---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q



---

(Mark One)

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

For the quarterly period ended September 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



---

The Midland Company

(Exact name of registrant as specified in its charter)



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)



---

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 November 7, 2007 was 19,391,797.



---



---

PART I.

ITEM I. FINANCIAL INFORMATION

THE MIDLAND COMPANY

AND SUBSIDIARIES

CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited)

SEPTEMBER 30, 2007 AND DECEMBER 31, 2006

Amounts in 000s



|                                                                                      |  |                   |           |                  |   |          
|------------------------------------------------------------------------------------- |  | ----------------- | --------- | ---------------- | - | ---------
|                                                                                      |  | September 30,2007 |           | December 31,2006
|ASSETS                                                                                |  |                   |           |                  |   |          
|MARKETABLE SECURITIES AVAILABLE FOR SALE:                                             |  |                   |           |                  |   |          
|Fixed income (cost, $821,783 at September 30, 2007 and $792,998 at December 31, 2006) |  | $                 | 823,860   |                  | $ | 801,682  
|Equity (cost, $152,038 at September 30, 2007 and $117,659 at December 31, 2006)       |  |                   | 251,846   |                  |   | 229,695  
|                                                                                      |  |                   |           |                  |   |          
|Total                                                                                 |  |                   | 1,075,706 |                  |   | 1,031,377
|                                                                                      |  |                   |           |                  |   |          
|CASH                                                                                  |  |                   | 11,919    |                  |   | 5,059    
|ACCOUNTS RECEIVABLENET                                                               |  |                   | 166,331   |                  |   | 148,204  
|REINSURANCE RECOVERABLES AND PREPAID REINSURANCE PREMIUMS                             |  |                   | 129,593   |                  |   | 128,506  
|PROPERTY, PLANT AND EQUIPMENTNET                                                     |  |                   | 141,390   |                  |   | 118,879  
|DEFERRED INSURANCE POLICY ACQUISITION COSTS                                           |  |                   | 113,090   |                  |   | 99,277   
|OTHER ASSETS                                                                          |  |                   | 35,467    |                  |   | 38,226   
|                                                                                      |  |                   |           |                  |   |          
|TOTAL ASSETS                                                                          |  | $                 | 1,673,496 |                  | $ | 1,569,528
|                                                                                      |  |                   |           |                  |   |          

See notes to condensed consolidated financial statements.



---

THE MIDLAND COMPANY

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

SEPTEMBER 30, 2007 AND DECEMBER 31, 2006

Amounts in 000s



|                                                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                                |  | September 30,2007 |           |   | December 31,2006 |  
|LIABILITIES & SHAREHOLDERS EQUITY                                                                                                                                                              |  |                   |           |   |                  |   |           |  
|UNEARNED INSURANCE PREMIUMS                                                                                                                                                                     |  | $                 | 491,571   |   |                  | $ | 445,324   |  
|INSURANCE LOSS RESERVES                                                                                                                                                                         |  |                   | 227,277   |   |                  |   | 221,639   |  
|INSURANCE COMMISSIONS PAYABLE                                                                                                                                                                   |  |                   | 50,441    |   |                  |   | 46,593    |  
|FUNDS HELD UNDER REINSURANCE AGREEMENTS AND REINSURANCE PAYABLES                                                                                                                                |  |                   | 17,686    |   |                  |   | 15,139    |  
|LONG-TERM DEBT                                                                                                                                                                                  |  |                   | 65,521    |   |                  |   | 66,508    |  
|NOTES PAYABLE                                                                                                                                                                                   |  |                   | 8,805     |   |                  |   | 17,937    |  
|DEFERRED FEDERAL INCOME TAX                                                                                                                                                                     |  |                   | 40,275    |   |                  |   | 47,197    |  
|OTHER PAYABLES AND ACCRUALS                                                                                                                                                                     |  |                   | 111,311   |   |                  |   | 110,445   |  
|JUNIOR SUBORDINATED DEBENTURES                                                                                                                                                                  |  |                   | 24,000    |   |                  |   | 24,000    |  
|                                                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|TOTAL LIABILITIES                                                                                                                                                                               |  |                   | 1,036,887 |   |                  |   | 994,782   |  
|                                                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                   |  |                   |          |   |                  |   |          |  
|SHAREHOLDERS EQUITY:                                                                                                                                                                           |  |                   |           |   |                  |   |           |  
|Common stock (issued and outstanding: 19,389 shares at September 30, 2007 and 19,224 shares at December 31, 2006 after deducting
treasury stock of 3,617 shares and 3,782 shares, respectively) |  |                   | 959       |   |                  |   | 959       |  
|Additional paid-in capital                                                                                                                                                                      |  |                   | 73,202    |   |                  |   | 65,669    |  
|Retained earnings                                                                                                                                                                               |  |                   | 543,266   |   |                  |   | 477,145   |  
|Accumulated other comprehensive income                                                                                                                                                          |  |                   | 60,104    |   |                  |   | 72,346    |  
|Treasury stockat cost                                                                                                                                                                          |  |                   | (40,922   | ) |                  |   | (41,373   | )
|                                                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|TOTAL SHAREHOLDERS EQUITY                                                                                                                                                                      |  |                   | 636,609   |   |                  |   | 574,746   |  
|                                                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                      |  | $                 | 1,673,496 |   |                  | $ | 1,569,528 |  
|                                                                                                                                                                                                |  |                   |           |   |                  |   |           |  

See notes to condensed consolidated financial statements.



2



---

THE MIDLAND COMPANY

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

Amounts in 000s (except per share information)



|                                                  |  |                              |         |                                |   |         |  |      |         |  |   |        
|------------------------------------------------- |  | ---------------------------- | ------- | ------------------------------ | - | ------- |  | ---- | ------- |  | - | -------
|                                                  |  | Nine-Mos. EndedSeptember 30, |         | Three-Mos. Ended September 30,
|                                                  |  | 2007                         |         | 2006                           |   | 2007    |  | 2006
|REVENUES:                                         |  |                              |         |                                |   |         |  |      |         |  |   |        
|Premiums earned                                   |  | $                            | 562,238 |                                | $ | 497,226 |  | $    | 193,713 |  | $ | 175,726
|Other insurance income                            |  |                              | 9,996   |                                |   | 9,747   |  |      | 3,301   |  |   | 3,284  
|Net investment income                             |  |                              | 35,078  |                                |   | 30,978  |  |      | 11,905  |  |   | 10,474 
|Net realized investment gains                     |  |                              | 12,151  |                                |   | 5,492   |  |      | 4,018   |  |   | 1,094  
|Transportation                                    |  |                              | 46,177  |                                |   | 38,475  |  |      | 17,014  |  |   | 14,235 
|                                                  |  |                              |         |                                |   |         |  |      |         |  |   |        
|Total                                             |  |                              | 665,640 |                                |   | 581,918 |  |      | 229,951 |  |   | 204,813
|                                                  |  |                              |         |                                |   |         |  |      |         |  |   |        
|COSTS AND EXPENSES:                               |  |                              |         |                                |   |         |  |      |         |  |   |        
|Losses and loss adjustment expenses               |  |                              | 243,190 |                                |   | 234,788 |  |      | 83,751  |  |   | 81,949 
|Commissions and other policy acquisition costs    |  |                              | 182,695 |                                |   | 154,334 |  |      | 62,111  |  |   | 56,405 
|Operating and administrative expenses             |  |                              | 102,655 |                                |   | 88,507  |  |      | 38,909  |  |   | 30,194 
|Transportation operating expenses                 |  |                              | 31,461  |                                |   | 32,372  |  |      | 11,369  |  |   | 11,904 
|Interest expense                                  |  |                              | 3,129   |                                |   | 4,016   |  |      | 1,018   |  |   | 1,281  
|                                                  |  |                              |         |                                |   |         |  |      |         |  |   |        
|Total                                             |  |                              | 563,130 |                                |   | 514,017 |  |      | 197,158 |  |   | 181,733
|                                                  |  |                              |         |                                |   |         |  |      |         |  |   |        
|INCOME BEFORE FEDERAL INCOME TAX                  |  |                              | 102,510 |                                |   | 67,901  |  |      | 32,793  |  |   | 23,080 
|PROVISION FOR FEDERAL INCOME TAX                  |  |                              | 30,193  |                                |   | 18,316  |  |      | 9,221   |  |   | 5,735  
|                                                  |  |                              |         |                                |   |         |  |      |         |  |   |        
|NET INCOME                                        |  | $                            | 72,317  |                                | $ | 49,585  |  | $    | 23,572  |  | $ | 17,345 
|                                                  |  |                              |         |                                |   |         |  |      |         |  |   |        
|BASIC EARNINGS PER SHARE OF COMMON STOCK:         |  | $                            | 3.74    |                                | $ | 2.60    |  | $    | 1.22    |  | $ | 0.91   
|DILUTED EARNINGS PER SHARE OF COMMON STOCK:       |  | $                            | 3.62    |                                | $ | 2.53    |  | $    | 1.18    |  | $ | 0.88   
|CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK |  | $                            | 0.3000  |                                | $ | 0.18375 |  | $    | 0.1000  |  | $ | 0.06125

See notes to condensed consolidated financial statements.



3



---

THE MIDLAND COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 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                                                                                       |  |             |     |                          |   |                  |  |   | 49,585                              |   |  |               |         |   |       |   |         |                     |  |   | 49,585  |   |  | $ | 49,585  |  
|Decrease in unrealized gain on marketable securities, net of related income tax effect of $4,236 |  |             |     |                          |   |                  |  |   |                                     |   |  |               | 7,952   |   |       |   |         |                     |  |   | 7,952   |   |  |   | 7,952   |  
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|Total comprehensive income                                                                       |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  | $ | 57,537  |  
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|Purchase of treasury stock                                                                       |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   | (1,650  | )                   |  |   | (1,650  | ) |  |   |         |  
|Issuance of treasury stock for options exercised and employee savings plan                       |  |             |     |                          |   | 3,756            |  |   |                                     |   |  |               |         |   |       |   | 2,477   |                     |  |   | 6,233   |   |  |   |         |  
|Cash dividends declared                                                                          |  |             |     |                          |   |                  |  |   | (3,508                              | ) |  |               |         |   |       |   |         |                     |  |   | (3,508  | ) |  |   |         |  
|Federal income tax benefit related to the exercise or granting of stock awards                   |  |             |     |                          |   | 703              |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   | 703     |   |  |   |         |  
|Stock option expense                                                                             |  |             |     |                          |   | 1,985            |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   | 1,985   |   |  |   |         |  
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|BALANCE, SEPTEMBER 30, 2006                                                                      |  | $           | 959 |                          | $ | 63,505           |  | $ | 457,287                             |   |  | $             | 65,815  |   |       | $ | (41,889 | )                   |  | $ | 545,677 |   |  |   |         |  
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|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                                                                                       |  |             |     |                          |   |                  |  |   | 72,317                              |   |  |               |         |   |       |   |         |                     |  |   | 72,317  |   |  | $ | 72,317  |  
|Decrease in unrealized gain on marketable securities, net of related income tax effect of $6,593 |  |             |     |                          |   |                  |  |   |                                     |   |  |               | (12,242 | ) |       |   |         |                     |  |   | (12,242 | ) |  |   | (12,242 | )
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|Total comprehensive income                                                                       |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  | $ | 60,075  |  
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|Purchase of treasury stock                                                                       |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   | (1,838  | )                   |  |   | (1,838  | ) |  |   |         |  
|Issuance of treasury stock for options exercised and employee savings plan                       |  |             |     |                          |   | 4,352            |  |   |                                     |   |  |               |         |   |       |   | 2,289   |                     |  |   | 6,641   |   |  |   |         |  
|Cash dividends declared                                                                          |  |             |     |                          |   |                  |  |   | (5,906                              | ) |  |               |         |   |       |   |         |                     |  |   | (5,906  | ) |  |   |         |  
|Federal income tax benefit related to the exercise or granting of stock awards                   |  |             |     |                          |   | 829              |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   | 829     |   |  |   |         |  
|Stock option expense                                                                             |  |             |     |                          |   | 2,352            |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   | 2,352   |   |  |   |         |  
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  
|BALANCE, SEPTEMBER 30, 2007                                                                      |  | $           | 959 |                          | $ | 73,202           |  | $ | 543,266                             |   |  | $             | 60,104  |   |       | $ | (40,922 | )                   |  | $ | 636,609 |   |  |   |         |  
|                                                                                                 |  |             |     |                          |   |                  |  |   |                                     |   |  |               |         |   |       |   |         |                     |  |   |         |   |  |   |         |  

See notes to condensed consolidated financial statements.



4



---

THE MIDLAND COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

FOR THE
NINE-MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

Amount in 000s



|                                                                                  |  |      |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                                                                  |  | 2007 |          |   | 2006 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |      |          |   |      |   |          |  
|Net income                                                                        |  | $    | 72,317   |   |      | $ | 49,585   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |          |   |      |   |          |  
|Depreciation and amortization                                                     |  |      | 6,870    |   |      |   | 7,307    |  
|Stock-based compensation                                                          |  |      | 5,202    |   |      |   | 3,335    |  
|Net realized investment gains                                                     |  |      | (10,432  | ) |      |   | (4,809   | )
|Changes in:                                                                       |  |      |          |   |      |   |          |  
|Unearned insurance premiums                                                       |  |      | 46,247   |   |      |   | 43,213   |  
|Deferred insurance policy acquisition costs                                       |  |      | (13,813  | ) |      |   | (8,840   | )
|Reinsurance recoverables and prepaid reinsurance premiums                         |  |      | (1,087   | ) |      |   | 17,663   |  
|Net accounts receivable                                                           |  |      | (18,127  | ) |      |   | (10,561  | )
|Insurance loss reserves                                                           |  |      | 5,638    |   |      |   | (31,130  | )
|Funds held under reinsurance agreements and reinsurance payables                  |  |      | 2,547    |   |      |   | 1,906    |  
|Other accounts payable and accruals                                               |  |      | (4,733   | ) |      |   | (5,179   | )
|Other assets                                                                      |  |      | 3,941    |   |      |   | 335      |  
|Insurance commissions payable                                                     |  |      | 3,848    |   |      |   | 2,564    |  
|Other-net                                                                         |  |      | 788      |   |      |   | 1,292    |  
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |      | 99,206   |   |      |   | 66,651   |  
|                                                                                  |  |      |          |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |      |          |   |      |   |          |  
|Acquisitions, net of cash acquired                                                |  |      |         |   |      |   | (15,534  | )
|Purchase of marketable securities                                                 |  |      | (251,306 | ) |      |   | (269,156 | )
|Sale of marketable securities                                                     |  |      | 179,829  |   |      |   | 215,755  |  
|Decrease (increase) in cash equivalent marketable securities                      |  |      | (4,215   | ) |      |   | 18,777   |  
|Maturity of marketable securities                                                 |  |      | 23,457   |   |      |   | 18,705   |  
|Acquisition of property, plant and equipment                                      |  |      | (29,341  | ) |      |   | (32,461  | )
|Proceeds from sale of property, plant and equipment                               |  |      | 1,232    |   |      |   | 12,919   |  
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash used in investing activities                                             |  |      | (80,344  | ) |      |   | (50,995  | )
|                                                                                  |  |      |          |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |      |          |   |      |   |          |  
|Decrease in net short-term borrowings                                             |  |      | (9,132   | ) |      |   | (12,351  | )
|Issuance of treasury stock                                                        |  |      | 4,259    |   |      |   | 4,254    |  
|Dividends paid                                                                    |  |      | (5,133   | ) |      |   | (3,402   | )
|Purchase of treasury stock                                                        |  |      | (1,838   | ) |      |   | (1,650   | )
|Repayment of long-term debt                                                       |  |      | (987     | ) |      |   | (938     | )
|Excess tax benefits from exercise of stock options                                |  |      | 829      |   |      |   | 550      |  
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash used in financing activities                                             |  |      | (12,002  | ) |      |   | (13,537  | )
|                                                                                  |  |      |          |   |      |   |          |  
|NET INCREASE IN CASH                                                              |  |      | 6,860    |   |      |   | 2,119    |  
|CASH AT BEGINNING OF PERIOD                                                       |  |      | 5,059    |   |      |   | 3,368    |  
|                                                                                  |  |      |          |   |      |   |          |  
|CASH AT END OF PERIOD                                                             |  | $    | 11,919   |   |      | $ | 5,487    |  
|                                                                                  |  |      |          |   |      |   |          |  
|INTEREST PAID                                                                     |  | $    | 3,860    |   |      | $ | 4,519    |  
|INCOME TAXES PAID                                                                 |  | $    | 29,795   |   |      | $ | 20,250   |  

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



---

THE MIDLAND COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER
30, 2007

1. BASIS OF PRESENTATION

The
accompanying unaudited condensed consolidated financial statements of The Midland Company and subsidiaries (Midland or the Company) 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 nine and three month periods ended September 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
|Nine months ended September 30:  |  |               |  |                
|2007                             |  | 19,319        |  | 19,957         
|                                 |  |               |  |                
|2006                             |  | 19,050        |  | 19,585         
|                                 |  |               |  |                
|Three months ended September 30: |  |               |  |                
|2007                             |  | 19,364        |  | 20,055         
|                                 |  |               |  |                
|2006                             |  | 19,109        |  | 19,644         
|                                 |  |               |  |                

3. INCOME TAXES

The federal income tax provisions for the nine and three month periods ended September 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):



|                                                   |  |                              |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------------- |  | ---------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                   |  | Nine-Mos. EndedSeptember 30, |        |   | Three-Mos. Ended September 30, |  
|                                                   |  | 2007                         |        |   | 2006                           |   |        | 2007 |  |   | 2006   |  
|Federal income tax at statutory rate               |  | $                            | 35,879 |   |                                | $ | 23,765 |      |  | $ | 11,478 |   |  | $ | 8,078  |  
|Tax effect of:                                     |  |                              |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Tax exempt interest and excludable dividend income |  |                              | (5,246 | ) |                                |   | (5,877 | )    |  |   | (1,751 | ) |  |   | (1,983 | )
|Othernet                                          |  |                              | (440   | ) |                                |   | 428    |      |  |   | (506   | ) |  |   | (360   | )
|                                                   |  |                              |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Provision for federal income tax                   |  | $                            | 30,193 |   |                                | $ | 18,316 |      |  | $ | 9,221  |   |  | $ | 5,735  |  
|                                                   |  |                              |        |   |                                |   |        |      |  |   |        |   |  |   |        |  



6



---

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 |  |   | 133 |  
|Additions for tax positions of prior years                   |  |   |    |  
|Reductions for tax positions of prior years and settlements  |  |   | (73 | )
|                                                             |  |   |     |  
|Balance at September 30, 2007                                |  | $ | 391 |  
|                                                             |  |   |     |  

The FIN 48 liability is a component of other payables and accruals on the balance sheet. Of the total $391,000
liability, the entire balance would affect the effective tax rate if recognized.

The Company recognized tax benefits of $73,000 that were effectively
settled in the third quarter. In association with these benefits being recognized, the Company also reduced its liability for interest and penalties accordingly.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits as a part of income tax expense. During the nine and three month periods ended September 30, 2007, the Company recognized approximately $12,000,
and $4,000, respectively, in interest and penalties, net of the federal tax benefit for unrecognized tax benefits. The Company had accrued approximately $606,000 and $770,000 for interest and penalties at September 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 2004. 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 September 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):



|                          |  |                                      |           |   |                                      |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|------------------------- |  | ------------------------------------ | --------- | - | ------------------------------------ | - | ------------------- |  | - | ------------ | - |  | -------------------------- | --------- | ------------------- |  | - | ------- |  | - | ------ | -
|                          |  | Nine Months Ended September 30, 2007 |           |   | Nine Months Ended September 30, 2006 |  
|                          |  | Total Assets                         |           |   | Revenues-ExternalCustomers           |   | Pre-TaxIncome(Loss) |  |   | Total Assets |   |  | Revenues-ExternalCustomers |           | Pre-TaxIncome(Loss) | 
|Reportable Segments:      |  |                                      |           |   |                                      |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|Insurance:                |  |                                      |           |   |                                      |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|Residential property      |  |                                      | n/a       |   |                                      | $ | 294,649             |  | $ | 44,476       |   |  |                            | n/a       |                     |  | $ | 295,999 |  | $ | 28,585 |  
|Recreational casualty     |  |                                      | n/a       |   |                                      |   | 71,498              |  |   | 298          |   |  |                            | n/a       |                     |  |   | 73,487  |  |   | 6,682  |  
|Financial institutions    |  |                                      | n/a       |   |                                      |   | 136,469             |  |   | 17,659       |   |  |                            | n/a       |                     |  |   | 74,392  |  |   | 9,395  |  
|All other insurance       |  |                                      | n/a       |   |                                      |   | 69,618              |  |   | 23,563       |   |  |                            | n/a       |                     |  |   | 63,095  |  |   | 17,675 |  
|Unallocated insurance     |  | $                                    | 1,505,302 |   |                                      |   |                    |  |   | 10,457       |   |  | $                          | 1,392,348 |                     |  |   |        |  |   | 5,170  |  
|Transportation            |  |                                      | 64,291    |   |                                      |   | 46,177              |  |   | 14,753       |   |  |                            | 52,586    |                     |  |   | 38,475  |  |   | 5,907  |  
|Corporate and all other   |  |                                      | 116,140   |   |                                      |   |                    |  |   | (8,696       | ) |  |                            | 116,451   |                     |  |   |        |  |   | (5,513 | )
|Intersegment Eliminations |  |                                      | (12,237   | ) |                                      |   |                    |  |   |             |   |  |                            | (44,395   | )                   |  |   |        |  |   |       |  
|                          |  |                                      |           |   |                                      |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|Total                     |  | $                                    | 1,673,496 |   |                                      | $ | 618,411             |  | $ | 102,510      |   |  | $                          | 1,516,990 |                     |  | $ | 545,448 |  | $ | 67,901 |  
|                          |  |                                      |           |   |                                      |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  



7



---

|                          |  |                                       |           |   |                                       |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|------------------------- |  | ------------------------------------- | --------- | - | ------------------------------------- | - | ------------------- |  | - | ------------ | - |  | -------------------------- | --------- | ------------------- |  | - | ------- |  | - | ------ | -
|                          |  | Three Months Ended September 30, 2007 |           |   | Three Months Ended September 30, 2006 |  
|                          |  | Total Assets                          |           |   | Revenues-ExternalCustomers            |   | Pre-TaxIncome(Loss) |  |   | Total Assets |   |  | Revenues-ExternalCustomers |           | Pre-TaxIncome(Loss) | 
|Reportable Segments:      |  |                                       |           |   |                                       |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|Insurance:                |  |                                       |           |   |                                       |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|Residential property      |  |                                       | n/a       |   |                                       | $ | 100,446             |  | $ | 16,949       |   |  |                            | n/a       |                     |  | $ | 100,909 |  | $ | 15,281 |  
|Recreational casualty     |  |                                       | n/a       |   |                                       |   | 24,245              |  |   | (2,796       | ) |  |                            | n/a       |                     |  |   | 24,263  |  |   | (1,178 | )
|Financial institutions    |  |                                       | n/a       |   |                                       |   | 49,195              |  |   | 7,789        |   |  |                            | n/a       |                     |  |   | 30,471  |  |   | 4,212  |  
|All other insurance       |  |                                       | n/a       |   |                                       |   | 23,128              |  |   | 8,061        |   |  |                            | n/a       |                     |  |   | 23,367  |  |   | 3,126  |  
|Unallocated insurance     |  | $                                     | 1,505,302 |   |                                       |   |                    |  |   | 2,574        |   |  | $                          | 1,392,348 |                     |  |   |        |  |   | 1,010  |  
|Transportation            |  |                                       | 64,291    |   |                                       |   | 17,014              |  |   | 5,690        |   |  |                            | 52,586    |                     |  |   | 14,235  |  |   | 2,259  |  
|Corporate and all other   |  |                                       | 116,140   |   |                                       |   |                    |  |   | (5,474       | ) |  |                            | 116,451   |                     |  |   |        |  |   | (1,630 | )
|Intersegment Eliminations |  |                                       | (12,237   | ) |                                       |   |                    |  |   |             |   |  |                            | (44,395   | )                   |  |   |        |  |   |       |  
|                          |  |                                       |           |   |                                       |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  
|Total                     |  | $                                     | 1,673,496 |   |                                       | $ | 214,028             |  | $ | 32,793       |   |  | $                          | 1,516,990 |                     |  | $ | 193,245 |  | $ | 23,080 |  
|                          |  |                                       |           |   |                                       |   |                     |  |   |              |   |  |                            |           |                     |  |   |         |  |   |        |  

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 nine and three month periods ended September 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 nine and three month periods
ended September 30, 2007, the Company recognized $2,352,000 and $649,000, respectively, of expense related to stock options compared to $1,985,000 and $546,000 for the nine and three month periods ended September 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 $2,850,000 and $1,486,000 of expense related to
performance stock awards for the nine and three month periods ended September 30, 2007 compared to $1,350,000 and $450,000 for the nine and three month periods ended September 30, 2006.

6. DERIVATIVE FINANCIAL INSTRUMENTS

At September 30, 2007 and
2006, Midlands investment portfolio included approximately $13.3 million and $25.4 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 nine and three month periods ended September 30, 2007, Midland recorded pre-tax realized gains (losses) on these securities of
$399,000 and $(521,000), respectively. For the nine and three month periods ended September 30, 2006, Midland recorded pre-tax realized gains (losses) on these securities of $683,000 and $(201,000), respectively.



8



---

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 nine and three month periods ended September 30, 2007 and 2006 are (000s):



|                                   |  |                                |        |   |                                  |   |        |      |  |   |      |   |  |   |      |  
|---------------------------------- |  | ------------------------------ | ------ | - | -------------------------------- | - | ------ | ---- |  | - | ---- | - |  | - | ---- | -
|                                   |  | Nine Months EndedSeptember 30, |        |   | Three Months Ended September 30, |  
|                                   |  | 2007                           |        |   | 2006                             |   |        | 2007 |  |   | 2006 |  
|Service cost                       |  | $                              | 713    |   |                                  | $ | 685    |      |  | $ | 238  |   |  | $ | 231  |  
|Interest cost                      |  |                                | 1,460  |   |                                  |   | 1,300  |      |  |   | 487  |   |  |   | 438  |  
|Expected return on assets          |  |                                | (1,344 | ) |                                  |   | (1,247 | )    |  |   | (458 | ) |  |   | (437 | )
|Amortization of prior service cost |  |                                | 23     |   |                                  |   | 23     |      |  |   | 8    |   |  |   | 7    |  
|Amortization of net loss           |  |                                | 369    |   |                                  |   | 360    |      |  |   | 124  |   |  |   | 122  |  
|                                   |  |                                |        |   |                                  |   |        |      |  |   |      |   |  |   |      |  
|Net periodic cost                  |  | $                              | 1,221  |   |                                  | $ | 1,121  |      |  | $ | 399  |   |  | $ | 361  |  
|                                   |  |                                |        |   |                                  |   |        |      |  |   |      |   |  |   |      |  

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 September 30, 2007 was $8.8 million, $7.6 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 5.35% as of September 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



---

10. SUBSEQUENT EVENT

On October 16, 2007 Midland entered into an Agreement and Plan of Merger (the Merger Agreement), with Munich-American Holding Corporation, a Delaware corporation (Parent), and Monument Corporation, an Ohio
corporation and wholly owned subsidiary of Parent (Merger Sub), pursuant to which Merger Sub will be merged with and into Midland (the Merger) and each common share of Midland (other than shares owned by Midland, Parent and
Merger Sub) will be converted into the right to receive $65.00 in cash, without interest. The merger is subject to shareholder approval. The merger is also subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act, approval by
state insurance regulators and other customary closing conditions. Certain of our shareholders (who hold approximately 30% of our outstanding common shares) have agreed to vote all of their shares in favor of the merger pursuant to a Voting
Agreement, subject to the terms and conditions contained therein. We expect the merger to be completed in the first half of 2008, but no assurance can be made in this regard. For further information regarding the proposed merger, we refer you to our
current report on Form 8-K dated October 16, 2007 as filed with the Securities and Exchange Commission.



10



---

ITEM 2. THE MIDLAND COMPANY AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain statements in this report contain forward-looking statements, including statements relating to the expected timing, completion and effects of the proposed merger
with certain affiliates of the Munich Re Group (Munich Re). Forward-looking statements are statements other than historical information or statements of current condition. These forward-looking statements are based on current
expectations, estimates, forecasts and projections of future company or industry performance based on managements judgment, beliefs, current trends and market conditions. Actual outcomes and results may differ materially from what is
expressed, forecasted or implied in any forward-looking statement. Forward-looking statements made by Midland may be identified by the use of words such as will, expects, intends, plans,
anticipates, believes, seeks, estimates, or the negative versions of those words and similar expressions, and by the context in which they are used. There are a number of risks and uncertainties that
could cause actual results to differ materially from the forward-looking statements included in this document. For example, (1) Midland may be unable to obtain shareholder approval required for the transaction; (2) regulatory approvals
required for the transaction may not be obtained, or required regulatory approvals may delay the transaction or result in the imposition of conditions that could have a material adverse effect on Midland or Munich Re or cause the parties to abandon
the transaction; (3) conditions to the closing of the transaction may not be satisfied; (4) the business of Midland or Munich Re may suffer as a result of uncertainty surrounding the transaction; and (5) Midland or Munich Re may be
adversely affected by other economic, business, and/or competitive factors. In addition, pending the closing of the merger, Midland is subject to restrictions on its business activities and certain actions will require Munich Res approval.
Factors other than the delay or failure to consummate the merger on the terms and conditions currently contemplated by us including, but not limited to, uncertainty that may impair our ability to attract, retain and motivate key personnel until the
merger is consummated or could cause our customers, agents, partners and others that deal with us to seek to change existing business relationships. Other 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, any one of which might materially affect the operations of the company or its subsidiaries. These and
other factors that could cause Midlands actual results to differ materially from those expressed or implied are discussed under Risk Factors in Midlands most recent annual report on Form 10-K and other filings with the
Securities and Exchange Commission. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our proposed merger, business, financial condition and/or operating
results. For a further discussion of these and other risks and uncertainties affecting Midland, see Midlands website at www.midlandcompany.com. Midland undertakes no obligation to update any forward-looking statements, whether as a result of
new information or circumstances, future events (whether anticipated or unanticipated) or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements.

INTRODUCTION

The Midland 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.



11



---

Our residential property segment includes primarily manufactured housing and site-built dwelling insurance products.
Approximately 37% 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.

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

Midland Company Enters Into Definitive Merger Agreement with Munich Re

On October 16, 2007 Midland entered into an Agreement and Plan of Merger (the Merger Agreement), with Munich-American Holding Corporation, a Delaware corporation (Parent), and Monument
Corporation, an Ohio corporation and wholly owned subsidiary of Parent (Merger Sub) , pursuant to which Merger Sub will be merged with and into Midland (the Merger) and each common share of Midland (other than shares owned by
Midland, Parent and Merger Sub) will be converted into the right to receive $65.00 in cash, without interest. The merger is subject to shareholder approval. The merger is also subject to clearance under the Hart-Scott-Rodino Antitrust Improvements
Act, approval by state insurance regulators and other customary closing conditions. Certain of our shareholders (who hold approximately 30% of our outstanding common shares) have agreed to vote all of their shares in favor of the merger pursuant to
a Voting Agreement, subject to the terms and conditions contained therein. We expect the merger to be completed in the first half of 2008, but no assurance can be made in this regard. For further information regarding the proposed merger, we refer
you to our current report on Form 8-K dated October 16, 2007 as filed with the Securities and Exchange Commission.

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 22.2% and 17.1% in the nine and three
month periods ending September 30, 2007 compared to similar periods in 2006. For the first nine months of 2007, non-manufactured housing products represented 61% and 58% of American Moderns property and casualty direct and assumed written
premiums and pre-tax profit, respectively.

Our financial institutions product lines continue to see strong growth, led by our mortgage fire and collateral
protection products, which saw increases of $24.9 million and $4.8 million, respectively, in direct and assumed written premium in the third quarter of 2007 compared to the third quarter of 2006. On a year to date basis, our mortgage fire and
collateral protection direct and assumed written premiums increased $62.6 million and $22.2 million respectively, compared to the similar period in 2006.

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



12



---

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. In addition, in August we added an additional $50 million layer of protection on top of our $200 million coverage in place for 2007. The cost of our base catastrophe reinsurance program, which includes the purchases
of additional cover, will increase approximately $5.5 million on an after-tax basis, or $0.28 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 $23.6 million, or $1.18 per diluted share, for the
third quarter of 2007 compared with $17.3 million, or $0.88 per diluted share, for the third quarter of 2006. Revenue for the third quarter of 2007 was $230.0 million compared to $204.8 million in the third quarter of 2006.

On a year to date basis, net income was $72.3 million, or $3.62 per diluted share, compared with $49.6 million, or $2.53 per diluted share, for the first nine months of
2006. Revenue for the first nine months of 2007 was $665.6 million compared to $581.9 million for the first nine months of 2006.

Financial
Highlights

(amounts in thousands except per share data)



|                                        |  |                                 |           |   |                                  |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|--------------------------------------- |  | ------------------------------- | --------- | - | -------------------------------- | - | --------- | - |  | ---- | ---- |  | - | ------- | - |  | - | ------- | - |  | ---- | -
|                                        |  | Nine Months Ended September 30, |           |   | Three Months Ended September 30, |  
|                                        |  | 2007                            |           |   | 2006                             |   |           | % |  |      | 2007 |  |   | 2006    |   |  | % |        
|Income Statement Data                   |  |                                 |           |   |                                  |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Insurance Revenue                       |  | $                               | 619,463   |   |                                  | $ | 543,443   |   |  | 14.0 | %    |  | $ | 212,937 |   |  | $ | 190,578 |   |  | 11.7 | %
|Transportation Revenue                  |  |                                 | 46,177    |   |                                  |   | 38,475    |   |  | 20.0 | %    |  |   | 17,014  |   |  |   | 14,235  |   |  | 19.5 | %
|                                        |  |                                 |           |   |                                  |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Total Revenue                           |  | $                               | 665,640   |   |                                  | $ | 581,918   |   |  | 14.4 | %    |  | $ | 229,951 |   |  | $ | 204,813 |   |  | 12.3 | %
|                                        |  |                                 |           |   |                                  |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Net Income                              |  | $                               | 72,317    |   |                                  | $ | 49,585    |   |  |      |      |  | $ | 23,572  |   |  | $ | 17,345  |   |  |      |  
|Balance Sheet Data                      |  |                                 |           |   |                                  |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Cash & Invested Assets                  |  | $                               | 1,087,625 |   |                                  | $ | 1,005,520 |   |  | 8.2  | %    |  |   |         |   |  |   |         |   |  |      |  
|Total Assets                            |  | $                               | 1,673,496 |   |                                  | $ | 1,516,990 |   |  | 10.3 | %    |  |   |         |   |  |   |         |   |  |      |  
|Total Debt                              |  | $                               | 98,326    |   |                                  | $ | 98,482    |   |  | (0.2 | )%   |  |   |         |   |  |   |         |   |  |      |  
|Shareholders Equity                    |  | $                               | 636,609   |   |                                  | $ | 545,677   |   |  | 16.7 | %    |  |   |         |   |  |   |         |   |  |      |  
|Common Shares Outstanding               |  |                                 | 19,389    |   |                                  |   | 19,147    |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Per Share Data                          |  |                                 |           |   |                                  |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Net Income (Diluted)                    |  | $                               | 3.62      |   |                                  | $ | 2.53      |   |  |      |      |  | $ | 1.18    |   |  | $ | 0.88    |   |  |      |  
|Dividends Declared                      |  | $                               | 0.3000    |   |                                  | $ | 0.18375   |   |  | 63.3 | %    |  | $ | 0.10000 |   |  | $ | 0.06125 |   |  | 63.3 | %
|Market Value                            |  | $                               | 54.96     |   |                                  | $ | 43.32     |   |  | 26.9 | %    |  |   |         |   |  |   |         |   |  |      |  
|Book Value                              |  | $                               | 32.83     |   |                                  | $ | 28.50     |   |  | 15.2 | %    |  |   |         |   |  |   |         |   |  |      |  
|AMIGs Property and Casualty Operations |  |                                 |           |   |                                  |   |           |   |  |      |      |  |   |         |   |  |   |         |   |  |      |  
|Direct and Assumed Written Premiums     |  | $                               | 681,152   |   |                                  | $ | 597,172   |   |  | 14.1 | %    |  | $ | 237,537 |   |  | $ | 212,707 |   |  | 11.7 | %
|Net Written Premium                     |  | $                               | 590,142   |   |                                  | $ | 522,079   |   |  | 13.0 | %    |  | $ | 207,087 |   |  | $ | 185,828 |   |  | 11.4 | %
|Combined Ratio Before Catastrophes      |  |                                 | 90.2      | % |                                  |   | 88.9      | % |  |      |      |  |   | 90.5    | % |  |   | 92.6    | % |  |      |  
|Catastrophe Effects on Combined Ratio   |  |                                 | 2.0       | % |                                  |   | 5.8       | % |  |      |      |  |   | 1.4     | % |  |   | 2.5     | % |  |      |  
|Combined Ratio                          |  |                                 | 92.2      | % |                                  |   | 94.7      | % |  |      |      |  |   | 91.9    | % |  |   | 95.1    | % |  |      |  



13



---

Overview of Revenues

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

Revenues



|                              |  |                           |         |                            |   |         |  |      |         |  |   |        
|----------------------------- |  | ------------------------- | ------- | -------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                              |  | Nine-Mos. Ended Sept. 30, |         | Three-Mos. Ended Sept. 30,
|                              |  | 2007                      |         | 2006                       |   | 2007    |  | 2006
|Insurance:                    |  |                           |         |                            |   |         |  |      |         |  |   |        
|Residential property          |  |                           | 294,649 |                            |   | 295,999 |  |      | 100,446 |  |   | 100,909
|Recreational casualty         |  |                           | 71,498  |                            |   | 73,487  |  |      | 24,245  |  |   | 24,263 
|Financial institutions        |  |                           | 136,469 |                            |   | 74,392  |  |      | 49,195  |  |   | 30,471 
|All other insurance           |  |                           | 69,618  |                            |   | 63,095  |  |      | 23,128  |  |   | 23,367 
|                              |  |                           |         |                            |   |         |  |      |         |  |   |        
|Total insurance               |  |                           | 572,234 |                            |   | 506,973 |  |      | 197,014 |  |   | 179,010
|                              |  |                           |         |                            |   |         |  |      |         |  |   |        
|Net investment income         |  |                           | 35,078  |                            |   | 30,978  |  |      | 11,905  |  |   | 10,474 
|Net realized investment gains |  |                           | 12,151  |                            |   | 5,492   |  |      | 4,018   |  |   | 1,094  
|Transportation                |  |                           | 46,177  |                            |   | 38,475  |  |      | 17,014  |  |   | 14,235 
|                              |  |                           |         |                            |   |         |  |      |         |  |   |        
|Total revenues                |  | $                         | 665,640 |                            | $ | 581,918 |  | $    | 229,951 |  | $ | 204,813
|                              |  |                           |         |                            |   |         |  |      |         |  |   |        

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 nine and three month periods ended September 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 income. Premiums for physical damage and other property and casualty related coverages, net of premium ceded to reinsurers, are considered earned and 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.



|                       |  |                                    |       |                                    |   |                  |  |                     |       |                   |   |                  |  |   |       |  |   |      
|---------------------- |  | ---------------------------------- | ----- | ---------------------------------- | - | ---------------- |  | ------------------- | ----- | ----------------- | - | ---------------- |  | - | ----- |  | - | -----
|                       |  | Nine-Mos. Ended September 30, 2007 |       | Nine-Mos. Ended September 30, 2006
|Business Segment       |  | GrossWrittenPremium                |       | NetWrittenPremium                  |   | NetEarnedPremium |  | GrossWrittenPremium |       | NetWrittenPremium |   | NetEarnedPremium
|Residential Property   |  | $                                  | 356.6 |                                    | $ | 309.7            |  | $                   | 290.1 |                   | $ | 348.9            |  | $ | 314.3 |  | $ | 291.4
|Recreational Casualty  |  |                                    | 81.1  |                                    |   | 79.5             |  |                     | 70.1  |                   |   | 78.3             |  |   | 77.1  |  |   | 72.1 
|Financial Institutions |  |                                    | 162.9 |                                    |   | 152.8            |  |                     | 136.5 |                   |   | 90.1             |  |   | 83.0  |  |   | 74.4 
|All Other Insurance    |  |                                    | 125.8 |                                    |   | 66.2             |  |                     | 65.5  |                   |   | 113.5            |  |   | 58.0  |  |   | 59.3 
|                       |  |                                    |       |                                    |   |                  |  |                     |       |                   |   |                  |  |   |       |  |   |      
|Total                  |  | $                                  | 726.4 |                                    | $ | 608.2            |  | $                   | 562.2 |                   | $ | 630.8            |  | $ | 532.4 |  | $ | 497.2
|                       |  |                                    |       |                                    |   |                  |  |                     |       |                   |   |                  |  |   |       |  |   |      



|                       |  |                                     |       |                                     |   |                  |  |                     |       |                     |   |                  |  |   |       |  |   |      
|---------------------- |  | ----------------------------------- | ----- | ----------------------------------- | - | ---------------- |  | ------------------- | ----- | ------------------- | - | ---------------- |  | - | ----- |  | - | -----
|                       |  | Three Mos. Ended September 30, 2007 |       | Three Mos. Ended September 30, 2006
|Business Segment       |  | GrossWrittenPremium                 |       | NetWrittenPremium                   |   | NetEarnedPremium |  | GrossWrittenPremium |       | Net Written Premium |   | NetEarnedPremium
|Residential Property   |  | $                                   | 122.7 |                                     | $ | 107.8            |  | $                   | 98.9  |                     | $ | 119.4            |  | $ | 106.3 |  | $ | 99.4 
|Recreational Casualty  |  |                                     | 25.4  |                                     |   | 24.6             |  |                     | 23.8  |                     |   | 24.0             |  |   | 23.6  |  |   | 23.7 
|Financial Institutions |  |                                     | 62.3  |                                     |   | 58.1             |  |                     | 49.2  |                     |   | 41.9             |  |   | 40.1  |  |   | 30.5 
|All Other Insurance    |  |                                     | 42.4  |                                     |   | 22.9             |  |                     | 21.8  |                     |   | 41.7             |  |   | 21.3  |  |   | 22.1 
|                       |  |                                     |       |                                     |   |                  |  |                     |       |                     |   |                  |  |   |       |  |   |      
|Total                  |  | $                                   | 252.8 |                                     | $ | 213.4            |  | $                   | 193.7 |                     | $ | 227.0            |  | $ | 191.3 |  | $ | 175.7
|                       |  |                                     |       |                                     |   |                  |  |                     |       |                     |   |                  |  |   |       |  |   |      

For the third quarter of 2007, American Moderns gross written premiums increased 11.4% to $252.8 million
compared to $227.0 million in last years third quarter. This increase was driven by strong growth in our collateral protection and mortgage fire lines.



14



---

For the first nine 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 nine months of 2007 as compared to last years first nine months. Manufactured housing gross
written premiums increased 3.6% to $268.8 million compared to $259.5 million in the first nine 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).



|                                    |  |                           |         |   |                           |   |         |   |  |      |      |  |   |         |   |  |   |         |   |  |      |   
|----------------------------------- |  | ------------------------- | ------- | - | ------------------------- | - | ------- | - |  | ---- | ---- |  | - | ------- | - |  | - | ------- | - |  | ---- | --
|                                    |  | Nine-Mos. Ended Sept. 30, |         |   | Three-Mos Ended Sept. 30, |  
|                                    |  | 2007                      |         |   | 2006                      |   |         |   |  |      | 2007 |  |   | 2006    |   |  |   |        
|Residential Property                |  |                           |         |   |                           |   |         |   |  |      |      |  |   |         |   |  |   |         |   |  |      |   
|Direct and Assumed Written Premiums |  | $                         | 356,654 |   |                           | $ | 348,926 |   |  | 2.2  | %    |  | $ | 122,738 |   |  | $ | 119,432 |   |  | 2.8  | % 
|Net Written Premiums                |  | $                         | 309,686 |   |                           | $ | 314,236 |   |  | (1.4 | )%   |  | $ | 107,744 |   |  | $ | 106,265 |   |  | 1.4  | % 
|Net Earned Premium                  |  | $                         | 290,057 |   |                           | $ | 291,375 |   |  | (0.5 | )%   |  | $ | 98,904  |   |  | $ | 99,374  |   |  | (0.5 | )%
|Service Fees                        |  |                           | 4,592   |   |                           |   | 4,624   |   |  | (0.7 | )%   |  |   | 1,542   |   |  |   | 1,535   |   |  | 0.5  | % 
|                                    |  |                           |         |   |                           |   |         |   |  |      |      |  |   |         |   |  |   |         |   |  |      |   
|Total Revenues                      |  | $                         | 294,649 |   |                           | $ | 295,999 |   |  | (0.5 | )%   |  | $ | 100,446 |   |  | $ | 100,909 |   |  | (0.5 | )%
|Pre-Tax Income (Loss)               |  | $                         | 44,476  |   |                           | $ | 28,585  |   |  |      |      |  | $ | 16,949  |   |  | $ | 15,281  |   |  |      |   
|Combined Ratio                      |  |                           | 92.0    | % |                           |   | 96.5    | % |  |      |      |  |   | 90.0    | % |  |   | 91.4    | % |  |      |   

On a year-to-date basis, manufactured housing direct and assumed written premiums increased 3.6% to $268.8 million
compared to $259.5 million in the first nine months of 2006. For the three month period ended September 30, 2007, manufactured housing direct and assumed written premiums increased 4.4% to $91.9 million compared to $88.0 million in last
years third quarter. Site built dwelling premiums increased 6.2% and 5.9% in the first nine and three month periods of 2007, respectively. These increases were offset by a decrease of $13.4 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.

The increase in pre-tax income for the nine month period ended September 30, 2007 was primarily due to the improved combined ratio of our manufactured housing and
site built dwelling products. The combined ratios decreased to 92.0% and 92.2% from 94.7% and 103.9%, respectively, through nine months ended 2006. The decrease in loss ratios is mainly due to the decreased catastrophe losses experienced during the
first nine months of 2007 as compared to the similar period in 2006.

Recreational Casualty

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



|                                    |  |                           |        |   |                           |   |        |   |  |      |      |  |   |        |   |  |   |        |   |  |      |   
|----------------------------------- |  | ------------------------- | ------ | - | ------------------------- | - | ------ | - |  | ---- | ---- |  | - | ------ | - |  | - | ------ | - |  | ---- | --
|                                    |  | Nine-Mos. Ended Sept. 30, |        |   | Three-Mos Ended Sept. 30, |  
|                                    |  | 2007                      |        |   | 2006                      |   |        |   |  |      | 2007 |  |   | 2006   |   |  |   |       
|Recreational Casualty               |  |                           |        |   |                           |   |        |   |  |      |      |  |   |        |   |  |   |        |   |  |      |   
|Direct and Assumed Written Premiums |  | $                         | 81,134 |   |                           | $ | 78,271 |   |  | 3.7  | %    |  | $ | 25,386 |   |  | $ | 23,997 |   |  | 5.8  | % 
|Net Written Premiums                |  | $                         | 79,527 |   |                           | $ | 77,115 |   |  | 3.1  | %    |  | $ | 24,656 |   |  | $ | 23,598 |   |  | 4.5  | % 
|Net Earned Premium                  |  | $                         | 70,156 |   |                           | $ | 72,165 |   |  | (2.8 | )%   |  | $ | 23,794 |   |  | $ | 23,824 |   |  | (0.1 | )%
|Service Fees                        |  |                           | 1,342  |   |                           |   | 1,322  |   |  | 1.5  | %    |  |   | 451    |   |  |   | 439    |   |  | 2.7  | % 
|                                    |  |                           |        |   |                           |   |        |   |  |      |      |  |   |        |   |  |   |        |   |  |      |   
|Total Revenues                      |  | $                         | 71,498 |   |                           | $ | 73,487 |   |  | (2.7 | )%   |  | $ | 24,245 |   |  | $ | 24,263 |   |  | (0.1 | )%
|Pre-Tax Income (Loss)               |  | $                         | 298    |   |                           | $ | 6,682  |   |  |      |      |  | $ | (2,796 | ) |  | $ | (1,178 | ) |  |      |   
|Combined Ratio                      |  |                           | 107.7  | % |                           |   | 98.3   | % |  |      |      |  |   | 119.6  | % |  |   | 112.5  | % |  |      |   

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 $2.2 million, $3.6 million and $2.4 million, respectively, on a year-to-date basis and $0.6 million, $1.5 million and $0.6 million, respectively, for the third quarter
compared to similar periods in 2006. These increases were offset by decreases in our watercraft product, which decreased $5.4 million on a year-to-date basis and $1.4 million for the third quarter compared to similar periods in 2006. The decrease in
watercraft was due to continuing underwriting actions to balance coastal exposures.



15



---

The pre-tax income decreased for the third quarter and year-to-date due partially to an increase in the motorcycle
combined ratios for the nine and three month periods ending September 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 nine month period ended September 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).



|                                    |  |                           |         |   |                            |   |        |   |  |      |      |  |   |        |   |  |   |        |   |  |      |  
|----------------------------------- |  | ------------------------- | ------- | - | -------------------------- | - | ------ | - |  | ---- | ---- |  | - | ------ | - |  | - | ------ | - |  | ---- | -
|                                    |  | Nine-Mos. Ended Sept. 30, |         |   | Three-Mos. Ended Sept. 30, |  
|                                    |  | 2007                      |         |   | 2006                       |   |        |   |  |      | 2007 |  |   | 2006   |   |  |   |       
|Financial Institutions              |  |                           |         |   |                            |   |        |   |  |      |      |  |   |        |   |  |   |        |   |  |      |  
|Direct and Assumed Written Premiums |  | $                         | 162,908 |   |                            | $ | 90,063 |   |  | 80.9 | %    |  | $ | 62,331 |   |  | $ | 41,903 |   |  | 48.8 | %
|Net Written Premiums                |  | $                         | 152,816 |   |                            | $ | 82,966 |   |  | 84.2 | %    |  | $ | 58,103 |   |  | $ | 40,145 |   |  | 44.7 | %
|Net Earned Premium/Total Revenues   |  | $                         | 136,469 |   |                            | $ | 74,392 |   |  | 83.4 | %    |  | $ | 49,195 |   |  | $ | 30,471 |   |  | 61.4 | %
|Pre-Tax Income                      |  | $                         | 17,659  |   |                            | $ | 9,395  |   |  |      |      |  | $ | 7,789  |   |  | $ | 4,212  |   |  |      |  
|Combined Ratio                      |  |                           | 91.2    | % |                            |   | 92.0   | % |  |      |      |  |   | 88.2   | % |  |   | 90.5   | % |  |      |  

The increase in direct and assumed written premiums for our financial institutions insurance products was
primarily driven by the mortgage fire and collateral protection products which increased $62.6 million and $22.2 million, respectively, on a year-to-date basis and $24.9 million and $4.8 million, respectively, for the third quarter of 2007 compared
to the similar period in 2006. This growth was mainly due to continuing increased premium volume from several significant business relationships that were initiated during the third quarter of 2006. Profitability increased for the nine and three
month periods ended September 30, 2007 due primarily to the increased premium volume.

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).



|                                    |  |                           |         |      |                            |         |  |        |      |  |      |        |  |   |        |  |        |   
|----------------------------------- |  | ------------------------- | ------- | ---- | -------------------------- | ------- |  | ------ | ---- |  | ---- | ------ |  | - | ------ |  | ------ | --
|                                    |  | Nine-Mos. Ended Sept. 30, |         |      | Three-Mos. Ended Sept. 30, |        
|                                    |  | 2007                      |         | 2006 |                            |         |  |        | 2007 |  | 2006 |        |  |  
|All Other Insurance                 |  |                           |         |      |                            |         |  |        |      |  |      |        |  |   |        |  |        |   
|Direct and Assumed Written Premiums |  | $                         | 125,761 |      | $                          | 113,588 |  | 10.7   | %    |  | $    | 42,364 |  | $ | 41,752 |  | 1.5    | % 
|Net Written Premiums                |  | $                         | 66,228  |      | $                          | 58,061  |  | 14.1   | %    |  | $    | 22,900 |  | $ | 21,269 |  | 7.7    | % 
|Net Earned Premium                  |  | $                         | 65,559  |      | $                          | 59,299  |  | 10.6   | %    |  | $    | 21,821 |  | $ | 22,060 |  | (1.1   | )%
|Agency Revenues                     |  |                           | 4,057   |      |                            | 3,791   |  | 7.0    | %    |  |      | 1,305  |  |   | 1,305  |  | 0.0    | % 
|Service Fees                        |  |                           |        |      |                            | 5       |  | (100.0 | )%   |  |      |       |  |   | 2      |  | (100.0 | )%
|                                    |  |                           |         |      |                            |         |  |        |      |  |      |        |  |   |        |  |        |   
|Total Revenues                      |  | $                         | 69,618  |      | $                          | 63,095  |  | 10.3   | %    |  | $    | 23,128 |  | $ | 23,367 |  | (1.0   | )%
|Pre-Tax Income                      |  | $                         | 23,563  |      | $                          | 17,675  |  |        |      |  | $    | 8,061  |  | $ | 3,126  |  |        |   

American Moderns excess and surplus lines and credit life products were the primary drivers of the increase
in gross written premiums for the first nine months of 2007. Excess and surplus and credit life direct and assumed written premiums increased $3.6 and $11.3 million, respectively. 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 for the nine and three month periods of
2007 compared to 2006 due partially to improved results in our credit life products, as well as a larger premium base on a year to date basis. In addition, profitability increased for the third quarter due to an overall improvement in our park and
dealer business and increased profitability from our Ameritrac loan tracking system.



16



---

Midland Consolidated

Investment Income and Realized Capital Gains

Third quarter net investment income increased to $11.9 million in 2007 from $10.5 million in
2006. On a year-to-date basis, net investment income increased to $35.1 million in 2007 compared to $31.0 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 nine months of 2007 compared to 5.8% for the first nine 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):



|                                |  |                                   |        |   |                                   |   |       |                   |  |   |                    |   |  |                      |       |   |                    |   |       |   |  |   |       |  
|------------------------------- |  | --------------------------------- | ------ | - | --------------------------------- | - | ----- | ----------------- |  | - | ------------------ | - |  | -------------------- | ----- | - | ------------------ | - | ----- | - |  | - | ----- | -
|                                |  | Nine Months Ended Sept. 30, 2007  |        |   | Nine Months Ended Sept. 30, 2006  |  
|                                |  | Pre-TaxGain (Loss)                |        |   | After-TaxGain (Loss)              |   |       | EarningsPer Share |  |   | Pre-TaxGain (Loss) |   |  | After-TaxGain (Loss) |       |   | EarningsPer Share  |  
|Capital Gains, net              |  | $                                 | 11,752 |   |                                   | $ | 8,101 |                   |  | $ | 0.41               |   |  | $                    | 4,809 |   |                    | $ | 3,126 |   |  | $ | 0.16  |  
|Derivatives                     |  |                                   | 399    |   |                                   |   | 259   |                   |  |   | 0.01               |   |  |                      | 683   |   |                    |   | 444   |   |  |   | 0.02  |  
|                                |  |                                   |        |   |                                   |   |       |                   |  |   |                    |   |  |                      |       |   |                    |   |       |   |  |   |       |  
|Total Realized Investment Gains |  | $                                 | 12,151 |   |                                   | $ | 8,360 |                   |  | $ | 0.42               |   |  | $                    | 5,492 |   |                    | $ | 3,570 |   |  | $ | 0.18  |  
|                                |  |                                   |        |   |                                   |   |       |                   |  |   |                    |   |  |                      |       |   |                    |   |       |   |  |   |       |  
|                                |  |                                  
|                                |  | Three Months Ended Sept. 30, 2007 |        |   | Three Months Ended Sept. 30, 2006 |  
|                                |  | Pre-TaxGain (Loss)                |        |   | After-TaxGain (Loss)              |   |       | EarningsPer Share |  |   | Pre-TaxGain (Loss) |   |  | After-TaxGain (Loss) |       |   | Earnings Per Share |  
|Capital Gains, net              |  | $                                 | 4,539  |   |                                   | $ | 3,289 |                   |  | $ | 0.16               |   |  | $                    | 1,295 |   |                    | $ | 842   |   |  | $ | 0.04  |  
|Derivatives                     |  |                                   | (521   | ) |                                   |   | (339  | )                 |  |   | (0.01              | ) |  |                      | (201  | ) |                    |   | (131  | ) |  |   | (0.01 | )
|                                |  |                                   |        |   |                                   |   |       |                   |  |   |                    |   |  |                      |       |   |                    |   |       |   |  |   |       |  
|Total Realized Investment Gains |  | $                                 | 4,018  |   |                                   | $ | 2,950 |                   |  | $ | 0.15               |   |  | $                    | 1,094 |   |                    | $ | 711   |   |  | $ | 0.03  |  
|                                |  |                                   |        |   |                                   |   |       |                   |  |   |                    |   |  |                      |       |   |                    |   |       |   |  |   |       |  

The Company experienced no other-than-temporary impairments during the nine or three month periods ended
September 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 $28.4 million and $5.7 million for the nine and three month periods ended September 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 third quarter of 2007 of $17.0 million compared to $14.2 million in the prior years third quarter. Pre-tax income was $5.7 million for the third
quarter of 2007 compared to $2.3 million in the third quarter of 2006. On a year-to-date basis, M/G Transport reported revenues of $46.2 million in 2007 compared to $38.5 million in 2006. Pre-tax income was $14.8 million for the first nine months of
2007 compared to $5.9 million for the first nine 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.



17



---

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 September 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                    |  | $     | 103,541 |                        | $ | 25,076    |  | $            | 78,465  |  | $ |      
|Other notes payable                            |  |       | 8,805   |                        |   | 8,805     |  |              |        |  |   |      
|Annual commitments under non-cancelable leases |  |       | 31,086  |                        |   | 2,587     |  |              | 10,053  |  |   | 18,446
|Purchase obligations                           |  |       | 11,220  |                        |   | 8,926     |  |              | 2,294   |  |   |      
|Insurance policy loss reserves                 |  |       | 227,277 |                        |   | 125,912   |  |              | 87,047  |  |   | 14,318
|                                               |  |       |         |                        |   |           |  |              |         |  |   |       
|Total                                          |  | $     | 381,929 |                        | $ | 171,306   |  | $            | 177,859 |  | $ | 32,764
|                                               |  |       |         |                        |   |           |  |              |         |  |   |       

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 September 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.

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. As of September 30, 2007 future lease
payments required under these operating lease arrangements are (000s): within 1 year  $2,444; 1 through 3 years  $4,978; 3 through 5 years  $5,069; after 5 years  $18,446. 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 $7.4 million related to a contract to acquire an additional 16 jumbo open barges in the fourth quarter of
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 nine months of 2007 and a total of 1,086,000 shares remain authorized to repurchase under terms of this authority.

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 nine and three month periods ended September 30, 2007, the Company repurchased approximately $1.8 million and $0.1 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.



18



---

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 September 30, 2007, Midland had $8.8 million of commercial paper debt
outstanding, $7.6 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 5.35% as of September 30, 2007, a rate that
management considers to be competitive with the market rates offered for similar instruments. As of September 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 September 30, 2007. These short-term borrowings decreased $9.1 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 September 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 6.53% at
September 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 9.03% at September 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 $44.4 million to
$1,075.7 million at September 30, 2007 from $1,031.3 million at December 31, 2006. This increase was due primarily to purchases of additional equity and fixed income securities offset by a $18.8 million decrease in unrealized appreciation
in the market value of securities held. The decrease in the unrealized appreciation was due to a $6.6 million decrease in unrealized appreciation related to the fixed income portfolio and a $12.2 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 $78.7 million in market value as of September 30, 2007 from $88.8 million as of December 31, 2006.



19



---

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 September 30, 2007



|                                                                       |  |                       |        |   |            |   |                |  |      
|---------------------------------------------------------------------- |  | --------------------- | ------ | - | ---------- | - | -------------- |  | -----
|                                                                       |  | UnrealizedGain (Loss) |        |   | Fair Value |   | # of Positions
|Fixed Income Securities                                                |  |                       |        |   |            |   |                |  |      
|Total held in a gain position                                          |  | $                     | 8,740  |   |            | $ | 479,890        |  | 802  
|Held in a loss position for less than 3 months                         |  |                       | (210   | ) |            |   | 20,494         |  | 35   
|Held in a loss position for more than 3 months and less than 9 months  |  |                       | (2,361 | ) |            |   | 160,043        |  | 174  
|Held in a loss position for more than 9 months and less than 18 months |  |                       | (761   | ) |            |   | 38,881         |  | 56   
|Held in a loss position for more than 18 months                        |  |                       | (3,331 | ) |            |   | 114,715        |  | 165  
|                                                                       |  |                       |        |   |            |   |                |  |      
|Fixed income total                                                     |  | $                     | 2,077  |   |            | $ | 814,023        |  | 1,232
|                                                                       |  |                       |        |   |            |   |                |  |      



|                                                                       |  |                       |         |   |            |   |                |  |      
|---------------------------------------------------------------------- |  | --------------------- | ------- | - | ---------- | - | -------------- |  | -----
|                                                                       |  | UnrealizedGain (Loss) |         |   | Fair Value |   | # of Positions
|Equity Securities                                                      |  |                       |         |   |            |   |                |  |      
|Total held in a gain position                                          |  | $                     | 103,377 |   |            | $ | 206,405        |  | 152  
|Held in a loss position for less than 3 months                         |  |                       | (2,429  | ) |            |   | 35,951         |  | 37   
|Held in a loss position for more than 3 months and less than 9 months  |  |                       | (1,048  | ) |            |   | 5,883          |  | 13   
|Held in a loss position for more than 9 months and less than 18 months |  |                       | (5      | ) |            |   | 1              |  | 2    
|Held in a loss position for more than 18 months                        |  |                       | (87     | ) |            |   | 2,270          |  | 3    
|                                                                       |  |                       |         |   |            |   |                |  |      
|Equity total                                                           |  | $                     | 99,808  |   |            | $ | 250,510        |  | 207  
|                                                                       |  |                       |         |   |            |   |                |  |      
|Total per above                                                        |  | $                     | 101,885 |   |            | $ | 1,064,533      |  | 1,439
|                                                                       |  |                       |         |   |            |   |                |  |      
|Accrued interest and dividends                                         |  |                       |        |   |            |   | 11,173         |  |      
|                                                                       |  |                       |         |   |            |   |                |  |      
|Total per balance sheet                                                |  | $                     | 101,885 |   |            | $ | 1,075,706      |  |      
|                                                                       |  |                       |         |   |            |   |                |  |      

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 September 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 September 30, 2007 was 4.8 years which management believes provides adequate asset/liability matching. The duration decreased to 4.8 years from 5.0 years as of September 30, 2006 as Midland 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 $10.7 million for the first nine months of 2007 and a total of $51.0 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 $30 million to $35 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



20



---

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 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 $38.0 million at September 30, 2007.

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

At September 30, 2007, Midlands accounts receivable increased 12.2% to $166.3 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 third 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 September 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 September 30, 2007 and December 31, 2006 consisted of the following amounts (amounts in 000s):



|                                        |  |                   |         |                   |   |        
|--------------------------------------- |  | ----------------- | ------- | ----------------- | - | -------
|                                        |  | September 30,2007 |         | December 31, 2006
|Prepaid reinsurance premiums            |  |                   | 67,082  |                   |   | 67,063 
|Reinsurance recoverable  unpaid losses |  |                   | 54,485  |                   |   | 54,550 
|Reinsurance recoverable  paid losses   |  |                   | 8,026   |                   |   | 6,893  
|                                        |  |                   |         |                   |   |        
|Total                                   |  | $                 | 129,593 |                   | $ | 128,506
|                                        |  |                   |         |                   |   |        

Property, plant and equipment increased $22.5 million to
$141.4 at September 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, and continuing investment in modernLINK®. The expansion, which was completed in September 2007, added 205,000 square feet of new office space and expanded an existing training center by 20,000 square feet. The new facility has been
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 now that construction is completed.

Unearned insurance premiums increased to $491.6 million at September 30, 2007 compared to $445.3 million at December 31, 2006. In addition, Deferred Policy
Acquisition costs increased to $113.1 million at September 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 nine
months of 2007. See the Results of Operations section for further discussion surrounding the reasons for our growth in direct and assumed written premiums.



21



---

Insurance loss reserves at September 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 September 30, 2007 and December 31, 2006 (amounts in 000s):



|                                              |  |                   |         |                  |   |        
|--------------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                                              |  | September 30,2007 |         | December 31,2006
|Gross case base loss reserves:                |  |                   |         |                  |   |        
|Residential property                          |  | $                 | 44,822  |                  | $ | 43,736 
|Recreational casualty                         |  |                   | 29,600  |                  |   | 23,160 
|Financial institutions                        |  |                   | 11,147  |                  |   | 11,004 
|All other insurance                           |  |                   | 71,070  |                  |   | 71,896 
|Gross loss reserves incurred but not reported |  |                   | 49,857  |                  |   | 51,107 
|Outstanding checks and drafts                 |  |                   | 20,781  |                  |   | 20,736 
|                                              |  |                   |         |                  |   |        
|Total insurance loss reserves                 |  | $                 | 227,277 |                  | $ | 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.

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 September 30, 2007, the transportation subsidiaries had $15.7 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 nine and three month periods ended
September 30, 2007 and 2006, such changes increased or (decreased), net of related income tax effects, by the following (amounts in $000s):



|                                         |  |                             |         |   |                              |   |       |      |  |   |        |   |  |   |       
|---------------------------------------- |  | --------------------------- | ------- | - | ---------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------
|                                         |  | Nine Months Ended Sept. 30, |         |   | Three Months Ended Sept. 30,
|                                         |  | 2007                        |         |   | 2006                         |   |       | 2007 |  |   | 2006  
|Changes in net unrealized capital gains: |  |                             |         |   |                              |   |       |      |  |   |        |   |  |   |       
|Equity securities                        |  | $                           | (7,948  | ) |                              | $ | 8,332 |      |  | $ | (5,778 | ) |  | $ | 6,471 
|Fixed income securities                  |  |                             | (4,294  | ) |                              |   | (380  | )    |  |   | 4,665  |   |  |   | 10,416
|                                         |  |                             |         |   |                              |   |       |      |  |   |        |   |  |   |       
|Total                                    |  | $                           | (12,242 | ) |                              | $ | 7,952 |      |  | $ | (1,113 | ) |  | $ | 16,887
|                                         |  |                             |         |   |                              |   |       |      |  |   |        |   |  |   |       

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



22



---

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 section of 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.

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.



23



---

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 4.8 year duration of the
Companys fixed income portfolio as of September 30, 2007, management estimates that a 100 basis point increase in interest rates would decrease the market value of its $823.9 million fixed income portfolio by 4.8%, or $39.5 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 September 30, 2007, the Company had $251.8 million in equity holdings, including $78.7 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 $7.9 million. As of September 30, 2007, the remainder of the Companys portfolio of equity securities had a beta
coefficient (a measure of stock price volatility) of 0.95. 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 9.5%.

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 third fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



24



---

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 September 30, 2007, and the related condensed consolidated statements of income for the nine-month and
three-month periods ended September 30, 2007 and 2006, and of changes in shareholders equity and cash flows for the nine-month periods ended September 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 contains
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

November 2, 2007



25



---

PART II. OTHER INFORMATION

THE MIDLAND COMPANY AND SUBSIDIARIES

SEPTEMBER 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 nine and three month periods ended September 30, 2007, 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, 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 16,348 shares and 3,307 shares from the Plan during the nine and three month periods ended September 30, 2007, respectively.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None



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

None



|Item 5. | Other Information
|------- | -----------------

None



|Item 6. | Exhibits
|------- | --------



Exhibit 2.1

Agreement and Plan of Merger, dated October 16, 2007, among Company, Parent and Merger Sub (Incorporated by reference to the Form 8-K filed on October 16, 2007)Exhibit 10.1

Letter Agreement dated as of October 16, 2007 between the Company and John I. Von Lehman (Incorporated by reference to the Form 8-K filed on October 16, 2007)Exhibit 10.2

Letter Agreement dated as of October 16, 2007 between the company and Paul T. Brizzolara (Incorporated by reference to the Form 8-K filed on October 16, 2007)Exhibit 15

Letter re: Unaudited Interim Financial InformationExhibit 31.1

Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934Exhibit 31.2

Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934Exhibit 32

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. § 1350




26



---

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 November 9, 2007 |  | /s/ W. Todd Gray                                                  
|                      |  | W. Todd Gray, Executive Vice President and Chief
Financial Officer



27