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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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



For the Quarterly Period ended June 30, 2005.



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



For the transition period from  to
.



Commission file number 000-28249



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AMERINST INSURANCE GROUP, LTD.

(Exact Name of Registrant as Specified in its Charter)



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



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



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



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).    Yes ̈No  x



As of August 2, 2005, the
registrant had 331,751 common shares, $1.00 par value per share outstanding.



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Part IFINANCIAL INFORMATION



Item 1. Financial Statements



AMERINST INSURANCE GROUP, LTD.



CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                                      |  |                     |            |   |                         |   |            |  
|----------------------------------------------------------------------------------------------------- |  | ------------------- | ---------- | - | ----------------------- | - | ---------- | -
|                                                                                                      |  | As of June 30, 2005 |            |   | As of December 31, 2004 |  
|ASSETS                                                                                                |  |                     |            |   |                         |   |            |  
|INVESTMENTS                                                                                           |  |                     |            |   |                         |   |            |  
|Fixed maturity investments, at market value (amortized cost $26,672,685 and $30,329,960)              |  | $                   | 26,576,929 |   |                         | $ | 30,497,450 |  
|Equity securities, at market value (cost $15,441,147 and $15,180,184)                                 |  |                     | 20,513,589 |   |                         |   | 21,294,767 |  
|                                                                                                      |  |                     |            |   |                         |   |            |  
|TOTAL INVESTMENTS                                                                                     |  |                     | 47,090,518 |   |                         |   | 51,792,217 |  
|Cash and cash equivalents                                                                             |  |                     | 2,333,661  |   |                         |   | 1,523,928  |  
|Assumed reinsurance balances receivable                                                               |  |                     | 381,225    |   |                         |   | 877,846    |  
|Fund deposit with a reinsurer                                                                         |  |                     | 95,026     |   |                         |   | 137,328    |  
|Accrued investment income                                                                             |  |                     | 210,985    |   |                         |   | 241,909    |  
|Deferred policy acquisition costs                                                                     |  |                     | 1,142,426  |   |                         |   | 1,147,815  |  
|Prepaid expenses and other assets                                                                     |  |                     | 225,706    |   |                         |   | 215,268    |  
|                                                                                                      |  |                     |            |   |                         |   |            |  
|TOTAL ASSETS                                                                                          |  | $                   | 51,479,547 |   |                         | $ | 55,936,311 |  
|                                                                                                      |  |                     |            |   |                         |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                  |  |                     |            |   |                         |   |            |  
|LIABILITIES                                                                                           |  |                     |            |   |                         |   |            |  
|Unpaid losses and loss adjustment expenses                                                            |  | $                   | 30,058,025 |   |                         | $ | 29,701,842 |  
|Unearned premiums                                                                                     |  |                     | 3,846,875  |   |                         |   | 3,890,900  |  
|Assumed reinsurance balances payable                                                                  |  |                     | 472,988    |   |                         |   |           |  
|Accrued expenses and other liabilities                                                                |  |                     | 472,143    |   |                         |   | 231,936    |  
|                                                                                                      |  |                     |            |   |                         |   |            |  
|TOTAL LIABILITIES                                                                                     |  |                     | 34,850,031 |   |                         |   | 33,824,678 |  
|                                                                                                      |  |                     |            |   |                         |   |            |  
|STOCKHOLDERS EQUITY                                                                                  |  |                     |            |   |                         |   |            |  
|Common shares, $1 par value, 500,000 shares authorized, 2005 and 2004: 331,751 issued and outstanding |  |                     | 331,751    |   |                         |   | 331,751    |  
|Additional paid-in capital                                                                            |  |                     | 6,801,870  |   |                         |   | 6,801,870  |  
|Retained earnings                                                                                     |  |                     | 10,304,416 |   |                         |   | 10,000,521 |  
|Accumulated other comprehensive income                                                                |  |                     | 4,976,686  |   |                         |   | 6,282,073  |  
|Shares held by subsidiary (102,647 and 34,057 shares) at cost                                         |  |                     | (5,785,207 | ) |                         |   | (1,304,582 | )
|                                                                                                      |  |                     |            |   |                         |   |            |  
|TOTAL STOCKHOLDERS EQUITY                                                                            |  |                     | 16,629,516 |   |                         |   | 22,111,633 |  
|                                                                                                      |  |                     |            |   |                         |   |            |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                            |  | $                   | 51,479,547 |   |                         | $ | 55,936,311 |  
|                                                                                                      |  |                     |            |   |                         |   |            |  



See the accompanying
notes to the unaudited condensed consolidated financial statements.



2



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AMERINST INSURANCE GROUP, LTD.



CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS, COMPREHENSIVE INCOME

AND RETAINED EARNINGS

(Unaudited)



|                                                                      |  |                               |            |   |                               |   |           |                                 |  |   |                                 |   |  |   |           |  
|--------------------------------------------------------------------- |  | ----------------------------- | ---------- | - | ----------------------------- | - | --------- | ------------------------------- |  | - | ------------------------------- | - |  | - | --------- | -
|                                                                      |  | Six Months Ended Jun 30, 2005 |            |   | Six Months Ended Jun 30, 2004 |   |           | Three Months Ended Jun 30, 2005 |  |   | Three Months Ended Jun 30, 2004 |  
|REVENUE                                                               |  |                               |            |   |                               |   |           |                                 |  |   |                                 |   |  |   |           |  
|Net premiums earned                                                   |  | $                             | 4,466,848  |   |                               | $ | 4,256,420 |                                 |  | $ | 2,301,932                       |   |  | $ | 2,207,270 |  
|Net investment income                                                 |  |                               | 538,052    |   |                               |   | 593,197   |                                 |  |   | 302,878                         |   |  |   | 165,194   |  
|Net realized gain on investments                                      |  |                               | 962,224    |   |                               |   | 187,051   |                                 |  |   | 536,815                         |   |  |   | 89,876    |  
|TOTAL REVENUE                                                         |  |                               | 5,967,124  |   |                               |   | 5,036,668 |                                 |  |   | 3,141,625                       |   |  |   | 2,462,340 |  
|LOSSES AND EXPENSES                                                   |  |                               |            |   |                               |   |           |                                 |  |   |                                 |   |  |   |           |  
|Losses and loss adjustment expenses                                   |  |                               | 3,151,630  |   |                               |   | 3,400,935 |                                 |  |   | 1,636,189                       |   |  |   | 1,764,244 |  
|Policy acquisition costs                                              |  |                               | 1,318,411  |   |                               |   | 1,239,475 |                                 |  |   | 679,761                         |   |  |   | 644,703   |  
|Operating and management expenses                                     |  |                               | 893,755    |   |                               |   | 646,058   |                                 |  |   | 540,083                         |   |  |   | 379,438   |  
|TOTAL LOSSES AND EXPENSES                                             |  |                               | 5,363,796  |   |                               |   | 5,286,468 |                                 |  |   | 2,856,033                       |   |  |   | 2,788,385 |  
|NET INCOME (LOSS)                                                     |  | $                             | 603,328    |   |                               | $ | (249,800  | )                               |  | $ | 285,592                         |   |  | $ | (326,045  | )
|OTHER COMPREHENSIVE INCOME (LOSS)                                     |  |                               |            |   |                               |   |           |                                 |  |   |                                 |   |  |   |           |  
|Net unrealized holding gains (losses) arising during the period       |  |                               | (343,163   | ) |                               |   | 400,090   |                                 |  |   | 395,128                         |   |  |   | 441,313   |  
|Reclassification adjustment for (gains) included in net income (loss) |  |                               | (962,224   | ) |                               |   | (187,051  | )                               |  |   | (536,815                        | ) |  |   | (89,876   | )
|OTHER COMPREHENSIVE INCOME (LOSS)                                     |  |                               | (1,305,387 | ) |                               |   | 213,039   |                                 |  |   | (141,687                        | ) |  |   | 351,437   |  
|COMPREHENSIVE INCOME (LOSS)                                           |  | $                             | (702,059   | ) |                               | $ | (36,764   | )                               |  | $ | 143,905                         |   |  | $ | 25,389    |  
|RETAINED EARNINGS, BEGINNING OF PERIOD                                |  | $                             | 10,000,521 |   |                               | $ | 8,701,072 |                                 |  | $ | 10,167,368                      |   |  | $ | 8,582,167 |  
|Net income (loss)                                                     |  |                               | 603,328    |   |                               |   | (249,800  | )                               |  |   | 285,592                         |   |  |   | (326,045  | )
|Dividends                                                             |  |                               | (299,433   | ) |                               |   | (389,517  | )                               |  |   | (148,544                        | ) |  |   | (194,367  | )
|RETAINED EARNINGS, END OF PERIOD                                      |  | $                             | 10,304,416 |   |                               | $ | 8,061,755 |                                 |  | $ | 10,304,416                      |   |  | $ | 8,061,755 |  
|Per share amounts                                                     |  |                               |            |   |                               |   |           |                                 |  |   |                                 |   |  |   |           |  
|Net income (loss)                                                     |  | $                             | 2.53       |   |                               | $ | (0.83     | )                               |  | $ | 1.24                            |   |  | $ | (1.09     | )
|Dividends                                                             |  | $                             | 1.30       |   |                               | $ | 1.30      |                                 |  | $ | 0.65                            |   |  | $ | 0.65      |  
|Weighted average number of shares outstanding for the entire period   |  |                               | 237,804    |   |                               |   | 299,655   |                                 |  |   | 229,419                         |   |  |   | 299,379   |  



See the accompanying
notes to the unaudited condensed consolidated financial statements.



3



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AMERINST INSURANCE GROUP, LTD.



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                  |  |                               |             |   |                               |   |             |  
|------------------------------------------------- |  | ----------------------------- | ----------- | - | ----------------------------- | - | ----------- | -
|                                                  |  | Six Months Ended Jun 30, 2005 |             |   | Six Months Ended Jun 30, 2004 |  
|OPERATING ACTIVITIES                              |  |                               |             |   |                               |   |             |  
|Net Cash Provided by Operating Activities         |  | $                             | 2,491,286   |   |                               | $ | 1,808,788   |  
|                                                  |  |                               |             |   |                               |   |             |  
|INVESTING ACTIVITIES                              |  |                               |             |   |                               |   |             |  
|Purchases of investments                          |  |                               | (16,267,677 | ) |                               |   | (17,277,558 | )
|Proceeds from sales and maturities of investments |  |                               | 19,366,182  |   |                               |   | 19,692,027  |  
|                                                  |  |                               |             |   |                               |   |             |  
|Net Cash Provided by Investing Activities         |  |                               | 3,098,505   |   |                               |   | 2,414,469   |  
|                                                  |  |                               |             |   |                               |   |             |  
|FINANCING ACTIVITIES                              |  |                               |             |   |                               |   |             |  
|Purchase of common shares by subsidiary           |  |                               | (4,480,625  | ) |                               |   | (82,074     | )
|Dividends paid                                    |  |                               | (299,433    | ) |                               |   | (3,872,903  | )
|                                                  |  |                               |             |   |                               |   |             |  
|Net Cash Used in Financing Activities             |  |                               | (4,780,058  | ) |                               |   | (3,954,977  | )
|                                                  |  |                               |             |   |                               |   |             |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS         |  | $                             | 809,733     |   |                               | $ | 268,280     |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD    |  | $                             | 1,523,928   |   |                               | $ | 2,180,042   |  
|                                                  |  |                               |             |   |                               |   |             |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD          |  | $                             | 2,333,661   |   |                               | $ | 2,448,322   |  
|                                                  |  |                               |             |   |                               |   |             |  



See the accompanying
notes to the unaudited condensed consolidated financial statements.



4



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AMERINST INSURANCE GROUP, LTD.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2005



Basis of Presentation



The condensed consolidated financial statements included herein have been prepared by AmerInst Insurance Group, Ltd. (AmerInst) without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of the results of
operations for the periods shown. These statements are condensed and do not incorporate all the information required under generally accepted accounting principles to be included in a full set of financial statements. It is suggested that these
condensed statements be read in conjunction with the consolidated financial statements at and for the year ended December 31, 2004 and notes thereto, included in AmerInsts annual report as of that date.



At the June 29, 2005 meeting, the FASB decided not to provide additional
guidance on the meaning of other-than-temporary impairment and directed the staff to issue proposed FSP EITF 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF 03-1, as final. The final FSP will supersede EITF
03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, and EITF D-44, Recognition of Other-Than Temporary Impairment upon the Planned Sale of Security Whose Cost Exceeds Fair Value.
The final FSP (retitled FSP FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments) will replace the guidance set forth in paragraphs 10-18 of EITF 03-1 with references to existing
other-than-temporary impairment guidance, such as FAS 115, SAB 59 and APB 18. FSP FAS 115-1 will codify the guidance set forth in EITF D-44 and clarify that an investor should recognize an impairment loss no later than when the impairment is deemed
other-than-temporary, even if a decision to sell has not been made. The FASB decided that FSP FAS 115-1 would be effective for other-than-temporary impairment analysis conducted in periods beginning after September 15, 2005. The adoption of FSP FAS
115-1 is not expected to have a significant impact on the net income or equity of the Company.



Tender Offer



On
December 17, 2004, AmerInst Investment Company, Ltd. commenced a modified Dutch auction self-tender offer for AmerInst shares. Pursuant to the tender offer, which expired on January 21, 2005, 65,959 shares were accepted for purchase at a
price of $60.00 per share, for a total purchase price of $4,298,229, including tender offer expenses of $340,689.



5



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Part I, Item 2



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



OVERVIEW



Unless otherwise indicated by the context, in this quarterly report we refer to AmerInst Insurance Group, Ltd. and its
subsidiaries as the Company, we or us. Also, unless otherwise indicated by the context, AmerInst means the parent company, AmerInst Insurance Group, Ltd.



Our primary purpose is to maintain an insurance company which is intended to
exert a stabilizing influence on the design, pricing and availability of accountants professional liability insurance. Historically, the sole business activity of our wholly owned insurance company subsidiary, AmerInst Insurance Company, Ltd.,
has been to act as a reinsurer of professional liability insurance policies that are issued under the Professional Liability Insurance Plan sponsored by the American Institute of Certified Public Accountants (AICPA). The AICPA plan offers
professional liability coverage to accounting firms in all 50 states. Currently approximately 24,000 accounting firms are insured under this plan. In 2003, we reinsured insurance written for attorneys professional liability. This participation
terminated on December 31, 2003. We continue to look for ways in which it may be advantageous to expand our business to include the reinsurance of lines of coverage other than accountants professional liability. Any such expansion may be
subject to our obtaining regulatory approvals.



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



Third-party Managers and Service Providers



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



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



Professional Liability Coverage



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



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



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



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



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



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OPERATIONS



Three months ended June 30, 2005 compared to three months ended June 30, 2004:



We recorded net income of $285,592 for the second quarter of 2005 compared to a net loss of $326,045 for the same period of
2004. This improvement was due to an increase in our net premiums earned and a decrease in our recorded losses and an improvement of our investment returns. Our earned premiums for the second quarter of 2005 were $2,301,932 compared to $2,207,270
for the second quarter of 2004, an increase of 4.3%. The increase in earned premiums was due to the timing of policies written under the current treaty compared to the same period in 2004. Net premiums written for the three months ended June 30,
2005 were $2,144,877, compared to $1,368,302 for the second quarter of 2004, an increase of $776,575 or 56.8%. The increase in net premiums written was primarily attributable to premiums written under a new treaty effective June 1, 2005.



Our loss ratio for the second quarter of 2005 was 71.1%, compared to 79.9%
for the same period of 2004. The loss ratio represents our managements current estimate of the effective loss rate selected in consultation with our independent consulting actuary. To determine total losses for the second quarter of 2005, we
multiplied an estimated loss ratio of 70% times the AICPA Professional Liability Insurance Plan net premiums earned and have recorded additional reserves relating to the attorneys professional liability plan. For the second quarter of 2004, to
determine total losses we multiplied an estimated loss ratio of 80% times the AICPA Professional Liability Insurance Plan current premiums earned and 75% times the attorneys professional liability plan net premiums earned. Our actual overall
loss ratio for the year ended December 31, 2004 was 57.6%. The 70% loss ratio applied to the AICPA Professional Liability Insurance Plan current premiums in 2005 is a decrease from the loss ratio of 80% for the comparable period of 2004 due to
favorable loss trends.



7



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AMERINST INSURANCE GROUP, LTD.



OPERATIONS(Continued)



We expensed policy acquisition costs of $679,761 in the second quarter of 2005 compared to $644,703 for the same period of 2004, an increase of $35,058 or
5.4%. These costs were 29.5% and 29.2% of net premiums earned for the quarters ended June 30, 2005 and 2004, respectively. The increase in policy acquisition costs in 2005 is due to the increase in net premiums earned. Policy acquisition costs are
the sum of ceding commissions paid to ceding companies, determined contractually pursuant to reinsurance agreements, and federal excise taxes paid on premiums written to ceding companies.



We expensed operating and management expenses of $540,083 in the second quarter of 2005 compared to $379,438 for the same
period of 2004, an increase of $160,645 or 42.3%. The increase was primarily due to legal expenses incurred in the second quarter of 2005 compared to the same period of 2004.



We recorded a net underwriting loss (net premiums earned less the sum of loss and loss adjustment expenses and policy
acquisition costs) of $14,018 for the second quarter of 2005 compared to a net underwriting loss of $201,677 for the same period of 2004, an improvement of $187,659. The improvement was primarily due to an increase in net premiums earned and a
decrease in recorded losses resulting from using an estimated loss ratio of 71.1% (as a result of favorable loss development) for the second quarter of 2005 compared to an estimated loss ratio of 79.9% for the comparable period in 2004.



We recorded net investment income of $302,878 in the second quarter of
2005 compared to $165,194 for the same period of 2004, an increase of $137,684 or 83.3%. Reasons for the increase included an increase in dividend income generated by the equity portfolio and an increase in net investment income generated by the
fixed income portfolio. Annualized investment yield, calculated as the net average amount of total investments divided by interest and dividend income, was 2.5% for the second quarter of 2005, an increase from the 1.3% yield earned in the second
quarter of 2004. The increase in investment yield was due to an increase in dividend income and an increase in interest rates. Sales of securities during the second quarter of 2005 resulted in realized capital gains of $536,815, compared to gains of
$89,876 in the second quarter of 2004. Gains recorded in the second quarter of 2005 primarily related to sales of equity securities. Proceeds of these sales were subsequently reinvested in other equity securities.



Six months ended June 30, 2005 compared to six months ended June 30, 2004:



We recorded net income of $603,328 for the six months ended June 30, 2005
compared to a net loss of $249,800 for the six months ended June 30, 2004. This improvement is due to an increase in net premiums earned and net realized gain on investments and a decrease in recorded losses and loss adjustment expenses, offset by a
decrease in net investment income, an increase in our policy acquisition costs and operating and management expenses..



Our net premiums earned for the first six months of 2005 were $4,466,848 compared to $4,256,420 for 2004. The change of $210,428 represented a 4.9%
increase. The increase in net premiums earned was attributable to the continued increase of net premiums written under the CNA treaties and premiums written under a new treaty effective June 1, 2005. Premiums written in the six months ended June 30,
2005 were $4,422,824 compared to $3,785,639 for the same period in 2004.



Our loss ratio for the first six months of 2005 was 70.6% compared to 79.9% for the same period of 2004. The loss ratio represents our managements current estimate of the effective loss rate selected in
consultation with our independent consulting actuary. To determine total losses for the first six months of 2005, we multiplied an estimated loss ratio of 70% times the AICPA Professional Liability Insurance Plan net premiums earned and have
recorded additional reserves relating to the attorneys professional liability plan. For the first six months of 2004, to determine total losses we multiplied an estimated loss ratio of 80% times the AICPA Professional Liability Insurance Plan
current premiums earned and 75% times the attorneys professional liability plan net premiums earned. Our actual overall loss ratio for the year ended December 31, 2004 was 57.6%. The 70% loss ratio applied to the AICPA Professional Liability
Insurance Plan current premiums in 2005 is a decrease from the loss ratio of 80% for the comparable period of 2004 due to favorable loss trends.



We expensed policy acquisition costs of $1,318,411 in the first six months of 2005 compared to $1,239,475 for the same period of 2004, an increase of
$78,936 or 6.4%. These costs were 29.5% and 29.1% of premiums earned for the six-month periods ended June 30, 2005 and 2004, respectively. The increase in policy acquisition costs in 2005 was due to the increase in net premiums earned. Policy
acquisition costs are the sum of ceding commissions paid to ceding companies, which are determined contractually pursuant to reinsurance agreements, and federal excise taxes paid on premiums written to ceding companies.



8



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We recorded a net underwriting loss (net premiums earned less the sum of loss and loss adjustment
expenses and policy acquisition costs) of $3,193 for the six month period ended June 30, 2005 compared to net underwriting loss of $383,990 for the same period in 2004, an improvement of $380,797 or 99.2%. The more favorable underwriting results in
2005 were primarily due to an increase in net premiums earned and a decrease in net incurred losses.



We realized capital gains of $962,224 during the six months ended June 30, 2005 compared to $187,051 in capital gains in the same period of 2004. Gains
recorded in 2005 primarily related to sales of equity securities. Proceeds of these sales were reinvested in other equity securities. Net investment income through June 30, 2005 was $538,052 compared to $593,197 for the same period of 2004.
Investment yield for the six months ended June 30, 2005 was approximately 2.1% as compared to 2.3% for the first six months of 2004.



9



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AMERINST INSURANCE GROUP, LTD.



FINANCIAL CONDITION AND LIQUIDITY



As of June 30, 2005, our total investments were $47,090,518, a decrease of $4,701,699 or 9.1% from $51,792,217 at December 31, 2004. The decrease was
primarily due to the sale of fixed income securities to fund the purchase of shares pursuant to the self-tender offer described below. Cash and cash equivalents balances increased from $1,523,928 at December 31, 2004 to $2,333,661 at June 30, 2005,
an increase of $809,733, or 53.1%. The amount of cash and cash equivalents varies depending on the maturities of fixed term investments and on the level of funds invested in money market mutual funds. The ratio of cash and total investments to total
liabilities at June 30, 2005 was 1.42:1, compared to a ratio of 1.58:1 at December 31, 2004.



Assumed reinsurance balances receivable are current assumed premiums receivable less commissions payable to the issuing carriers less assumed losses payable. This balance was a receivable of $877,846 at December 31,
2004 and was $381,225 at June 30, 2005. A $472,988 payable has been recorded as assumed reinsurance balances payable relating to CNA and attorneys professional liability plans. These balances fluctuate due to the timing of renewal premiums
written and assumed losses paid.



The Bermuda Monetary
Authority previously authorized the purchase of up to 15,000 of our shares by AmerInst Investment Company, Ltd. Such purchases are made through privately negotiated transactions and are in addition to our practice of purchasing the shares of
individuals who have died or retired from the practice of public accounting. Subsequently, the Authority authorized blanket permission for AmerInst Investment Company, Ltd. to purchase common shares without limit from individuals who have died or
retired from the practice of public accounting and on a negotiated case-by-case basis. Through August 2, 2005, AmerInst Investment Company, Ltd. had purchased in negotiated transactions at various prices 18,433 common shares for a total purchase
price of $609,503. In addition, through that date, AmerInst Investment Company, Ltd. had purchased 19,208 common shares from individuals who had died or retired for a total purchase price of $948,255. As a condition to the tender offer described
below, the Authority authorized the acquisition by AmerInst Investment Company, Ltd. of up to 20% of our outstanding shares.



On December 17, 2004, AmerInst Investment Company, Ltd. commenced a modified Dutch auction self-tender offer for AmerInst shares. Pursuant to
the tender offer, which expired on January 21, 2005, 65,959 shares were accepted for purchase at a price of $60.00 per share, for a total purchase price of $4,298,229, including tender offer expenses of $340,689.



We paid our fortieth consecutive regular quarterly dividend of $0.65 per
share during the second quarter of 2005. Since AmerInst began paying dividends in 1995, our original shareholders have received approximately $37.00 in cumulative dividends per share, which when measured by a total rate of return calculation has
resulted in an effective annual rate of return of approximately 9.3% from the inception of the Company based on a per share purchase price of $25.00 paid by the original shareholders, and using a value of $60.00 per share as of June 30, 2005.



Critical Accounting Policies



The Companys critical accounting policies are discussed in the
Managements Discussion and Analysis of the results of operations and financial condition contained in our Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 31, 2005.



Forward-Looking Statements



Certain statements contained in this Form 10-Q, or otherwise made by our
officers, including statements related to our future performance and our outlook for our businesses and respective markets, projections, statements of our managements plans or objectives, forecasts of market trends and other matters, are
forward-looking statements, and contain information relating to us that is based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. The words goal,
anticipate, expect, believe and similar expressions as they relate to us or our management, are intended to identify forward-looking statements. No assurance can be given that the results in any forward-looking
statement will be achieved. For the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements provided for in the Private Securities Litigation Act of 1995. Such statements reflect our managements
current views with respect to future events and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those reflected in any forward-looking statements. Factors that might cause such
actual results to differ materially from those reflected in any forward-looking statements include, but are not limited to (i) the occurrence of catastrophic events with a frequency or severity exceeding the Companys expectations; (ii) a
decrease in the level of demand for reinsurance and or an increase in the supply of reinsurance capacity; (iii) increased competitive pressures, including the consolidation and increased globalization of reinsurance providers; (iv) actual losses and



10



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loss expenses exceeding the Companys loss reserves, which are necessarily based on the actuarial and statistical
projections of ultimate losses; (v) changing rates of inflation and other economic conditions; (vi) changes in the legal or regulatory environments in which we operate; and (vii) other risks including those risks identified in any of our other
filings with the Securities and Exchange Commission. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein. Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect our managements analysis only as of the date they are made. We undertake no obligation to release publicly the results of any future revisions we may make to
forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.



Available Information



AmerInsts internet website address is www.amerinst.bm. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission.



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AMERINST INSURANCE GROUP, LTD.



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Inflation



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



Market Sensitive Instruments



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



(a) Interest Rate Risk.



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



(b) Foreign Exchange Risk.



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



(c) Equity Price Risk



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



The table below provides information about our investments available for sale that were sensitive to changes in interest
rates at June 30, 2005 and December 31, 2004 respectively.



|                                       |  |                                 |            |                                 |   |           
|-------------------------------------- |  | ------------------------------- | ---------- | ------------------------------- | - | ----------
|                                       |  | Estimated Fair Value 06/30/2005 |            | Estimated Fair Value 12/31/2004
|Fixed Income Portfolio                 |  |                                 |            |                                 |   |           
|Due in one year or less                |  | $                               | 3,515,225  |                                 | $ | 2,264,181 
|Due after one year through five years  |  |                                 | 3,740,888  |                                 |   | 3,995,323 
|Due after five years through ten years |  |                                 | 0          |                                 |   | 0         
|Due after ten years                    |  |                                 | 0          |                                 |   | 0         
|                                       |  |                                 |            |                                 |   |           
|Sub-total                              |  | $                               | 7,256,113  |                                 | $ | 6,259,504 
|Mortgage backed securities             |  | $                               | 19,320,816 |                                 | $ | 24,237,946
|                                       |  |                                 |            |                                 |   |           
|Total                                  |  | $                               | 26,576,929 |                                 | $ | 30,497,450
|                                       |  |                                 |            |                                 |   |           



12



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AMERINST INSURANCE GROUP, LTD.



Item 4. CONTROLS AND PROCEDURES



As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 under the Securities Exchange Act of 1934, as
amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report
has been made known to them in a timely fashion. There has been no change in our internal control over financial reporting identified in that evaluation that occurred during our last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.



Part II.OTHER INFORMATION



Item 1. Legal Proceedings.



The Company is not a party to any material legal
proceedings.



Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchase of Equity Securities



(a)  (b) None



(c) From time to time, AmerInst Investment Company, Ltd. has
purchased shares of AmerInsts common stock from individual shareholders who have died or retired from the practice of accounting. Through August 2, 2005, AmerInst Investment Company, Ltd. had purchased 19,208 common shares pursuant to such
program.



The following table shows information relating to the
purchase of shares from shareholders who have died or retired from the practice of accounting as described above during the three month period ended June 30, 2005:



|           |  |                                  |  |                              |       |                                                                                 |       |                                                                               |    
|---------- |  | -------------------------------- |  | ---------------------------- | ----- | ------------------------------------------------------------------------------- | ----- | ----------------------------------------------------------------------------- | ---
|           |  | Total Number of Shares Purchased |  | Average Price Paid Per Share |       | Total Number of Shares Purchased as Part of Publicly Announced Plans or Program |       | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Program
|April 2005 |  | 1,890                            |  | $                            | 72.98 |                                                                                 | 1,890 |                                                                               | N/A
|May 2005   |  |                                 |  |                              |      |                                                                                 |      |                                                                               | N/A
|June 2005  |  |                                 |  |                              |      |                                                                                 |      |                                                                               | N/A
|Total      |  | 1,890                            |  | $                            | 72.98 |                                                                                 | 1,890 |                                                                               | N/A



From time to time,
AmerInst Investment Company, Ltd. has also purchased common shares in privately negotiated transactions. Through August 2, 2005, AmerInst Investment Company, Ltd. had purchased 18,433 common shares in such privately negotiated transactions.



The following table shows information relating to the purchase
of common shares pursuant to the program described above during the three month period ended June 30, 2005:



|           |  |                                  |  |                              |       |                                                                                 |     |                                                                               |    
|---------- |  | -------------------------------- |  | ---------------------------- | ----- | ------------------------------------------------------------------------------- | --- | ----------------------------------------------------------------------------- | ---
|           |  | Total Number of Shares Purchased |  | Average Price Paid Per Share |       | Total Number of Shares Purchased as Part of Publicly Announced Plans or Program |     | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Program
|April 2005 |  | 155                              |  | $                            | 60.00 |                                                                                 | 155 |                                                                               | N/A
|May 2005   |  |                                 |  |                              |      |                                                                                 |    |                                                                               | N/A
|June 2005  |  |                                 |  |                              |      |                                                                                 |    |                                                                               | N/A
|Total      |  | 155                              |  | $                            | 60.00 |                                                                                 | 155 |                                                                               | N/A



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



On June 2, 2005, we held our Annual General Meeting of Shareholders. At the
meeting, the following matters were approved by the holders of a majority of our shares:



| | 1. | The proposal to elect Jeffry I. Gillman, Irvin F. Diamond, and Jerrell A. Atkinson as directors of the Company to serve for a term expiring at the 2008 Annual General Meeting of
Shareholders, and to elect John T. Schiffman as a director of the Company to serve for a term expiring at the 2006 Annual General Meeting of Shareholders; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | The proposal to re-appoint Deloitte & Touche as the Companys independent auditors.
| | -- | -----------------------------------------------------------------------------------



The following matters were not approved by shareholders:



| | 3. | The shareholder proposal maximize my shareholder value presented at the Annual General Meeting.
| | -- | -------------------------------------------------------------------------------------------------



| | 4. | The shareholder proposal no voting of treasury shares as presented at the Annual General Meeting
| | -- | --------------------------------------------------------------------------------------------------



The vote with respect to each proposal is set forth below. The 102,647 shares held by
AmerInst Investment Company, Ltd. are included in these totals, and were voted for each of the director nominees, for proposal 2, and against proposals 3 and 4.



|       |  |                                                                                                 |  |         |  |         |  |        
|------ |  | ----------------------------------------------------------------------------------------------- |  | ------- |  | ------- |  | -------
|Matter |  |                                                                                                 |  | For     |  | Against |  | Abstain
|1.     |  | Election of each of the following Individuals as directors of the Company:                      |  |         |  |         |  |        
|       |  | Jeffry I. Gillman                                                                               |  | 182,243 |  |        |  | 11,350 
|       |  | Irvin F. Diamond                                                                                |  | 182,243 |  |        |  | 11,350 
|       |  | Jerrell A. Atkinson                                                                             |  | 182,243 |  |        |  | 11,350 
|       |  | John T. Schiffman                                                                               |  | 182,135 |  |        |  | 11,458 
|       |  |                                                                                                 |  |        
|2.     |  | Appointment of Deloitte & Touche as the Companys independent auditors                          |  | 186,491 |  | 4,976   |  | 2,126  
|       |  |                                                                                                 |  |        
|3.     |  | Shareholder proposal maximize my shareholder value as presented at the Annual General Meeting |  | 37,905  |  | 151,677 |  | 4,011  
|       |  |                                                                                                 |  |        
|4.     |  | Shareholder proposal no voting of treasury shares as presented at the Annual General Meeting  |  | 53,669  |  | 138,227 |  | 1,697  



Item 6. Exhibits



(a) Exhibits



See Index to Exhibits immediately following the signature page.



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SIGNATURES



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.



|                       |  |     |  |                                            |  |                                                                                                                                                 
|---------------------- |  | --- |  | ------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|Dated: August 12, 2005 |  |     |  | AMERINST INSURANCE GROUP, LTD.(Registrant)
|                       |  |     | 
|                       |  |     |  | By:                                        |  | /s/ STUART H. GRAYSTON                                                                                                                          
|                       |  |     |  |                                            |  | Stuart H. Grayston (President and chief executive
officer, duly authorized to sign this Report in such capacity and on behalf of the Registrant)
|                       |  |     | 
|                       |  | And |  |                                            |  |                                                                                                                                                 
|                       |  |     | 
|                       |  |     |  | By:                                        |  | /s/ MURRAY NICOL                                                                                                                                
|                       |  |     |  |                                            |  | Murray Nicol (Vice President and chief financial
officer, duly authorized to sign this Report in such capacity and on behalf of the Registrant) 



15



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AMERINST INSURANCE GROUP, LTD.



INDEX TO EXHIBITS



Filed with the Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2005



|               |  |                                                                                                                                      
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                          
|31.1           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                             
|               | 
|31.2           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                             
|               | 
|32.1           |  | Certification of Stuart Grayston pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
|               | 
|32.2           |  | Certification of Murray Nicol pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.   



16