##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 OR
 o
    
    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
 The Midland Company
 
  Ohio
    
    31-0742526(State or other jurisdiction of incorporation
    
    (I.R.S. Employer Identification No.)or organization)
 7000 Midland Boulevard, Amelia, Ohio 45102-2607
 (513) 943-7100
 N/A
  þ o
  þ o
  o þ




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##### 



PART I.
ITEM I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
Amounts in 000s
 (Unaudited)September 30,
    
    
    December 31,ASSETS
    
    2005
    
    
    2004MARKETABLE SECURITIES AVAILABLE FOR SALE:Fixed income (cost, $768,407 at September 30, 2005 and
$745,514 at December 31, 2004)
    
    $
    779,140
    
    
    $
    770,639Equity (cost, $104,299 at September 30, 2005 and
$109,851 at December 31, 2004)
    
    
    187,003
    
    
    
    200,799Total
    
    
    966,143
    
    
    
    971,438CASH
    
    
    4,897
    
    
    
    6,858ACCOUNTS RECEIVABLE  NET
    
    
    135,846
    
    
    
    113,979REINSURANCE RECOVERABLES AND
PREPAID REINSURANCE PREMIUMS
    
    
    218,270
    
    
    
    87,726PROPERTY, PLANT AND EQUIPMENT  NET
    
    
    84,087
    
    
    
    68,312DEFERRED INSURANCE POLICY ACQUISITION COSTS
    
    
    94,594
    
    
    
    90,423OTHER ASSETS
    
    
    27,001
    
    
    
    25,948TOTAL ASSETS
    
    $
    1,530,838
    
    
    $
    1,364,684




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##### 



THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
Amounts in 000s
 (Unaudited)September 30,
    
    
    December 31,LIABILITIES
& SHAREHOLDERS EQUITY
    
    2005
    
    
    2004UNEARNED INSURANCE PREMIUMS
    
    $
    412,135
    
    
    $
    390,447INSURANCE LOSS RESERVES
    
    
    356,462
    
    
    
    232,915INSURANCE COMMISSIONS PAYABLE
    
    
    43,685
    
    
    
    45,374FUNDS HELD UNDER REINSURANCE AGREEMENTS
AND REINSURANCE PAYABLES
    
    
    15,457
    
    
    
    11,465LONG-TERM DEBT
    
    
    68,310
    
    
    
    58,729OTHER NOTES PAYABLE
    
    
    13,167
    
    
    
    33,177DEFERRED FEDERAL INCOME TAX
    
    
    39,821
    
    
    
    47,604OTHER PAYABLES AND ACCRUALS
    
    
    93,136
    
    
    
    88,697JUNIOR SUBORDINATED DEBENTURES
    
    
    24,000
    
    
    
    24,000TOTAL LIABILITIES
    
    
    1,066,173
    
    
    
    932,408COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    SHAREHOLDERS EQUITY:Common stock (issued and outstanding: 18,943 shares at
September 30, 2005 and 18,807 shares at December 31, 2004
after deducting treasury stock of 4,063 shares and
4,199 shares, respectively)
    
    
    959
    
    
    
    959Additional paid-in capital
    
    
    54,465
    
    
    
    51,184Retained earnings
    
    
    393,249
    
    
    
    350,141Accumulated other comprehensive income
    
    
    58,571
    
    
    
    73,027Treasury stock  at cost
    
    
    (42,579
    )
    
    
    (43,035
    )TOTAL SHAREHOLDERS EQUITY
    
    
    464,665
    
    
    
    432,276TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    1,530,838
    
    
    $
    1,364,684




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##### 



THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Amounts in 000s (except per share information)
 Nine-Mos. Ended Sept. 30,
    
    
    Three-Mos. Ended Sept, 30,2005
    
    
    2004
    
    
    2005
    
    
    2004REVENUES:Premiums earned
    
    $
    473,226
    
    
    $
    503,350
    
    
    $
    147,946
    
    
    $
    169,296Other insurance income
    
    
    9,542
    
    
    
    10,246
    
    
    
    3,148
    
    
    
    1,943Net investment income
    
    
    30,247
    
    
    
    27,062
    
    
    
    10,128
    
    
    
    9,318Net realized investment gains
    
    
    5,378
    
    
    
    5,726
    
    
    
    3,162
    
    
    
    318Transportation
    
    
    31,554
    
    
    
    32,701
    
    
    
    8,859
    
    
    
    12,006Total
    
    
    549,947
    
    
    
    579,085
    
    
    
    173,243
    
    
    
    192,881COSTS AND EXPENSES:Losses and loss adjustment expenses
    
    
    221,452
    
    
    
    276,688
    
    
    
    86,742
    
    
    
    108,796Commissions and other policy acquisition costs
    
    
    147,584
    
    
    
    146,469
    
    
    
    45,539
    
    
    
    43,207Operating and administrative expenses
    
    
    81,823
    
    
    
    78,432
    
    
    
    26,860
    
    
    
    26,000Transportation operating expenses
    
    
    28,563
    
    
    
    31,090
    
    
    
    8,019
    
    
    
    11,336Interest expense
    
    
    4,853
    
    
    
    3,886
    
    
    
    1,774
    
    
    
    1,325Total
    
    
    484,275
    
    
    
    536,565
    
    
    
    168,934
    
    
    
    190,664INCOME BEFORE FEDERAL INCOME TAX
    
    
    65,672
    
    
    
    42,520
    
    
    
    4,309
    
    
    
    2,217PROVISION (CREDIT) FOR FEDERAL INCOME TAX
    
    
    19,374
    
    
    
    11,924
    
    
    
    295
    
    
    
    (207
    )NET INCOME
    
    $
    46,298
    
    
    $
    30,596
    
    
    $
    4,014
    
    
    $
    2,424BASIC EARNINGS PER SHARE
OF COMMON STOCK:
    
    $
    2.45
    
    
    $
    1.65
    
    
    $
    0.21
    
    
    $
    0.13DILUTED EARNINGS PER SHARE
OF COMMON STOCK:
    
    $
    2.39
    
    
    $
    1.60
    
    
    $
    0.21
    
    
    $
    0.12CASH DIVIDENDS DECLARED PER SHARE
OF COMMON STOCK
    
    $
    0.16875
    
    
    $
    0.15375
    
    
    $
    0.05625
    
    
    $
    0.05125




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##### 



THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (Unaudited)
Amounts in 000s
 Accumulated
    
    
    
    
    
    
    UnvestedAdditional
    
    
    
    
    
    
    Other Com-
    
    
    
    
    
    
    Restricted
    
    
    
    
    
    
    Compre-Common
    
    
    Paid-In
    
    
    Retained
    
    
    prehensive
    
    
    Treasury
    
    
    Stock
    
    
    
    
    
    
    hensiveStock
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    Stock
    
    
    Awards
    
    
    Total
    
    
    IncomeBALANCE, DECEMBER 31, 2003
    
    $
    911
    
    
    $
    23,406
    
    
    $
    299,752
    
    
    $
    73,455
    
    
    $
    (41,442
    )
    
    $
    (24
    )
    
    $
    356,058Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    30,596
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,596
    
    
    $
    30,596Decrease in unrealized gain on
marketable securities, net of related
income tax effect of $2,628
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,880
    )
    
    
    
    
    
    
    
    
    
    
    (4,880
    )
    
    
    (4,880
    )Other, net of federal income tax of $253
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    470
    
    
    
    
    
    
    
    
    
    
    
    470
    
    
    
    470Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    26,186Public stock offering
    
    
    48
    
    
    
    25,022
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,070Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,770
    )
    
    
    
    
    
    
    (2,770
    )Issuance of treasury stock for options
exercised and employee savings plan
    
    
    
    
    
    
    1,138
    
    
    
    
    
    
    
    
    
    
    
    1,028
    
    
    
    
    
    
    
    2,166Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    (2,885
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,885
    )Federal income tax benefit related to the
exercise or granting of stock awards
    
    
    
    
    
    
    1,085
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,085Amortization and cancellation of
unvested restricted stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    24BALANCE, SEPTEMBER 30, 2004
    
    $
    959
    
    
    $
    50,651
    
    
    $
    327,463
    
    
    $
    69,045
    
    
    $
    (43,184
    )
    
    $
    
    
    
    $
    404,934BALANCE, DECEMBER 31, 2004
    
    $
    959
    
    
    $
    51,184
    
    
    $
    350,141
    
    
    $
    73,027
    
    
    $
    (43,035
    )
    
    $
    
    
    
    $
    432,276Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    46,298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,298
    
    
    $
    46,298Decrease in unrealized gain on
marketable securities, net of related
income tax effect of $7,923
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,714
    )
    
    
    
    
    
    
    
    
    
    
    (14,714
    )
    
    
    (14,714
    )Other, net of federal income tax of $139
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    258
    
    
    
    
    
    
    
    
    
    
    
    258
    
    
    
    258Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    31,842Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,347
    )
    
    
    
    
    
    
    (1,347
    )Issuance of treasury stock for options
exercised and employee savings plan
    
    
    
    
    
    
    2,938
    
    
    
    
    
    
    
    
    
    
    
    1,803
    
    
    
    
    
    
    
    4,741Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    (3,190
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,190
    )Federal income tax benefit related to the
exercise or granting of stock awards
    
    
    
    
    
    
    343
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343BALANCE, SEPTEMBER 30, 2005
    
    $
    959
    
    
    $
    54,465
    
    
    $
    393,249
    
    
    $
    58,571
    
    
    $
    (42,579
    )
    
    $
    
    
    
    $
    464,665




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##### 



THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Amounts in 000s
 2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    46,298
    
    
    $
    30,596Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    8,195
    
    
    
    8,420Net realized investment gains
    
    
    (4,066
    )
    
    
    (6,540
    )Increase in unearned insurance premiums
    
    
    21,688
    
    
    
    21,611Increase in deferred insurance policy acquisition costs
    
    
    (4,171
    )
    
    
    (4,061
    )Increase in reinsurance recoverables and prepaid
reinsurance premiums
    
    
    (130,544
    )
    
    
    (26,337
    )Increase in accounts receivable  net
    
    
    (21,867
    )
    
    
    (23,276
    )Increase in insurance loss reserves
    
    
    123,547
    
    
    
    55,891Increase in funds held under reinsurance
agreements and reinsurance payables
    
    
    3,992
    
    
    
    6,528Increase in other payables and accruals
    
    
    5,077
    
    
    
    21,456Increase in other assets
    
    
    (1,053
    )
    
    
    (725
    )Increase (decrease) in insurance commissions payable
    
    
    (1,689
    )
    
    
    10,223Other-net
    
    
    2,182
    
    
    
    1,567Net cash provided by operating activities
    
    
    47,589
    
    
    
    95,353CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of marketable securities
    
    
    (385,397
    )
    
    
    (421,328
    )Sale of marketable securities
    
    
    333,399
    
    
    
    241,279Decrease (increase) in cash equivalent marketable securities
    
    
    (39,834
    )
    
    
    8,791Maturity of marketable securities
    
    
    76,274
    
    
    
    59,412Acquisition of property, plant and equipment
    
    
    (24,018
    )
    
    
    (7,144
    )Proceeds from sale of property, plant and equipment
    
    
    151
    
    
    
    480Net cash used in investing activities
    
    
    (39,425
    )
    
    
    (118,510
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from common stock issuance
    
    
    
    
    
    
    25,070Decrease in net short-term borrowings
    
    
    (20,010
    )
    
    
    (17,851
    )Issuance of treasury stock
    
    
    4,741
    
    
    
    2,166Dividends paid
    
    
    (3,090
    )
    
    
    (2,760
    )Purchase of treasury stock
    
    
    (1,347
    )
    
    
    (2,770
    )Borrowing (repayment) of long-term debt
    
    
    9,581
    
    
    
    (1,170
    )Issuance of junior subordinated debentures
    
    
    
    
    
    
    24,000Net cash provided by (used in) financing activities
    
    
    (10,125
    )
    
    
    26,685NET INCREASE (DECREASE) IN CASH
    
    
    (1,961
    )
    
    
    3,528CASH AT BEGINNING OF PERIOD
    
    
    6,858
    
    
    
    2,386CASH AT END OF PERIOD
    
    $
    4,897
    
    
    $
    5,914INTEREST PAID
    
    $
    4,354
    
    
    $
    3,156INCOME TAXES PAID
    
    $
    18,600
    
    
    $
    14,800




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##### 



THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2005
 1. BASIS OF PRESENTATION
  2. EARNINGS PER SHARE
  For Basic EPS
    
    For Diluted EPSNine months ended September 30:2005
    
    
    18,878
    
    
    
    19,3692004
    
    
    18,561
    
    
    
    19,100Three months ended September 30:2005
    
    
    18,914
    
    
    
    19,4012004
    
    
    18,775
    
    
    
    19,307
 3. INCOME TAXES
  Nine-Mos. Ended Sept. 30,
    
    
    Three-Mos. Ended Sept. 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Federal income tax at statutory rate
    
    $
    22,985
    
    
    $
    14,882
    
    
    $
    1,508
    
    
    $
    776Tax effect of:Tax exempt interest and
excludable dividend income
    
    
    (3,812
    )
    
    
    (3,146
    )
    
    
    (1,291
    )
    
    
    (1,059
    )Other  net
    
    
    201
    
    
    
    188
    
    
    
    78
    
    
    
    76Provision for federal income tax
    
    $
    19,374
    
    
    $
    11,924
    
    
    $
    295
    
    
    $
    (207
    )




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##### 



4. SEGMENT DISCLOSURES
  Nine Months Ended Sept. 30, 2005
    
    
    Nine Months Ended Sept. 30, 2004Revenues-
    
    
    Pre-Tax
    
    
    
    
    
    
    Revenues-
    
    
    Pre-TaxTotal
    
    
    External
    
    
    Income
    
    
    Total
    
    
    External
    
    
    IncomeAssets
    
    
    Customers
    
    
    (Loss)
    
    
    Assets
    
    
    Customers
    
    
    (Loss)Reportable Segments:Insurance:Residential property
    
    
    n/a
    
    
    $
    289,436
    
    
    $
    28,907
    
    
    
    n/a
    
    
    $
    305,792
    
    
    $
    30,235Recreational casualty
    
    
    n/a
    
    
    
    79,950
    
    
    
    7,736
    
    
    
    n/a
    
    
    
    92,924
    
    
    
    (1,512
    )Financial institutions
    
    
    n/a
    
    
    
    57,814
    
    
    
    7,850
    
    
    
    n/a
    
    
    
    59,555
    
    
    
    4,049All other insurance
    
    
    n/a
    
    
    
    55,568
    
    
    
    17,531
    
    
    
    n/a
    
    
    
    55,325
    
    
    
    7,658Unallocated insurance
    
    $
    1,420,363
    
    
    
    
    
    
    
    4,352
    
    
    $
    1,264,714
    
    
    
    
    
    
    
    13,955Transportation
    
    
    49,946
    
    
    
    31,554
    
    
    
    2,883
    
    
    
    34,682
    
    
    
    32,701
    
    
    
    1,274Corporate and all other
    
    
    97,786
    
    
    
    
    
    
    
    (3,587
    )
    
    
    108,939
    
    
    
    
    
    
    
    (3,406
    )Intersegment Eliminations
    
    
    (37,257
    )
    
    
    
    
    
    
    
    
    
    
    (47,264
    )
    
    
    
    
    
    
    (9,733
    )Total
    
    $
    1,530,838
    
    
    $
    514,322
    
    
    $
    65,672
    
    
    $
    1,361,071
    
    
    $
    546,297
    
    
    $
    42,520
 Three Months Ended Sept. 30, 2005
    
    
    Three Months Ended Sept. 30, 2004Revenues-
    
    
    Pre-Tax
    
    
    
    
    
    
    Revenues-
    
    
    Pre-TaxTotal
    
    
    External
    
    
    Income
    
    
    Total
    
    
    External
    
    
    IncomeAssets
    
    
    Customers
    
    
    (Loss)
    
    
    Assets
    
    
    Customers
    
    
    (Loss)Reportable Segments:Insurance:Residential property
    
    
    n/a
    
    
    $
    89,202
    
    
    $
    (4,005
    )
    
    
    n/a
    
    
    $
    101,067
    
    
    $
    2,762Recreational casualty
    
    
    n/a
    
    
    
    25,134
    
    
    
    (2,509
    )
    
    
    n/a
    
    
    
    29,885
    
    
    
    (7,286
    )Financial institutions
    
    
    n/a
    
    
    
    18,770
    
    
    
    3,291
    
    
    
    n/a
    
    
    
    22,556
    
    
    
    1,220All other insurance
    
    
    n/a
    
    
    
    17,988
    
    
    
    5,422
    
    
    
    n/a
    
    
    
    17,732
    
    
    
    5,517Unallocated insurance
    
    $
    1,420,363
    
    
    
    
    
    
    
    2,777
    
    
    $
    1,264,714
    
    
    
    
    
    
    
    (4
    )Transportation
    
    
    49,946
    
    
    
    8,859
    
    
    
    908
    
    
    
    34,682
    
    
    
    12,005
    
    
    
    567Corporate and all other
    
    
    97,786
    
    
    
    
    
    
    
    (1,575
    )
    
    
    108,939
    
    
    
    
    
    
    
    (559
    )Intersegment Eliminations
    
    
    (37,257
    )
    
    
    
    
    
    
    
    
    
    
    (47,264
    )
    
    
    
    
    
    
    Total
    
    $
    1,530,838
    
    
    $
    159,953
    
    
    $
    4,309
    
    
    $
    1,361,071
    
    
    $
    183,245
    
    
    $
    2,217




---



##### 



5. STOCK OPTIONS
  Nine Months Ended Sept. 30,
    
    
    Three Months Ended Sept. 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net Income as Reported
    
    $
    46,298
    
    
    $
    30,596
    
    
    $
    4,014
    
    
    $
    2,424Deduct: Total stock-based employee
compensation determined under fair
value based method for all awards,
net of related tax effects
    
    
    973
    
    
    
    822
    
    
    
    284
    
    
    
    232Pro forma Net Income
    
    $
    45,325
    
    
    $
    29,774
    
    
    $
    3,730
    
    
    $
    2,192Basic Shares
    
    
    18,878
    
    
    
    18,561
    
    
    
    18,914
    
    
    
    18,775Diluted Shares
    
    
    19,369
    
    
    
    19,100
    
    
    
    19,401
    
    
    
    19,307Earnings per share:Basic  as reported
    
    $
    2.45
    
    
    $
    1.65
    
    
    $
    0.21
    
    
    $
    0.13Basic  pro forma
    
    
    2.40
    
    
    
    1.61
    
    
    
    0.20
    
    
    
    0.12Diluted  as reported
    
    $
    2.39
    
    
    $
    1.60
    
    
    $
    0.21
    
    
    $
    0.12Diluted  pro forma
    
    
    2.34
    
    
    
    1.56
    
    
    
    0.19
    
    
    
    0.11
  6. DERIVATIVE FINANCIAL INSTRUMENTS




---



##### 



7. DEFINED BENEFIT PENSION PLANS
  Nine Months Ended Sept. 30,
    
    
    Three Months Ended Sept. 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    626
    
    
    $
    682
    
    
    $
    184
    
    
    $
    246Interest cost
    
    
    1,233
    
    
    
    1,271
    
    
    
    425
    
    
    
    478Expected return on assets
    
    
    (1,182
    )
    
    
    (1,381
    )
    
    
    (396
    )
    
    
    (584
    )Amortization of transition asset
    
    
    
    
    
    
    (61
    )
    
    
    
    
    
    
    (25
    )Amortization of prior service cost
    
    
    23
    
    
    
    26
    
    
    
    7
    
    
    
    10Amortization of net loss
    
    
    260
    
    
    
    73
    
    
    
    112
    
    
    
    20Net periodic cost
    
    $
    960
    
    
    $
    610
    
    
    $
    332
    
    
    $
    145
  8. RELATED PARTY TRANSACTIONS
  9. NEW ACCOUNTING STANDARDS




---



##### 



ITEM 2. THE MIDLAND COMPANY AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  INTRODUCTION




---



##### 



EXECUTIVE OVERVIEW OF RECENT TRENDS AND OTHER DEVELOPMENTS
 Excellent Non-Catastrophe Underwriting Results Offset By Third Quarter Hurricanes
  Diversification of Insurance Products
   Motorcycle
  Manufactured Housing




---



##### 



RESULTS OF OPERATIONS
      Outlook




---



##### 



Financial Highlights
  Nine Months Ended Sept. 30,
    
    
    Three Months Ended Sept. 30,2005
    
    
    2004
    
    
    %
    
    
    2005
    
    
    2004
    
    
    %Income Statement DataInsurance Revenue
    
    $
    518,393
    
    
    $
    546,384
    
    
    
    (5.1
    )%
    
    $
    164,384
    
    
    $
    180,875
    
    
    
    (9.1
    )%Transportation Revenue
    
    
    31,554
    
    
    
    32,701
    
    
    
    (3.5
    )%
    
    
    8,859
    
    
    
    12,006
    
    
    
    (26.2
    )%Total Revenue
    
    $
    549,947
    
    
    $
    579,085
    
    
    
    (5.0
    )%
    
    $
    173,243
    
    
    $
    192,881
    
    
    
    (10.2
    )%Net Income
    
    $
    46,298
    
    
    $
    30,596
    
    
    
    
    
    
    $
    4,014
    
    
    $
    2,424Balance Sheet DataCash & Invested Assets
    
    $
    971,040
    
    
    $
    961,384
    
    
    
    1.0
    %Total Assets
    
    $
    1,530,838
    
    
    $
    1,361,071
    
    
    
    12.5
    %Total Debt
    
    $
    105,477
    
    
    $
    100,821
    
    
    
    4.6
    %Shareholders Equity
    
    $
    464,665
    
    
    $
    404,934
    
    
    
    14.8
    %Common Shares Outstanding
    
    
    18,943
    
    
    
    18,783Per Share DataNet Income (Diluted)
    
    $
    2.39
    
    
    $
    1.60
    
    
    
    
    
    
    $
    0.21
    
    
    $
    0.12Dividends Declared
    
    $
    0.16875
    
    
    $
    0.15375
    
    
    
    9.8
    %
    
    $
    0.05625
    
    
    $
    0.05125
    
    
    
    9.8
    %Market Value
    
    $
    36.03
    
    
    $
    27.35
    
    
    
    31.7
    %Book Value
    
    $
    24.53
    
    
    $
    21.56
    
    
    
    13.8
    %
 Nine Months Ended Sept. 30,
    
    
    Three Months Ended Sept. 30,2005
    
    
    2004
    
    
    %
    
    
    2005
    
    
    2004
    
    
    %AMIGs Property and Casualty OperationsDirect and Assumed Written Premiums
    
    $
    533,294
    
    
    $
    555,679
    
    
    
    (4.0
    )%
    
    $
    185,778
    
    
    $
    189,592
    
    
    
    (2.0
    )%Net Written Premium
    
    $
    483,419
    
    
    $
    515,768
    
    
    
    (6.3
    )%
    
    $
    159,602
    
    
    $
    177,288
    
    
    
    (10.0
    )%Combined Ratio Before Catastrophes
    
    
    87.3
    %
    
    
    90.8
    %
    
    
    
    
    
    
    88.1
    %
    
    
    88.6
    %Catastrophe Effects on Combined Ratio
    
    
    7.4
    %
    
    
    8.1
    %
    
    
    
    
    
    
    18.5
    %
    
    
    17.3
    %Combined Ratio
    
    
    94.7
    %
    
    
    98.9
    %
    
    
    
    
    
    
    106.6
    %
    
    
    105.9
    %
 Overview of Revenues
  Revenues
 Nine-Mos. Ended Sept. 30,
    
    
    Three-Mos. Ended Sept. 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Insurance:Residential property
    
    
    289,436
    
    
    
    305,792
    
    
    
    89,202
    
    
    
    101,067Recreational casualty
    
    
    79,950
    
    
    
    92,924
    
    
    
    25,134
    
    
    
    29,884Financial institutions
    
    
    57,814
    
    
    
    59,555
    
    
    
    18,770
    
    
    
    22,556All other insurance
    
    
    55,568
    
    
    
    55,325
    
    
    
    17,988
    
    
    
    17,732Total insurance
    
    
    482,768
    
    
    
    513,596
    
    
    
    151,094
    
    
    
    171,239Net investment income
    
    
    30,247
    
    
    
    27,062
    
    
    
    10,128
    
    
    
    9,318Net realized investment gains
    
    
    5,378
    
    
    
    5,726
    
    
    
    3,162
    
    
    
    318Transportation
    
    
    31,554
    
    
    
    32,701
    
    
    
    8,859
    
    
    
    12,006Total revenues
    
    $
    549,947
    
    
    $
    579,085
    
    
    $
    173,243
    
    
    $
    192,881




---



##### 



Insurance
 Overview of Premium Volume
   Nine-Mos. Ended Sept. 30, 2005
    
    
    Nine-Mos. Ended Sept. 30, 2004Gross
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    NetWritten
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    Written
    
    
    EarnedBusiness Segment
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    PremiumResidential Property
    
    $
    324.6
    
    
    $
    294.6
    
    
    $
    285.1
    
    
    $
    326.4
    
    
    $
    307.1
    
    
    $
    301.6Recreational Casualty
    
    
    83.6
    
    
    
    81.5
    
    
    
    78.1
    
    
    
    93.8
    
    
    
    92.6
    
    
    
    91.2Financial Institutions
    
    
    53.7
    
    
    
    48.8
    
    
    
    57.2
    
    
    
    75.9
    
    
    
    74.5
    
    
    
    59.6All Other Insurance
    
    
    99.0
    
    
    
    64.9
    
    
    
    52.8
    
    
    
    83.0
    
    
    
    51.4
    
    
    
    51.0Total
    
    $
    560.9
    
    
    $
    489.8
    
    
    $
    473.2
    
    
    $
    579.1
    
    
    $
    525.6
    
    
    $
    503.4
 Three Mos. Ended Sept. 30, 2005
    
    
    Three Mos. Ended Sept. 30, 2004Gross
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    NetWritten
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    Written
    
    
    EarnedBusiness Segment
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    PremiumResidential Property
    
    $
    115.0
    
    
    $
    97.4
    
    
    $
    87.7
    
    
    $
    112.9
    
    
    $
    105.2
    
    
    $
    99.6Recreational Casualty
    
    
    25.5
    
    
    
    24.0
    
    
    
    24.5
    
    
    
    27.7
    
    
    
    27.1
    
    
    
    29.3Financial Institutions
    
    
    21.0
    
    
    
    18.9
    
    
    
    18.8
    
    
    
    26.7
    
    
    
    25.9
    
    
    
    22.6All Other Insurance
    
    
    34.4
    
    
    
    21.8
    
    
    
    16.9
    
    
    
    31.1
    
    
    
    22.4
    
    
    
    17.8Total
    
    $
    195.9
    
    
    $
    162.1
    
    
    $
    147.9
    
    
    $
    198.4
    
    
    $
    180.6
    
    
    $
    169.3
 Residential Property
  Nine-Mos. Ended Sept. 30,
    
    
    Three-Mos Ended Sept. 30,2005
    
    
    2004
    
    
    
    
    
    
    2005
    
    
    2004Residential PropertyDirect and Assumed Written Premiums
    
    $
    324,603
    
    
    $
    326,372
    
    
    
    (0.5
    )%
    
    $
    114,953
    
    
    $
    112,907
    
    
    
    1.8
    %Net Written Premiums
    
    $
    294,633
    
    
    $
    307,136
    
    
    
    (4.1
    )%
    
    $
    97,391
    
    
    $
    105,233
    
    
    
    (7.5
    )%Net Earned Premium
    
    $
    285,112
    
    
    $
    301,580
    
    
    
    (5.5
    )%
    
    
    87,745
    
    
    
    99,591
    
    
    
    (11.9
    )%Service Fees
    
    
    4,324
    
    
    
    4,212
    
    
    
    2.7
    %
    
    
    1,457
    
    
    
    1,476
    
    
    
    (1.3
    )%Total Revenues
    
    $
    289,436
    
    
    $
    305,792
    
    
    
    (5.3
    )%
    
    $
    89,202
    
    
    $
    101,067
    
    
    
    (11.7
    )%Pre-Tax Income (Loss)
    
    $
    28,907
    
    
    $
    30,235
    
    
    
    
    
    
    $
    (4,005
    )
    
    $
    2,762




---



##### 



Recreational Casualty
  Nine-Mos. Ended Sept. 30,
    
    
    Three-Mos Ended Sept. 30,2005
    
    
    2004
    
    
    
    
    
    
    2005
    
    
    2004Recreational CasualtyDirect and Assumed Written Premiums
    
    $
    83,592
    
    
    $
    93,779
    
    
    
    (10.9
    )%
    
    $
    25,498
    
    
    $
    27,714
    
    
    
    (8.0
    )%Net Written Premiums
    
    $
    81,523
    
    
    $
    92,583
    
    
    
    (11.9
    )%
    
    $
    23,998
    
    
    $
    27,104
    
    
    
    (11.5
    )%Net Earned Premium
    
    $
    78,134
    
    
    $
    91,215
    
    
    
    (14.3
    )%
    
    $
    24,522
    
    
    $
    29,286
    
    
    
    (16.3
    )%Service Fees
    
    
    1,816
    
    
    
    1,709
    
    
    
    6.3
    %
    
    
    612
    
    
    
    599
    
    
    
    2.2
    %Total Revenues
    
    $
    79,950
    
    
    $
    92,924
    
    
    
    (14.0
    )%
    
    $
    25,134
    
    
    $
    29,885
    
    
    
    (15.9
    )%Pre-Tax Income (Loss)
    
    $
    7,736
    
    
    $
    (1,512
    )
    
    
    
    
    
    $
    (2,509
    )
    
    $
    (7,286
    )
  Financial Institutions
  Nine-Mos. Ended Sept. 30,
    
    
    Three-Mos Ended Sept. 30,2005
    
    
    2004
    
    
    
    
    
    
    2005
    
    
    2004Financial InstitutionsDirect and Assumed Written Premiums
    
    $
    53,640
    
    
    $
    75,921
    
    
    
    (29.3
    )%
    
    $
    20,981
    
    
    $
    26,697
    
    
    
    (21.4
    )%Net Written Premiums
    
    $
    48,781
    
    
    $
    74,450
    
    
    
    (34.5
    )%
    
    $
    18,857
    
    
    $
    25,816
    
    
    
    (27.0
    )%Net Earned Premium/Total Revenues
    
    $
    57,184
    
    
    $
    59,555
    
    
    
    (4.0
    )%
    
    $
    18,770
    
    
    $
    22,556
    
    
    
    (16.8
    )%Pre-Tax Income
    
    $
    7,850
    
    
    $
    4,049
    
    
    
    
    
    
    $
    3,291
    
    
    $
    1,220




---



##### 



All Other Insurance
  Nine-Mos. Ended Sept. 30,
    
    
    Three-Mos Ended Sept. 30,2005
    
    
    2004
    
    
    
    
    
    
    2005
    
    
    2004All Other InsuranceDirect and Assumed Written Premiums
    
    $
    99,032
    
    
    $
    83,026
    
    
    
    19.3
    %
    
    $
    34,471
    
    
    $
    31,117
    
    
    
    10.8
    %Net Written Premiums
    
    $
    64,845
    
    
    $
    51,437
    
    
    
    26.1
    %
    
    $
    21,788
    
    
    $
    22,410
    
    
    
    (2.8
    )%Net Earned Premium/Total Revenues
    
    $
    55,568
    
    
    $
    55,325
    
    
    
    0.4
    %
    
    $
    17,988
    
    
    $
    17,732
    
    
    
    1.4
    %Pre-Tax Income
    
    $
    17,531
    
    
    $
    7,658
    
    
    
    
    
    
    $
    5,422
    
    
    $
    5,517
   ALL INSURANCE
 Investment Income and Realized Capital Gains
   Nine Months Ended Sept. 30, 2005
    
    
    Nine Months Ended Sept. 30, 2004Pre-Tax
    
    
    After-Tax
    
    
    Earnings
    
    
    Pre-Tax
    
    
    After-Tax
    
    
    EarningsGain (Loss)
    
    
    Gain (Loss)
    
    
    Per Share
    
    
    Gain (Loss)
    
    
    Gain (Loss)
    
    
    Per ShareCapital Gains
    
    $
    4,066
    
    
    $
    2,643
    
    
    $
    0.14
    
    
    $
    6,540
    
    
    $
    4,251
    
    
    $
    0.22Derivatives
    
    
    1,312
    
    
    
    853
    
    
    
    0.04
    
    
    
    (814
    )
    
    
    (529
    )
    
    
    (0.03
    )Total Realized Investment
Gains
    
    $
    5,378
    
    
    $
    3,496
    
    
    $
    0.07
    
    
    $
    5,726
    
    
    $
    3,722
    
    
    $
    0.19




---



##### 



Three Months Ended Sept. 30, 2005
    
    
    Three Months Ended Sept. 30, 2004Pre-Tax
    
    
    After-Tax
    
    
    Earnings
    
    
    Pre-Tax
    
    
    After-Tax
    
    
    EarningsGain (Loss)
    
    
    Gain (Loss)
    
    
    Per Share
    
    
    Gain (Loss)
    
    
    Gain (Loss)
    
    
    Per ShareCapital Gains
    
    $
    1,375
    
    
    $
    894
    
    
    $
    0.05
    
    
    $
    1,374
    
    
    $
    893
    
    
    $
    0.05Derivatives
    
    
    1,787
    
    
    
    1,161
    
    
    
    0.06
    
    
    
    (1,056
    )
    
    
    (686
    )
    
    
    (0.04
    )Total Realized Investment
Gains
    
    $
    3,162
    
    
    $
    2,055
    
    
    $
    0.11
    
    
    $
    318
    
    
    $
    207
    
    
    $
    0.01
   Insurance Losses and Loss Adjustment Expenses (LAE)
   Insurance Commissions and Other Policy Acquisition Costs
  M/G Transport




---



##### 



LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
 Consolidated Operations
 Aggregate Contractual Obligations and Off Balance Sheet Arrangements
  Payments Due by PeriodLess than
    
    
    2nd-5th
    
    
    After 5Total
    
    
    1 Year
    
    
    Years
    
    
    YearsLong-term debt
    
    $
    68,310
    
    
    $
    15,340
    
    
    $
    44,774
    
    
    $
    8,196Junior subordinated debentures
    
    
    24,000
    
    
    
    
    
    
    
    
    
    
    
    24,000Other notes payable
    
    
    13,167
    
    
    
    13,167
    
    
    
    
    
    
    
    Annual commitments under
non-cancelable leases
    
    
    6,559
    
    
    
    1,166
    
    
    
    2,855
    
    
    
    2,538Purchase obligations
    
    
    25,964
    
    
    
    12,852
    
    
    
    13,112
    
    
    
    Other obligations
    
    
    293
    
    
    
    293
    
    
    
    
    
    
    
    Insurance policy loss reserves
    
    
    356,462
    
    
    
    245,035
    
    
    
    95,177
    
    
    
    16,250Total
    
    $
    494,755
    
    
    $
    287,853
    
    
    $
    155,918
    
    
    $
    50,984
    Other Items




---



##### 



Holding Company Operations
      Investment in Marketable Securities




---



##### 



Unrealized Gain (Loss) as of September 30, 2005
 Unrealized
    
    
    Fair
    
    
    # ofGain (Loss)
    
    
    Value
    
    
    PositionsFixed Income SecuritiesTotal held in a gain position
    
    $
    15,639
    
    
    $
    448,948
    
    
    
    512Held in a loss position for less than 3 months
    
    
    (2,181
    )
    
    
    200,515
    
    
    
    173Held in a loss position for more than 3 months
and less than 9 months
    
    
    (1,212
    )
    
    
    59,511
    
    
    
    101Held in a loss position for more than 9 months
and less than 18 months
    
    
    (1,082
    )
    
    
    48,787
    
    
    
    64Held in a loss position for more than 18 months
    
    
    (431
    )
    
    
    13,138
    
    
    
    17Fixed income total
    
    $
    10,733
    
    
    $
    770,899
    
    
    
    867
 Unrealized
    
    
    Fair
    
    
    # ofGain (Loss)
    
    
    Value
    
    
    PositionsEquity SecuritiesTotal held in a gain position
    
    $
    83,718
    
    
    $
    167,374
    
    
    
    152Held in a loss position for less than 3 months
    
    
    (221
    )
    
    
    8,986
    
    
    
    15Held in a loss position for more than 3 months
and less than 9 months
    
    
    (485
    )
    
    
    7,212
    
    
    
    9Held in a loss position for more than 9 months
and less than 18 months
    
    
    (243
    )
    
    
    1,911
    
    
    
    5Held in a loss position for more than 18 months
    
    
    (65
    )
    
    
    610
    
    
    
    1Equity total
    
    $
    82,704
    
    
    $
    186,093
    
    
    
    182Total fixed income and equity
    
    $
    93,437
    
    
    $
    956,992
    
    
    
    1,049Accrued interest and dividends
    
    
    
    
    
    
    9,151Total per balance sheet
    
    
    
    
    
    $
    966,143




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##### 



Insurance
       September 30,
    
    
    December 31,2005
    
    
    2004Prepaid reinsurance premiums
    
    
    45,587
    
    
    
    40,215Reinsurance recoverable  unpaid losses
    
    
    149,798
    
    
    
    37,873Reinsurance recoverable  paid losses
    
    
    22,885
    
    
    
    9,638Total
    
    $
    218,270
    
    
    $
    87,726




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##### 



Transportation
  OTHER MATTERS
 Comprehensive Income
  Nine Months Ended Sept. 30,
    
    
    Three Months Ended Sept. 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Changes in net unrealized capital gains:Equity securities
    
    $
    (5,359
    )
    
    $
    (3,124
    )
    
    $
    (268
    )
    
    $
    1,358Fixed income securities
    
    
    (9,355
    )
    
    
    (1,756
    )
    
    
    (7,108
    )
    
    
    8,840Changes in fair value of interest
rate swap hedge
    
    
    258
    
    
    
    470
    
    
    
    57
    
    
    
    62Total
    
    $
    (14,456
    )
    
    $
    (4,410
    )
    
    $
    (7,319
    )
    
    $
    10,260




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##### 



Critical Accounting Policies
   Insurance Revenue and Expense Recognition
  Insurance Policy Loss Reserves
   September 30,
    
    
    December 31,2005
    
    
    2004Gross case base loss reserves:Residential property
    
    $
    109,261
    
    
    $
    47,052Recreational casualty
    
    
    42,776
    
    
    
    33,590Financial institutions
    
    
    8,740
    
    
    
    12,004All other insurance
    
    
    59,365
    
    
    
    53,669Gross loss reserves incurred but not reported
    
    
    98,169
    
    
    
    64,783Outstanding checks and drafts
    
    
    38,151
    
    
    
    21,817Total insurance loss reserves
    
    $
    356,462
    
    
    $
    232,915




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##### 



Reinsurance Risks
   Other-Than-Temporary Impairment of Investment Securities




---



##### 




    
    the extent and duration to which market value is less than carrying value
    
    historical operating performance of the security
    
    issuer news releases, including those disclosing that the issuer has committed an event of default (missed payment
beyond grace period, bankruptcy filing, loss of principal customer or supplier, debt downgrade, disposal of segment, etc.)
    
    near term prospects for improvement of the issuer and/or its industry to include relevant industry conditions and trends
    
    industry research and communications with industry specialists
    
    third party research reports
    
    credit rating reports
    
    financial models and expectations
    
    discussions with issuers management by investment manager
    
    our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery
    
    time to conversion with respect to a mandatory convertible security
  
    
    the recoverability of principle and interest
    
    the issuers ability to continue to make obligated payments to security holders
    
    the current interest rate environment




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##### 



Defined Benefit Pension Plans
  Asset Impairment
  New Accounting Standards
   Impact of Inflation




---



##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
     ITEM 4. CONTROLS AND PROCEDURES




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##### 








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##### 



PART II. OTHER INFORMATION
THE MIDLAND COMPANY AND SUBSIDIARIES
SEPTEMBER 30, 2005
 Item 1.
    
    Legal Proceedings
None
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 a)
    
    Noneb)
    
    Nonec)
    
    During the nine and three month periods ended September 30, 2005, the
Company did not purchase any of its equity securities pursuant to a publicly
announced plan or program. However, during the nine and three month periods ended
September 30, 2005, the Company acquired 17,770 shares and 1,722 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 17,371 shares and
12,797 shares from the Plan during the nine and three month periods ended September
30, 2005, respectively.
 Item 3.
    
    Defaults Upon Senior SecuritiesNone
 Item 4.
    
    Submission of Matters to a Vote of Security HoldersNone
 Item 5.
    
    Other InformationNone
 Item 6.
    
    Exhibits
  
 
 
 SIGNATURE
  THE MIDLAND COMPANYDate November 7, 2005
    /s/ John I. Von LehmanJohn I. Von Lehman, Executive Vice President,Chief Financial Officer and Secretary