolidated investment portfolio (comprised primarily of the investment holdings of American Modern) increased $6.8 million to $1,038.1 million at June 30, 2007 from $1,031.3
million at December 31, 2006. This increase was due primarily to purchases of additional equity securities offset by a $17.1 million decrease in unrealized appreciation in the market value of securities held. The decrease in the unrealized
appreciation was due to a $13.8 million decrease in unrealized appreciation related to the fixed income portfolio and a $3.3 million decrease in the unrealized appreciation related to the equity portfolio. Midlands largest equity holding,
2.4 million shares of U.S. Bancorp, decreased to $80.5 million in market value as of June 30, 2007 from $88.8 million as of December 31, 2006.



18



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Securities with unrealized gains and losses by category (equity and fixed income) and by time frame are summarized in the
chart below (amounts in 000s):

Unrealized Gain (Loss) as of June 30, 2007



|                                                                       |  |                       |        |   |            |   |               |  |      
|---------------------------------------------------------------------- |  | --------------------- | ------ | - | ---------- | - | ------------- |  | -----
|                                                                       |  | UnrealizedGain (Loss) |        |   | Fair Value |   | # ofPositions
|Fixed Income Securities                                                |  |                       |        |   |            |   |               |  |      
|Total held in a gain position                                          |  | $                     | 5,435  |   |            | $ | 270,612       |  | 566  
|Held in a loss position for less than 3 months                         |  |                       | (3,585 | ) |            |   | 279,229       |  | 341  
|Held in a loss position for more than 3 months and less than 9 months  |  |                       | (2,403 | ) |            |   | 94,027        |  | 113  
|Held in a loss position for more than 9 months and less than 18 months |  |                       | (750   | ) |            |   | 24,581        |  | 41   
|Held in a loss position for more than 18 months                        |  |                       | (3,796 | ) |            |   | 101,897       |  | 146  
|                                                                       |  |                       |        |   |            |   |               |  |      
|Fixed income total                                                     |  | $                     | (5,099 | ) |            | $ | 770,346       |  | 1,207
|                                                                       |  |                       |        |   |            |   |               |  |      



|                                                                       |  |                       |         |   |            |   |               |  |      
|---------------------------------------------------------------------- |  | --------------------- | ------- | - | ---------- | - | ------------- |  | -----
|                                                                       |  | UnrealizedGain (Loss) |         |   | Fair Value |   | # ofPositions
|Equity Securities                                                      |  |                       |         |   |            |   |               |  |      
|Total held in a gain position                                          |  | $                     | 109,266 |   |            | $ | 245,537       |  | 186  
|Held in a loss position for less than 3 months                         |  |                       | (136    | ) |            |   | 3,132         |  | 9    
|Held in a loss position for more than 3 months and less than 9 months  |  |                       | (339    | ) |            |   | 5,492         |  | 10   
|Held in a loss position for more than 9 months and less than 18 months |  |                       | (48     | ) |            |   | 1,120         |  | 4    
|Held in a loss position for more than 18 months                        |  |                       | (46     | ) |            |   | 1,148         |  | 1    
|                                                                       |  |                       |         |   |            |   |               |  |      
|Equity total                                                           |  | $                     | 108,697 |   |            | $ | 256,429       |  | 210  
|                                                                       |  |                       |         |   |            |   |               |  |      
|Total per above                                                        |  | $                     | 103,598 |   |            | $ | 1,026,775     |  | 1,417
|                                                                       |  |                       |         |   |            |   |               |  |      
|Accrued interest and dividends                                         |  |                       |        |   |            |   | 11,346        |  |      
|                                                                       |  |                       |         |   |            |   |               |  |      
|Total per balance sheet                                                |  | $                     | 103,598 |   |            | $ | 1,038,121     |  |      
|                                                                       |  |                       |         |   |            |   |               |  |      

Based on the above valuations and the application of our other-than-temporary impairment policy criteria, which is
more fully discussed in the Critical Accounting Policies section in our 2006 form 10-K, we believe the declines in fair value are temporary at June 30, 2007. However, the facts and circumstances related to these securities may change in future
periods, which could result in other-than-temporary impairments in future periods.

The average duration of Midlands fixed income
security investment portfolio as of June 30, 2007 was 5.0 years which management believes provides adequate asset/liability matching. The duration has decreased to 5.0 years from 5.1 years as of June 30, 2006 as Midland has decreased its
investment in longer term municipal bonds.

Midland Consolidated

American Modern generates cash inflows primarily from insurance premium, investment income, proceeds from the sale of marketable securities and maturities of fixed income security investments. The principal cash
outflows for the insurance operations relate to the payment of claims, commissions, premium taxes, operating expenses, capital expenditures, income taxes, interest on debt, dividends and inter-company borrowings and the purchase of marketable
securities. In each of the periods presented, funds generated from the insurance operating activities were used primarily to purchase investment grade marketable securities, accounting for the majority of the cash used in investing activities.

The amounts expended for the development costs capitalized in connection with the development of
modernLINK®, our proprietary information systems and web enablement initiative, amounted to $5.0 million for the first six months of 2007 and a total of $45.3 million from inception in
2000. The initiative is being designed, developed and implemented in periodic phases to ensure its cost effectiveness and functionality. This project may involve future cash expenditures in the range of $40 million to $45 million over the next four
years, with additional spending thereafter to expand system compatibility and functionality. A portion of such expenditures will be capitalized and amortized over the useful life. However, actual costs may be more or less than what we estimate. The
cost of the development and implementation is expected to be funded out of operating cash flow. Significant changes to the technology interface between American Modern and its distribution channel participants and policyholders, while unlikely,
could significantly



19



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disrupt or alter its distribution channel relationships. If the new information systems are ultimately deemed ineffective, it could result in an impairment
charge to our capitalized costs. The unamortized balance of modernLINK ®s software development costs was $32.7 million at June 30, 2007.

American Modern has a $72.0 million long-term credit facility available on a revolving basis at various rates. As of June 30, 2007, there was $36.0 million
outstanding under these facilities.

At June 30, 2007, Midlands accounts receivable increased 8.6% to $160.9 million compared to $148.2 million
at December 31, 2006. The increase is due primarily to an increase in gross written premiums experienced in the second quarter of 2007 as compared to the fourth quarter of 2006. Accounts receivable are primarily comprised of premium due from
both policyholders and agents. In the case of receivables due directly from policyholders, policies are cancelable in the event of non-payment and thus offer minimal credit exposure. Approximately 63% of American Moderns accounts receivables
relate to premium due directly from policyholders as of June 30, 2007. In the case of receivables due from agents, American Modern has granted payment terms that are customary and normal in the insurance industry. Management monitors its credit
exposure with its agents and related concentrations on a regular basis. However, as collectibility of such receivables is dependent upon the financial stability of the agent, American Modern cannot assure collections in full. Where management
believes appropriate, American Modern has provided a reserve for such exposures.

Reinsurance recoverables and prepaid reinsurance premiums at
June 30, 2007 and December 31, 2006 consisted of the following amounts (amounts in 000s):



|                                        |  |              |         |                  |   |        
|--------------------------------------- |  | ------------ | ------- | ---------------- | - | -------
|                                        |  | June 30,2007 |         | December 31,2006
|Prepaid reinsurance premiums            |  |              | 67,914  |                  |   | 67,063 
|Reinsurance recoverable  unpaid losses |  |              | 56,448  |                  |   | 54,550 
|Reinsurance recoverable  paid losses   |  |              | 6,629   |                  |   | 6,893  
|                                        |  |              |         |                  |   |        
|Total                                   |  | $            | 130,991 |                  | $ | 128,506
|                                        |  |              |         |                  |   |        

Property, plant and equipment increased $13.9 million to $132.8 at June 30, 2007 from $118.9 million at
December 31, 2006 due primarily to the costs incurred to date related to the expansion of the Companys headquarters, which is scheduled for completion in September 2007.

Other payables and accruals decreased $12.2 million to $98.2 million at June 30, 2007 from $110.4 million at December 31, 2006. The balance was higher at December 31, 2006 due primarily to payables
associated with the termination of certain business alliances, primarily our strategic alliance with Homesite Insurance Company, at year end.

Unearned
insurance premiums increased to $472.6 million at June 30, 2007 compared to $445.3 million at December 31, 2006. In addition, Deferred Policy Acquisition costs increased to $106.7 million at June 30 2007 compared to $99.3 million at
December 31, 2006. These increases are due primarily to the increase in direct and assumed written premiums experienced during the first half of 2007. See the Results of Operations section for further discussion surrounding the reasons for our
growth in direct and assumed written premiums.

Insurance loss reserves at June 30, 2007 remained relatively consistent compared to December 31,
2006. The following table provides additional detail surrounding the Companys insurance policy loss reserves at June 30, 2007 and December 31, 2006 (amounts in 000s):



|                                              |  |              |         |                  |   |        
|--------------------------------------------- |  | ------------ | ------- | ---------------- | - | -------
|                                              |  | June 30,2007 |         | December 31,2006
|Gross case base loss reserves:                |  |              |         |                  |   |        
|Residential property                          |  | $            | 44,844  |                  | $ | 43,736 
|Recreational casualty                         |  |              | 26,542  |                  |   | 23,160 
|Financial institutions                        |  |              | 11,122  |                  |   | 11,004 
|All other insurance                           |  |              | 73,535  |                  |   | 71,896 
|Gross loss reserves incurred but not reported |  |              | 49,299  |                  |   | 51,107 
|Outstanding checks and drafts                 |  |              | 18,310  |                  |   | 20,736 
|                                              |  |              |         |                  |   |        
|Total insurance loss reserves                 |  | $            | 223,652 |                  | $ | 221,639
|                                              |  |              |         |                  |   |        

As noted in the table above, case base loss reserves represent the largest component of our loss reserves.
Primarily composed of case base loss reserves, our total loss reserves are relatively short-tailed in nature and less as a percentage of statutory surplus than the property and casualty industry average. Case base loss reserves tend to be more
mechanical in nature and are based on specific facts and circumstances related to reported claims as compared to IBNR loss reserves, which have a higher degree of estimation and uncertainty. See our 2006 form 10-K for further discussion of our loss
reserving procedures.



20



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Cash flow from the insurance operations is expected to remain sufficiently positive to meet American Moderns future
operating requirements and to provide for reasonable dividends to Midland.

Transportation

M/G Transport generates its cash inflows primarily from affreightment revenue. Its primary outflows of cash relate to the payment of barge charter costs, debt service
obligations, operating expenses, income taxes, dividends to Midland and the acquisition of capital equipment. As of June 30, 2007, the transportation subsidiaries had $16.0 million of collateralized equipment obligations outstanding. Similar to
the insurance operations, cash flow from the transportation subsidiaries is expected to remain sufficiently positive to meet future operating requirements.

OTHER MATTERS

Comprehensive Income

The only difference between the Companys net income and comprehensive income is the net after-tax change in unrealized gains on marketable securities. For the six and three month periods ended June 30, 2007 and 2006, such changes
increased or (decreased), net of related income tax effects, by the following (amounts in $000s):



|                                         |  |                           |         |   |                             |   |         |      |  |   |        |   |  |   |        |  
|---------------------------------------- |  | ------------------------- | ------- | - | --------------------------- | - | ------- | ---- |  | - | ------ | - |  | - | ------ | -
|                                         |  | Six Months Ended June 30, |         |   | Three Months Ended June 30, |  
|                                         |  | 2007                      |         |   | 2006                        |   |         | 2007 |  |   | 2006   |  
|Changes in net unrealized capital gains: |  |                           |         |   |                             |   |         |      |  |   |        |   |  |   |        |  
|Equity securities                        |  | $                         | (2,170  | ) |                             | $ | 1,861   |      |  | $ | 194    |   |  | $ | (931   | )
|Fixed income securities                  |  |                           | (8,959  | ) |                             |   | (10,796 | )    |  |   | (8,331 | ) |  |   | (5,983 | )
|                                         |  |                           |         |   |                             |   |         |      |  |   |        |   |  |   |        |  
|Total                                    |  | $                         | (11,129 | ) |                             | $ | (8,935  | )    |  | $ | (8,137 | ) |  | $ | (6,914 | )
|                                         |  |                           |         |   |                             |   |         |      |  |   |        |   |  |   |        |  

Changes in net unrealized gains on marketable securities result from both market conditions and realized gains
recognized in a reporting period.

Critical Accounting Policies

The Condensed Consolidated Financial Statements should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2006 including the financial statements and notes
thereto. Our significant accounting policies are discussed in Note 1 to the Consolidated Financial Statements in the Companys 2006 Annual Report on Form 10-K. In conjunction with those discussions, in the Managements Discussion and
Analysis in the 2006 Annual Report on Form 10-K, management reviewed the Companys critical accounting policies and the related judgments and estimates used in the preparation of the consolidated financial statements.

As noted earlier in footnote 3 to the Condensed Consolidated Financial Statements, the Company adopted FIN 48 as if January 1, 2007. Management considers many
factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. Other than the adoption of FIN 48, the Companys critical accounting
policies and the methodologies and assumptions applied have not materially changed since the date of our 2006 Form 10-K.

New Accounting Standards

In September 2006 the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS
157). This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007 and interim periods within those years. The Company is assessing the impact that SFAS 157 will have on its consolidated financial statements.



21



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Also in September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans  an amendment of FASB Statement No. 87, 88, 106 and 132 (R) (SFAS 158). This Standard requires recognition of the funded status of a benefit plan in
the statement of financial position. The Standard also requires recognition in other comprehensive income certain gains and losses that arise during the period but are deferred under pension accounting rules, as well as modifies the timing of
reporting and adds certain disclosures. The recognition and disclosure elements of SFAS 158 were effective for fiscal years ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the
employers fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The adoption of SFAS 158 resulted in a reduction of shareholders equity of $3.6 million, net of tax, at
December 31, 2006.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS 159). This Standard allows the valuation of certain financial assets and liabilities to be measured at fair value. SFAS 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007 and interim periods within those years. The Company is assessing the impact that SFAS 159 will have on its consolidated financial statements.

In May 2007, the FASB issued FASB Staff Position No. FIN 48-1, Definition of Settlementin FASB Interpretation No. 48. (FSP FIN 48-1) This FSP amends FASB Interpretation No. 48 to
provide guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The interpretation is effective upon initial adoption of FIN 48. As the Company
had applied Interpretation 48 in a manner consistent with the provisions of this FSP, there was no impact of this new pronouncement on its consolidated financial statements.

Impact of Inflation

We do not consider the impact of the change in prices due to inflation to be material in
the analysis of our overall operations.



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ITEM 3. QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

Market risk is the risk that we will incur investment losses due
to adverse changes in market rates and prices. Our market risk exposures are substantially related to the Companys investment portfolio and changes in interest rates and equity prices.

Interest rate risk is the risk that the Company will incur economic losses due to adverse changes in interest rates. The risk arises from many of the Companys
investment activities, as the Company invests substantial funds in interest-sensitive assets. The Company manages the interest rate risk inherent in its investment assets relative to the interest rate risk inherent in its liabilities. One of the
measures the Company uses to quantify this exposure is duration. By definition, duration is a measure of the sensitivity of the fair value of a fixed income portfolio to changes in interest rates. Based upon the 5.0 year duration of the
Companys fixed income portfolio as of June 30, 2007, management estimates that a 100 basis point increase in interest rates would decrease the market value of its $780.4 million fixed income portfolio by 5.0%, or $39.0 million.

Equity price risk is the risk that the Company will incur economic losses due to adverse changes in a particular stock or stock index. The Companys
equity exposure consists primarily of declines in the value of its equity security holdings. As of June 30, 2007, the Company had $257.7 million in equity holdings, including $80.5 million of U.S. Bancorp common stock. A 10% decrease in the
market value of U.S. Bancorps common stock would decrease the fair value of its equity portfolio by approximately $8.1 million. As of June 30, 2007, the remainder of the Companys portfolio of equity securities had a beta coefficient
(a measure of stock price volatility) of 0.97. This means that, in general, if the S&P 500 Index decreases by 10%, management estimates that the fair value of the remaining equity portfolio will decrease by 9.7%.

The active management of market risk is integral to the Companys operations. The Company has investment guidelines that define the overall framework for managing
market and other investment risks, including the accountabilities and controls over these activities.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report (the Evaluation Date), we carried out an evaluation, under the supervision and with the
participation of our management, including our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon this evaluation, our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that,
as of the Evaluation Date, our disclosure controls and procedures are effective.

The Company maintains a system of internal control over financial
reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). There have been no changes in the Companys internal control over financial reporting that occurred during the Companys second fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of The Midland Company:

We have
reviewed the accompanying condensed consolidated balance sheet of The Midland Company and subsidiaries (the Company) as of June 30, 2007, and the related condensed consolidated statements of income, changes in shareholders
equity and of cash flows for the six-month and three-month periods ended June 30, 2007 and 2006. These interim financial statements are the responsibility of the Companys management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Midland Company and subsidiaries as of December 31, 2006, and the related consolidated statements of income, changes in shareholders
equity and of cash flows for the year then ended (not presented herein); and in our report dated March 7, 2007, we expressed an unqualified opinion on those consolidated financial statements (such report includes an explanatory paragraph
relating to the adoption of Statement of Financial Accounting Standards (SFAS) No. 158, Employers Accounting for Defined Pension and Other Postretirement Benefit Plans  an amendment of FASB Statements No. 87, 88,
106 and 132 (R),effective December 31, 2006 and SFAS No. 123 (revised 2004), Share Based Payment,effective January 1, 2005). In our opinion, the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 2006 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



|                     
|---------------------
|Deloitte & Touche LLP
|Cincinnati, Ohio     
|                     
|August 3, 2007       



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PART II. OTHER INFORMATION

THE MIDLAND COMPANY AND SUBSIDIARIES

JUNE 30, 2007

Item 1.Legal Proceedings

There are various
actions pending against the Company in the normal course of business. However, management does not expect any of these actions to have a material adverse effect on our consolidated financial statements

Item 1A.Risk Factors

There have been no
material changes from risk factors as previously disclosed in the registrants Form 10-K for the fiscal year ended December 31, 2006 in response to Item 1A to Part 1 of Form 10-K (the Form 10-K Risk Factors). The Form 10-K
Risk Factors are hereby restated and incorporated by reference.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds



| | a) | None
| | -- | ----



| | b) | None
| | -- | ----



| | c) | During the six and three month periods ended June 30, 2007, the Company did not purchase any of its equity securities pursuant to a publicly announced plan or program. However,
during the six and three month periods ended June 30, 2007, the Company acquired 24,586 shares and 0 shares, respectively, in private transactions from employees in connection with its stock incentive plans. These transactions essentially
accommodate employees funding requirements of the exercise price and tax liabilities arising from the exercise or receipt of equity-based incentive awards. Additionally, pursuant to the Companys Salaried Employees 401(k) Savings
Plan, the Company acquired 13,041 shares and 12,244 shares from the Plan during the six and three month periods ended June 30, 2007, respectively.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 3.Defaults Upon Senior Securities

None

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

At the Companys 2006 Annual Meeting of Shareholders held on April 26, 2007 the following actions were taken:



| | a) | The following persons were elected as members of the Board of Directors to serve until the 2010 Annual Meeting and until their successors are chosen and qualified:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                         |  |            |  |               |  |             |  |                 
|------------------------ |  | ---------- |  | ------------- |  | ----------- |  | ----------------
|Name                     |  | Votes For  |  | VotesWithheld |  | Abstentions |  | Broker Non-Votes
|J.P. Hayden, Jr          |  | 17,404,546 |  | 1,003,178     |  | 0           |  | 0               
|William T. Hayden        |  | 17,373,066 |  | 1,034,658     |  | 0           |  | 0               
|John M. OMara           |  | 17,621,113 |  | 786,611       |  | 0           |  | 0               
|Francis Marie Thrailkill |  | 18,258,001 |  | 149,723       |  | 0           |  | 0               



| | b) | A proposal by the Board of Directors to ratify the appointment of Deloitte & Touche LLP, as Midlands independent auditors to conduct the annual audit of the financial
statements of Midland for the year ending December 31, 2007, was approved by Shareholders. Shareholders cast 18,376,632 votes in favor of this proposal and 29,928 votes against it. There were 1,164 abstentions and no broker non-votes with
respect to this proposal.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 5.Other Information

None



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Item 6.Exhibits



|                                                                                                                           
|---------------------------------------------------------------------------------------------------------------------------
|Exhibit 15 - Letter re: Unaudited Interim Financial Information                                                            
|Exhibit 31.1Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
|Exhibit 31.2Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
|Exhibit 32Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. § 1350               

SIGNATURE

Pursuant to the requirements 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.



|                    |  |                                           
|------------------- |  | ------------------------------------------
|                    |  | THE MIDLAND COMPANY                       
|                    | 
|Date August 3, 2007 |  | /s/ W. Todd Gray                          
|                    |  | W. Todd Gray, Executive Vice President and
|                    |  | Chief Financial Officer                   



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