##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from  to
 Commission File Number: 000-51530
 North Pointe Holdings Corporation
  Michigan
    
    38-3615047(State or Other Jurisdiction of 
Incorporation or Organization)28819 Franklin Road, Southfield, MI
    
    (I.R.S. Employer
Identification No.)48034(Address of Principal Executive Offices)
    
    (Zip Code)
 (248) 358-1171
 (Registrants Telephone Number, Including Area Code)
  þ o
  o o þ
  o þ




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##### 



NORTH POINTE HOLDINGS CORPORATION
FORM 10-Q
 TABLE OF CONTENTS
 PagePart I. Financial InformationItem 1. Financial Statements (Unaudited)
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    36Item 4. Controls and Procedures
    
    37Part II. Other InformationItem 1. Legal Proceedings
    
    38Item 1A. Risk Factors
    
    38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    38Item 3. Defaults Upon Senior Securities
    
    38Item 4. Submission of Matters to a Vote of Security Holders
    
    38Item 5. Other Information
    
    38Item 6. Exhibits
    
    39Stock Purchase AgreementCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to 18 U.S.C. Section 350 and Rule 13a-14(b)Certification of CFO Pursuant to 18 U.S.C. Section 350 and Rule 13a-14(b)Investment Policy and Guidelines
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 North Pointe Holdings Corporation and Subsidiaries
 Condensed Consolidated Balance Sheets
As of September 30, 2007 (Unaudited) and December 31, 2006
 2007
    
    
    2006(Dollars in thousands)ASSETSInvestmentsDebt securities, available for sale, at fair value (amortized cost
of $207,718 and $108,911 in 2007 and 2006, respectively)
    
    $
    208,002
    
    
    $
    107,334Common stocks, available for sale, at fair value (cost of $10,102 and $9,302 in 2007
and 2006, respectively)
    
    
    12,543
    
    
    
    11,376Other investments
    
    
    1,803
    
    
    
    1,088Total investments
    
    
    222,348
    
    
    
    119,798Cash and cash equivalents
    
    
    63,162
    
    
    
    46,039Accrued investment income
    
    
    2,096
    
    
    
    1,236Premiums and agents balances receivable, net
    
    
    28,172
    
    
    
    18,088Reinsurance recoverables onPaid losses
    
    
    6,997
    
    
    
    4,168Unpaid losses
    
    
    50,181
    
    
    
    33,321Prepaid reinsurance premiums
    
    
    7,344
    
    
    
    11,881Deferred policy acquisition costs
    
    
    10,204
    
    
    
    8,848Deferred federal income taxes, net
    
    
    10,453
    
    
    
    5,061Federal income taxes recoverable
    
    
    1,485
    
    
    
    523Fixed assets, net of accumulated depreciation
    
    
    5,799
    
    
    
    5,946Goodwill
    
    
    8,002
    
    
    
    Prepaid expenses and other assets
    
    
    3,273
    
    
    
    2,668Total assets
    
    $
    419,516
    
    
    $
    257,577LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesUnpaid losses and loss adjustment expenses
    
    $
    170,656
    
    
    $
    89,755Unearned premiums
    
    
    59,644
    
    
    
    42,320Debt
    
    
    56,509
    
    
    
    23,131Amounts due to reinsurers
    
    
    1,787
    
    
    
    1,930Accrued expenses and other liabilities
    
    
    26,553
    
    
    
    7,122Amounts withheld for others
    
    
    9,342
    
    
    
    114Premiums in advance
    
    
    545
    
    
    
    4,970Total liabilities
    
    
    325,036
    
    
    
    169,342Commitments and contingent liabilities
    
    
    
    
    
    
    Shareholders equityCommon stock, no par value; 50,000,000 shares authorized; 8,919,329 and 9,122,687
issued and outstanding in 2007 and 2006, respectively
    
    
    48,881
    
    
    
    50,578Preferred stock, no par value; 5,000,000 shares authorized and 0 issued and
outstanding in 2007 and 2006
    
    
    
    
    
    
    Retained earnings
    
    
    43,801
    
    
    
    37,329Accumulated other comprehensive income:Net unrealized gains on investments, net of deferred federal income
tax expense of $927 and $169 in 2007 and 2006, respectively
    
    
    1,798
    
    
    
    328Total shareholders equity
    
    
    94,480
    
    
    
    88,235Total liabilities and shareholders equity
    
    $
    419,516
    
    
    $
    257,577
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##### Table of Contents



North Pointe Holdings Corporation and Subsidiaries
 Unaudited Condensed Consolidated Statements of Income
For the Three Months Ended September 30, 2007 and 2006
 2007
    
    
    2006(Dollars in thousands,except share data)RevenuesDirect premiums written
    
    $
    34,439
    
    
    $
    22,673Assumed premiums written
    
    
    1,637
    
    
    
    2Gross premiums written
    
    
    36,076
    
    
    
    22,675Premiums ceded
    
    
    (6,396
    )
    
    
    (13,962
    )Net premiums written
    
    
    29,680
    
    
    
    8,713Decrease in net unearned premiums
    
    
    5,013
    
    
    
    11,196Net premiums earned
    
    
    34,693
    
    
    
    19,909Investment income, net of investment expenses
    
    
    2,831
    
    
    
    1,755Net realized capital gains
    
    
    293
    
    
    
    81Fees and other income
    
    
    3,063
    
    
    
    404Total revenues
    
    
    40,880
    
    
    
    22,149ExpensesLosses and loss adjustment expenses, net
    
    
    18,599
    
    
    
    7,295Policy acquisition costs
    
    
    10,446
    
    
    
    5,483Other underwriting and operating expenses
    
    
    6,891
    
    
    
    5,664Interest expense
    
    
    1,048
    
    
    
    496Total expenses
    
    
    36,984
    
    
    
    18,938Income before federal income tax expense
    
    
    3,896
    
    
    
    3,211Federal income tax expense
    
    
    1,089
    
    
    
    1,045Net income
    
    $
    2,807
    
    
    $
    2,166Earnings Per ShareBasic
    
    $
    0.32
    
    
    $
    0.24Diluted
    
    
    0.31
    
    
    
    0.24Weighted average number of common shares outstandingBasic
    
    
    8,910,854
    
    
    
    9,114,204Diluted
    
    
    8,916,869
    
    
    
    9,114,915
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##### Table of Contents



North Pointe Holdings Corporation and Subsidiaries
 Unaudited Condensed Consolidated Statements of Income
For the Nine Months Ended September 30, 2007 and 2006
 2007
    
    
    2006(Dollars in thousands,except share data)RevenuesDirect premiums written
    
    $
    96,435
    
    
    $
    90,419Assumed premiums written
    
    
    1,639
    
    
    
    6Gross premiums written
    
    
    98,074
    
    
    
    90,425Premiums ceded
    
    
    (12,306
    )
    
    
    (29,687
    )Net premiums written
    
    
    85,768
    
    
    
    60,738(Increase) decrease in net unearned premiums
    
    
    (9,590
    )
    
    
    578Net premiums earned
    
    
    76,178
    
    
    
    61,316Investment income, net of investment expenses
    
    
    6,704
    
    
    
    4,755Net realized capital gains (losses)
    
    
    785
    
    
    
    (266
    )Fees and other income
    
    
    4,178
    
    
    
    1,291Total revenues
    
    
    87,845
    
    
    
    67,096ExpensesLosses and loss adjustment expenses, net
    
    
    38,143
    
    
    
    27,317Policy acquisition costs
    
    
    22,501
    
    
    
    16,776Other underwriting and operating expenses
    
    
    15,953
    
    
    
    15,355Interest expense
    
    
    2,035
    
    
    
    1,207Total expenses
    
    
    78,632
    
    
    
    60,655Income before federal income tax expense
    
    
    9,213
    
    
    
    6,441Federal income tax expense
    
    
    2,741
    
    
    
    2,179Net income
    
    $
    6,472
    
    
    $
    4,262Earnings Per ShareBasic
    
    $
    0.72
    
    
    $
    0.47Diluted
    
    
    0.72
    
    
    
    0.47Weighted average number of common shares outstandingBasic
    
    
    9,044,542
    
    
    
    9,114,193Diluted
    
    
    9,050,180
    
    
    
    9,114,761
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##### Table of Contents



North Pointe Holdings Corporation and Subsidiaries
 Unaudited Condensed Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss)
For the Three Months Ended September 30, 2007 and 2006
 AccumulatedOtherCommon
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Total(Dollars in thousands)Balances, June 30, 2006
    
    $
    50,398
    
    
    $
    34,749
    
    
    $
    (1,707
    )
    
    $
    83,440Stock-based employee compensation
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    82Comprehensive incomeNet income
    
    
    
    
    
    
    2,166
    
    
    
    
    
    
    
    2,166Unrealized gains on investments, net of
deferred federal income tax expense of $824
    
    
    
    
    
    
    
    
    
    
    1,600
    
    
    
    1,600Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,766Balances, September 30, 2006
    
    $
    50,480
    
    
    $
    36,915
    
    
    $
    (107
    )
    
    $
    87,288Balances, June 30, 2007
    
    $
    48,842
    
    
    $
    40,994
    
    
    $
    75
    
    
    $
    89,911Retirement of common stock
    
    
    (93
    )
    
    
    
    
    
    
    
    
    
    
    (93
    )Stock-based employee compensation
    
    
    132
    
    
    
    
    
    
    
    
    
    
    
    132Comprehensive incomeNet income
    
    
    
    
    
    
    2,807
    
    
    
    
    
    
    
    2,807Unrealized gains on investments, net of deferred federal income tax expense of $888
    
    
    
    
    
    
    
    
    
    
    1,723
    
    
    
    1,723Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,530Balances, September 30, 2007
    
    $
    48,881
    
    
    $
    43,801
    
    
    $
    1,798
    
    
    $
    94,480
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North Pointe Holdings Corporation and Subsidiaries
 Unaudited Condensed Consolidated Statements of Shareholders Equity and Comprehensive Income
For the Nine Months Ended September 30, 2007 and 2006
 AccumulatedOtherCommon
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Total(Dollars in thousands)Balances, December 31, 2005
    
    $
    50,233
    
    
    $
    32,653
    
    
    $
    (659
    )
    
    $
    82,227Stock-based employee compensation
    
    
    247
    
    
    
    
    
    
    
    
    
    
    
    247Comprehensive incomeNet income
    
    
    
    
    
    
    4,262
    
    
    
    
    
    
    
    4,262Unrealized gains on investments, net of
deferred federal income tax expense of $285
    
    
    
    
    
    
    
    
    
    
    552
    
    
    
    552Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,814Balances, September 30, 2006
    
    $
    50,480
    
    
    $
    36,915
    
    
    $
    (107
    )
    
    $
    87,288Balances, December 31, 2006
    
    $
    50,578
    
    
    $
    37,329
    
    
    $
    328
    
    
    $
    88,235Retirement of common stock
    
    
    (2,135
    )
    
    
    
    
    
    
    
    
    
    
    (2,135
    )Issuance of common stock
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    67Stock-based employee compensation
    
    
    371
    
    
    
    
    
    
    
    
    
    
    
    371Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    6,472
    
    
    
    
    
    
    
    6,472Unrealized gains on investments, net of
deferred federal income tax expense of $758
    
    
    
    
    
    
    
    
    
    
    1,470
    
    
    
    1,470Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,942Balances, September 30, 2007
    
    $
    48,881
    
    
    $
    43,801
    
    
    $
    1,798
    
    
    $
    94,480
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##### Table of Contents



North Pointe Holdings Corporation and Subsidiaries
 Unaudited Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2007 and 2006
 2007
    
    
    2006(Dollars in thousands)Cash flows from operating activitiesNet income
    
    $
    6,472
    
    
    $
    4,262Adjustments to reconcile net income to cash provided by operating activitiesDepreciation and amortization
    
    
    679
    
    
    
    636Net realized (gains) losses on sales and other dispositions of investments
    
    
    (785
    )
    
    
    266Stock compensation expense
    
    
    438
    
    
    
    247Deferred federal income tax expense
    
    
    943
    
    
    
    310Change in assets and liabilities:Premiums and agents balances receivable, net
    
    
    243
    
    
    
    4,537Accrued investment income
    
    
    158
    
    
    
    (187
    )Reinsurance recoverable, net
    
    
    13,062
    
    
    
    38,683Prepaid reinsurance premiums
    
    
    4,537
    
    
    
    (4,255
    )Deferred policy acquisition costs
    
    
    (1,356
    )
    
    
    1,167Federal income tax recoverable
    
    
    (654
    )
    
    
    1,868Prepaid expenses and other assets
    
    
    (236
    )
    
    
    136Losses and loss adjustment expenses
    
    
    (13,574
    )
    
    
    (27,079
    )Unearned premiums
    
    
    5,911
    
    
    
    1,578Accrued expenses and other liabilities
    
    
    641
    
    
    
    (8,716
    )Premiums in advance
    
    
    (4,514
    )
    
    
    (6,714
    )Net cash provided by operating activities
    
    
    11,965
    
    
    
    6,739Cash flows from investing activitiesProceeds from maturities of debt securities
    
    
    10,468
    
    
    
    7,254Proceeds from sales of debt securities
    
    
    25,122
    
    
    
    27,982Proceeds from sales of equity securities
    
    
    4,659
    
    
    
    3,898Purchases of debt securities
    
    
    (23,438
    )
    
    
    (41,468
    )Purchases of equity securities
    
    
    (4,725
    )
    
    
    (3,926
    )Purchases of fixed assets
    
    
    (275
    )
    
    
    (1,604
    )Purchase of other investments
    
    
    (710
    )
    
    
    (51
    )Capital contribution to NP Capital Trust I
    
    
    
    
    
    
    (620
    )Purchase of
subsidiary, net of cash and cash equivalents from subsidiary acquired
of $13,356
    
    
    (27,187
    )
    
    
    Net cash used in investing activities
    
    
    (16,086
    )
    
    
    (8,535
    )Cash flows from financing activitiesProceeds from issuance of debt (net of $690 of issuance costs paid in 2006)
    
    
    
    
    
    
    20,661Proceeds from borrowings
    
    
    23,983
    
    
    
    Repayments of debt
    
    
    (604
    )
    
    
    (3,224
    )Repurchases of common stock
    
    
    (2,135
    )
    
    
    Net cash provided by financing activities
    
    
    21,244
    
    
    
    17,437Increase in cash and cash equivalents
    
    
    17,123
    
    
    
    15,641Cash and cash equivalentsBeginning of period
    
    
    46,039
    
    
    
    34,119End of period
    
    $
    63,162
    
    
    $
    49,760Supplemental cash flow informationCash paid during the period for:Interest
    
    $
    1,951
    
    
    $
    1,168Taxes
    
    
    2,452
    
    
    
    1
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North Pointe Holdings Corporation And Subsidiaries
 Notes To Condensed Consolidated Financial Statements
 1. Basis of Financial Presentation and Principles of Consolidation
        Recent Accounting Pronouncements
 SFAS Statement No. 157, Fair Value Measurements
 Fair Value Measurements,
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SFAS Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of
Statement of Financial Accounting Standard (SFAS) No. 109
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##### Table of Contents



2. Acquisitions
   Fair value of assets acquired
    
    $
    176,968Fair value of liabilities acquired
    
    
    143,877Fair value of net assets acquired
    
    
    33,091Total purchase price, including expenses
    
    
    41,093Resulting goodwill
    
    $
    8,002
   Nine Months


Nine Months


Twelve MonthsEnded


Ended


EndedSeptember 30,


September 30,


December 31,2007


2006


2006(In millions, except per share data)Revenue


$118,581



$137,545



$150,966Net income


5,916



8,251



8,511Net income per share - basic


0.65



0.91



0.93Net income per share - diluted


0.65



0.91



0.93 3. Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands, except share data)Net income
    
    $
    2,807
    
    
    $
    2,166
    
    
    $
    6,472
    
    
    $
    4,262Weighted average shares outstanding
    
    
    8,924,573
    
    
    
    9,122,687
    
    
    
    9,058,498
    
    
    
    9,118,907Unvested restricted stock
    
    
    (13,719
    )
    
    
    (8,483
    )
    
    
    (13,956
    )
    
    
    (4,714
    )Weighted average shares outstanding used for Basic EPS
    
    
    8,910,854
    
    
    
    9,114,204
    
    
    
    9,044,542
    
    
    
    9,114,193Dilutive effect of restricted stock
    
    
    6,015
    
    
    
    711
    
    
    
    5,638
    
    
    
    568Weighted average shares outstanding used for Diluted EPS
    
    
    8,916,869
    
    
    
    9,114,915
    
    
    
    9,050,180
    
    
    
    9,114,761Basic earnings per share
    
    $
    0.32
    
    
    $
    0.24
    
    
    $
    0.72
    
    
    $
    0.47Diluted earnings per share
    
    $
    0.31
    
    
    $
    0.24
    
    
    $
    0.72
    
    
    $
    0.47
 11




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##### Table of Contents



4. Goodwill
  Agency
    
    
    AdministrativeCommercial Lines
    
    
    Personal Lines
    
    
    Services
    
    
    ServicesJanuary 1, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital City Acquisition
    
    
    8,002
    
    
    
    
    
    
    
    
    
    
    
    September 30, 2007
    
    $
    8,002
    
    
    $
    
    
    
    $
    
    
    
    $
    
 st
 5. Income Taxes
    12




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands)Current tax expense (benefit)
    
    $
    (112
    )
    
    $
    1,025
    
    
    $
    1,798
    
    
    $
    1,869Deferred tax expense relating toNOL carryforwards
    
    
    
    
    
    
    
    
    
    
    326
    
    
    
    358Change in unearned premium
    
    
    6
    
    
    
    761
    
    
    
    (987
    )
    
    
    39Change in deferred policy acquisition costs
    
    
    (215
    )
    
    
    (1,259
    )
    
    
    903
    
    
    
    (80
    )Change in loss and loss adjustment expenses
    
    
    89
    
    
    
    53
    
    
    
    115
    
    
    
    56Change in insurance assessments
    
    
    766
    
    
    
    2
    
    
    
    766
    
    
    
    136Other deferred tax expense (benefit)
    
    
    555
    
    
    
    463
    
    
    
    (180
    )
    
    
    (199
    )Total federal income tax expense
    
    $
    1,089
    
    
    $
    1,045
    
    
    $
    2,741
    
    
    $
    2,179
  Three Months Ended
    
    
    September Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands)Tax provision at the 34% statutory rate
    
    $
    1,324
    
    
    $
    1,092
    
    
    $
    3,132
    
    
    $
    2,190Tax effect ofDividend received deduction
    
    
    (11
    )
    
    
    (9
    )
    
    
    (31
    )
    
    
    (27
    )Tax exempt interest income
    
    
    (140
    )
    
    
    (39
    )
    
    
    (178
    )
    
    
    (48
    )Proceeds from retired officer life insurance policy
    
    
    
    
    
    
    
    
    
    
    (103
    )
    
    
    Other, net
    
    
    (84
    )
    
    
    1
    
    
    
    (79
    )
    
    
    64Total federal income tax expense
    
    $
    1,089
    
    
    $
    1,045
    
    
    $
    2,741
    
    
    $
    2,179
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##### Table of Contents



September 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Deferred federal income tax assetsLoss and loss adjustment expenses
    
    $
    5,207
    
    
    $
    2,214Unearned premiums
    
    
    4,461
    
    
    
    2,483NOL carryforwards
    
    
    1,945
    
    
    
    2,271Premiums receivable
    
    
    325
    
    
    
    323Lease obligation
    
    
    85
    
    
    
    120Intangible asset
    
    
    281
    
    
    
    306Insurance assessments
    
    
    2,072
    
    
    
    Other
    
    
    747
    
    
    
    544Total deferred tax assets
    
    
    15,123
    
    
    
    8,261Deferred federal income tax liabilitiesDeferred policy acquisition costs
    
    
    3,558
    
    
    
    3,008Net unrealized gains on investments
    
    
    927
    
    
    
    169Other
    
    
    185
    
    
    
    23Total deferred tax liabilities
    
    
    4,670
    
    
    
    3,200Net deferred federal income tax assets
    
    $
    10,453
    
    
    $
    5,061
 6. Shareholders Equity
   Total
    
    PriceTransaction
    
    Number of
    
    PaidDate
    
    Shares
    
    Per ShareJune 30, 2007
    
    
    200,000
    
    
    $
    10.16August 23, 2007
    
    
    879
    
    
    
    9.45August 24, 2007
    
    
    879
    
    
    
    9.50August 27, 2007
    
    
    1,000
    
    
    
    9.70August 28, 2007
    
    
    1,600
    
    
    
    9.97August 29, 2007
    
    
    1,600
    
    
    
    10.01August 31, 2007
    
    
    600
    
    
    
    10.15September 6, 2007
    
    
    2,800
    
    
    
    10.26
 7. Stock-based Compensation
 Stock Options
  14




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##### Table of Contents



June 5, 2007
    
    September 12, 2007Fair value of the underlying common stock
    
    $
    11.11
    /share
    
    $
    10.86
    /shareWeighted average life of options
    
    6.5
    years
    
    6.5
    yearsRisk-free interest rate
    
    
    4.96
    %
    
    
    4.11
    %Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Weighted average volatility assumption
    
    
    41.10
    %
    
    
    27.60
    %Weighted average grant date fair value of options granted
    
    $
    5.51
    
    
    $
    4.08
 Restricted Stock
  8. Outstanding Debt
 Senior Credit Facility
      
    
    adjusted capital and surplus will be in excess of 275% of authorized control level
risk-based capital as of each fiscal year end;
    
    the ratio of net premiums written to statutory capital and surplus will not exceed more
than 4.0 to 1.0 in the case of North Pointe Casualty Insurance Company and Home Pointe
Insurance Company, 2.5 to 1.0 in the case of North Pointe Insurance Company; and 2.5 to 1.0 in
the case of Capital City Insurance Company;
    
    the ratio of gross premiums written to statutory surplus will not exceed more than 10.0 to
1.0 in the case of North Pointe Casualty Insurance Company and Home Pointe Insurance Company,
3.0 to 1.0 in the case of North Pointe Insurance Company and 3.0 to 1.0 in the case of Capital
City Insurance Company;
    
    In addition, the Company may have no more than four IRIS calculations that result in
unusual values at each fiscal year end.
 15




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##### Table of Contents



Debt Assumed from Purchase of Capital City Holding Company, Inc.
 
    
    9.62% $2,000,000 Trust preferred securities (Capital City Insurance Company, S.C.
Statutory Trust I) These debentures are
redeemable at par at the option of the Company, in whole or in part, on any interest payment
date on or after December 4, 2007, and mature in 2032.
    
    9.66% $6,000,000 Trust preferred securities (Capital City Insurance Company, S.C.
Statutory Trust II) These debentures are redeemable
at par at the option of the Company, in whole or in part, on any interest payment date on or
after May 15, 2008, and mature in 2033.
    
    9.49% $2,000,000 Trust preferred securities (Capital City Insurance Company, S.C.
Statutory Trust III) These debentures are redeemable
at par at the option of the Company, in whole or in part, on any interest payment date on or
after June 17, 2009, and mature in 2034.
  (Dollars inYear
    

thousands)2007
    
    $
    302008
    
    
    1302009
    
    
    1382010
    
    
    23,6162011 and thereafter
    
    
    32,595$
    56,509
 9. Contingencies
  Year Ended
    

Minimum
Lease Commitments2007
    
    $
    1972008
    
    
    7502009
    
    
    6402010
    
    
    5712011 and thereafter
    
    
    994$
    3,152
   10. Segment Reporting
   16




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17




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands)Total RevenuesCommercial linesLiability
    
    $
    12,105
    
    
    $
    7,392
    
    
    $
    33,074
    
    
    $
    19,266Property
    
    
    3,437
    
    
    
    1,681
    
    
    
    9,292
    
    
    
    5,207Commercial multi-peril
    
    
    1,161
    
    
    
    2,885
    
    
    
    1,386
    
    
    
    14,879Commercial automobile
    
    
    4,075
    
    
    
    1,481
    
    
    
    7,026
    
    
    
    4,528Workers compensation
    
    
    7,736
    
    
    
    
    
    
    
    7,763
    
    
    
    Other
    
    
    1,286
    
    
    
    947
    
    
    
    3,177
    
    
    
    2,207Total commercial lines
    
    
    29,800
    
    
    
    14,386
    
    
    
    61,718
    
    
    
    46,087Personal linesHomeowners
    
    
    4,842
    
    
    
    5,523
    
    
    
    14,409
    
    
    
    15,229Other
    
    
    51
    
    
    
    
    
    
    
    51
    
    
    
    Total personal lines
    
    
    4,893
    
    
    
    5,523
    
    
    
    14,460
    
    
    
    15,229Agency services
    
    
    3,167
    
    
    
    
    
    
    
    3,167
    
    
    
    Administrative servicesAffiliated companies
    
    
    9,253
    
    
    
    5,519
    
    
    
    27,668
    
    
    
    24,719Non-affiliated companies
    
    
    919
    
    
    
    404
    
    
    
    2,034
    
    
    
    1,291Total administrative services
    
    
    10,172
    
    
    
    5,923
    
    
    
    29,702
    
    
    
    26,010Corporate and eliminationsInvestment activity
    
    
    3,124
    
    
    
    1,836
    
    
    
    7,489
    
    
    
    4,489Eliminations
    
    
    (10,276
    )
    
    
    (5,519
    )
    
    
    (28,691
    )
    
    
    (24,719
    )Total revenues
    
    $
    40,880
    
    
    $
    22,149
    
    
    $
    87,845
    
    
    $
    67,096Income (loss) before federal income tax expenseCommercial linesLiability
    
    $
    2,911
    
    
    $
    1,764
    
    
    $
    7,245
    
    
    $
    8,044Property
    
    
    (200
    )
    
    
    (133
    )
    
    
    (2,378
    )
    
    
    (709
    )Commercial multi-peril
    
    
    (2,302
    )
    
    
    408
    
    
    
    (5,790
    )
    
    
    (2,696
    )Commercial automobile
    
    
    (2,182
    )
    
    
    426
    
    
    
    (4,026
    )
    
    
    (367
    )Workers compensation
    
    
    2,444
    
    
    
    
    
    
    
    2,379
    
    
    
    Other
    
    
    (39
    )
    
    
    358
    
    
    
    (299
    )
    
    
    108Total commercial lines
    
    
    632
    
    
    
    2,823
    
    
    
    (2,869
    )
    
    
    4,380Personal linesPersonal automobile
    
    
    415
    
    
    
    (835
    )
    
    
    321
    
    
    
    (3,033
    )Homeowners
    
    
    82
    
    
    
    738
    
    
    
    3,100
    
    
    
    (768
    )Other
    
    
    (212
    )
    
    
    
    
    
    
    (213
    )Total personal lines
    
    
    285
    
    
    
    (97
    )
    
    
    3,208
    
    
    
    (3,801
    )Agency services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Administrative services
    
    
    959
    
    
    
    (449
    )
    
    
    4,520
    
    
    
    3,689Corporate and eliminationsInvestment activity
    
    
    3,124
    
    
    
    1,836
    
    
    
    7,489
    
    
    
    4,489Other expense, net
    
    
    (1,104
    )
    
    
    (902
    )
    
    
    (3,135
    )
    
    
    (2,316
    )Income before federal income tax expense
    
    $
    3,896
    
    
    $
    3,211
    
    
    $
    9,213
    
    
    $
    6,441
 18




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##### Table of Contents



11. Subsequent Event
   19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 The discussion and analysis of our financial condition and results of operations contained
herein should be read in conjunction with our consolidated financial statements and accompanying
notes which appear elsewhere in this report. It contains forward-looking statements that involve
risks and uncertainties. Please see Note on Forward-Looking Statements for more information. Our
actual results could differ materially from those anticipated in these forward-looking statements
as a result of various factors, including those discussed below and elsewhere in this report.
 Note on Forward-Looking Statements
  <
    
    the availability and pricing of reinsurance and the potential for non-payment or delay in
payment by reinsurers;<
    
    our ability to accurately price the risks we underwrite;<
    
    the establishment of adequate loss and loss adjustment expense reserves;<
    
    our ability to successfully integrate our acquisition of the Capital City entities;<
    
    possible assessments for guaranty funds, other insurance-related assessments and
mandatory reinsurance arrangements and our ability to recover such assessments through
future surcharges or other rate changes;<
    
    retention and recruiting of independent agents and the potential loss of key personnel;<
    
    failure to pay claims accurately;<
    
    risks associated with high concentration of our business in certain geographic markets;<
    
    inability to implement our growth strategies;<
    
    the occurrence of severe weather conditions and other catastrophes;<
    
    the cyclical and seasonal nature of the industries within which we operate;<
    
    intense competition with other insurance companies;<
    
    our ability to obtain and retain trade association endorsements;<
    
    performance of our various operating subsidiaries and restrictions that may limit the
ability of our subsidiaries to pay dividends to North Pointe Holdings;<
    
    existing and future regulations by local, state, and federal governments;<
    
    the compliance of our insurance company subsidiaries with minimum capital and surplus
requirements;<
    
    ratings of our insurance company subsidiaries by A.M. Best;<
    
    the outcome of current industry investigations and potential regulation limiting the use
of undisclosed contingent commission arrangements with independent agents;<
    
    adverse market conditions that could negatively impact our investment portfolio;
 20




---



##### Table of Contents



<
    
    purchase accounting adjustments;<
    
    reliance on information technology and telecommunication systems;<
    
    our limited history writing homeowners insurance policies in Florida;<
    
    changes in insurance-related laws and regulations;<
    
    our ability to implement and maintain adequate internal controls in our business;<
    
    other risks that we identify in past and future filings with the Securities and Exchange
Commission, including without limitation the risks described under the caption Risk
Factors in the Prospectus constituting part of our Registration Statement on Form S-1 (Reg.
No. 333-122220) and any past or subsequent filings on Forms 10-K, 10-Q and 8-K.
  Description of Business
   Critical Accounting Estimates
  21




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##### Table of Contents



Results of Operations for the Three and Nine Months Ended September 30, 2007 and 2006
 Results of Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands)Gross premiums written:Commercial lines
    
    $
    33,700
    
    
    $
    20,903
    
    
    $
    73,179
    
    
    $
    60,453Personal lines
    
    
    2,376
    
    
    
    1,772
    
    
    
    24,895
    
    
    
    29,972Total gross premiums written
    
    
    36,076
    
    
    
    22,675
    
    
    
    98,074
    
    
    
    90,425Net premiums written:Commercial lines
    
    
    29,130
    
    
    
    9,465
    
    
    
    66,668
    
    
    
    39,352Personal lines
    
    
    550
    
    
    
    (752
    )
    
    
    19,100
    
    
    
    21,386Total net premiums written
    
    
    29,680
    
    
    
    8,713
    
    
    
    85,768
    
    
    
    60,738Revenues:Net premiums earned:Commercial lines
    
    
    29,800
    
    
    
    14,386
    
    
    
    61,718
    
    
    
    46,087Personal lines
    
    
    4,893
    
    
    
    5,523
    
    
    
    14,460
    
    
    
    15,229Total net premiums earned
    
    
    34,693
    
    
    
    19,909
    
    
    
    76,178
    
    
    
    61,316Investment income, net
    
    
    2,831
    
    
    
    1,755
    
    
    
    6,704
    
    
    
    4,755Net realized capital gains (losses)
    
    
    293
    
    
    
    81
    
    
    
    785
    
    
    
    (266
    )Other income
    
    
    3,063
    
    
    
    404
    
    
    
    4,178
    
    
    
    1,291Total revenues
    
    
    40,880
    
    
    
    22,149
    
    
    
    87,845
    
    
    
    67,096Expenses:Losses and loss adjustment expenses, net
    
    
    18,599
    
    
    
    7,295
    
    
    
    38,143
    
    
    
    27,317Policy acquisition costs
    
    
    10,446
    
    
    
    5,483
    
    
    
    22,501
    
    
    
    16,776Other underwriting and operating expenses
    
    
    6,891
    
    
    
    5,664
    
    
    
    15,953
    
    
    
    15,355Interest expense
    
    
    1,048
    
    
    
    496
    
    
    
    2,035
    
    
    
    1,207Total expenses
    
    
    36,984
    
    
    
    18,938
    
    
    
    78,632
    
    
    
    60,655Income before federal income tax expense
    
    
    3,896
    
    
    
    3,211
    
    
    
    9,213
    
    
    
    6,441Federal income tax expense
    
    
    1,089
    
    
    
    1,045
    
    
    
    2,741
    
    
    
    2,179Net income
    
    $
    2,807
    
    
    $
    2,166
    
    
    $
    6,472
    
    
    $
    4,262Loss ratio:Commercial lines
    
    
    56.4
    %
    
    
    31.3
    %
    
    
    56.3
    %
    
    
    38.9
    %Personal lines
    
    
    36.6
    %
    
    
    50.5
    %
    
    
    23.5
    %
    
    
    61.7
    %Aggregate
    
    
    49.3
    %
    
    
    35.9
    %
    
    
    47.5
    %
    
    
    43.6
    %Expense ratio
    
    
    45.9
    %
    
    
    54.9
    %
    
    
    47.9
    %
    
    
    51.3
    %Combined ratio
    
    
    95.2
    %
    
    
    90.8
    %
    
    
    95.4
    %
    
    
    94.9
    %
 22




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##### Table of Contents



Overview
  Gross Premiums Written
  Three Months Ended September 30, 2007 as Compared to Three Months Ended September 30, 2006.
   Nine Months Ended September 30, 2007 as Compared to Nine Months Ended September 30, 2006.
   Net Premiums Written
  23




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##### Table of Contents



Three Months Ended September 30, 2007 as Compared to Three Months Ended September 30, 2006.
 Nine Months Ended September 30, 2007 as Compared to Nine Months Ended September 30, 2006.
 Net Premiums Earned
  Three Months Ended September 30, 2007 as Compared to Three Months Ended September 30, 2006.
 Nine Months Ended September 30, 2007 as Compared to Nine Months Ended September 30, 2006.
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands)Gross premiums earned:Commercial lines
    
    $
    34,581
    
    
    $
    24,689
    
    
    $
    71,566
    
    
    $
    65,063Personal lines
    
    
    6,734
    
    
    
    8,056
    
    
    
    20,491
    
    
    
    23,784Total
    
    
    41,315
    
    
    
    32,745
    
    
    
    92,057
    
    
    
    88,847Ceded premiums earned:Commercial lines
    
    
    4,781
    
    
    
    10,303
    
    
    
    9,848
    
    
    
    18,976Personal lines
    
    
    1,841
    
    
    
    2,533
    
    
    
    6,031
    
    
    
    8,555Total
    
    
    6,622
    
    
    
    12,836
    
    
    
    15,879
    
    
    
    27,531Net premiums earned:Commercial lines
    
    
    29,800
    
    
    
    14,386
    
    
    
    61,718
    
    
    
    46,087Personal lines
    
    
    4,893
    
    
    
    5,523
    
    
    
    14,460
    
    
    
    15,229Total
    
    $
    34,693
    
    
    $
    19,909
    
    
    $
    76,178
    
    
    $
    61,316
 24




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##### Table of Contents



Net Investment Income
  Three Months Ended September 30, 2007 as Compared to Three Months Ended September 30, 2006.
 Nine Months Ended September 30, 2007 as Compared to Nine Months Ended September 30, 2006.
 Net Realized Gains and Losses on Investments
 Three Months Ended September 30, 2007 as Compared to Three Months Ended September 30, 2006.
 Nine Months Ended September 30, 2007 as Compared to Nine Months Ended September 30, 2006.
 Fees
and Other Income
  Three Months Ended September 30, 2007 as Compared to Three Months Ended September 30, 2006.
 Nine Months Ended September 30, 2007 as Compared to Nine Months Ended September 30, 2006.
 25




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##### Table of Contents



Losses and Loss Adjustment Expenses
  Three Months Ended September 30, 2007 as Compared to Three Months Ended September 30, 2006.
   Nine Months Ended September 30, 2007 as Compared to Nine Months Ended September 30, 2006.
  All Lines
    
    2007
    
    2006Loss ratios before effects of reserve development
    
    
    48.2
    %
    
    
    47.5
    %Decrease in loss ratios attributable to reserve development
    
    
    (0.7
    )
    
    
    (3.9
    )Total lines loss ratios
    
    
    47.5
    %
    
    
    43.6
    %
   26




---



##### Table of Contents



Commercial Lines
    
    2007
    
    2006Loss ratios before effects of reserve development
    
    
    54.6
    %
    
    
    47.6
    %Increase (decrease) in loss ratios attributable to reserve development
    
    
    1.7
    
    
    
    (8.7
    )Total commercial lines loss ratios
    
    
    56.3
    %
    
    
    38.9
    %
    Personal Lines
    
    2007
    
    2006Loss ratios before effects of reserve development
    
    
    34.7
    %
    
    
    51.4
    %(Decrease) increase  in loss ratios attributable to reserve development
    
    
    (11.2
    )
    
    
    10.3Total personal lines loss ratios
    
    
    23.5
    %
    
    
    61.7
    %
 Policy Acquisition Costs
  Three Months Ended September 30, 2007 as Compared to Three Months Ended September 30, 2006.
 Nine Months Ended September 30, 2007 as Compared to Nine Months Ended September 30, 2006.
 Other Underwriting and Operating Expenses
  Three Months Ended September 30, 2007 as Compared to Three Months Ended September 30, 2006.
 27




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##### Table of Contents



Nine Months Ended September 30, 2007 as Compared to Nine Months Ended September 30, 2006.
 Interest Expense
 Three Months Ended September 30, 2007 as Compared to Three Months Ended September 30, 2006.
 Nine Months Ended September 30, 2007 as Compared to Nine Months Ended September 30, 2006.
 Federal Income Tax Expense
 Three Months Ended September 30, 2007 as Compared to Three Months Ended September 30, 2006.
 Nine Months Ended September 30, 2007 as Compared to Nine Months Ended September 30, 2006.
 Liquidity and Capital Resources
 Sources and Uses of Funds
   28




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##### Table of Contents



Cash Flows
     Contractual Obligations and Commitments
  2011 and2007
    
    2008
    
    2009
    
    2010
    
    thereafter
    
    TotalJunior subordinated debt
    
    $
    240
    
    
    $
    961
    
    
    $
    961
    
    
    $
    961
    
    
    $
    34,317
    
    
    $
    37,440Operating leases
    
    
    197
    
    
    
    750
    
    
    
    640
    
    
    
    571
    
    
    
    994
    
    
    
    3,152Unpaid loss and losses adjustment expense
    
    
    7,223
    
    
    
    26,146
    
    
    
    16,361
    
    
    
    10,821
    
    
    
    32,331
    
    
    
    92,882Guaranteed employee commitments
    
    
    271
    
    
    
    900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,171$
    7,931
    
    
    $
    28,757
    
    
    $
    17,962
    
    
    $
    12,353
    
    
    $
    67,642
    
    
    $
    134,645
  29




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Investments
   30




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##### Table of Contents



As of September 30, 2007
    
    
    As of December 31, 2006Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    portfolio
    
    
    Amount
    
    
    portfolio(Dollars in thousands)Fixed Income:U.S. governmental and agency securities
    
    $
    24,262
    
    
    
    8.5
    %
    
    $
    30,526
    
    
    
    18.4
    %Foreign governmental
    
    
    303
    
    
    
    0.1
    %
    
    
    300
    
    
    
    0.1
    %Corporate securities
    
    
    42,287
    
    
    
    14.8
    %
    
    
    29,421
    
    
    
    17.7
    %Municipal securities
    
    
    60,712
    
    
    
    21.3
    %
    
    
    7,035
    
    
    
    4.2
    %Mortgage-backed securities
    
    
    69,740
    
    
    
    24.4
    %
    
    
    32,360
    
    
    
    19.5
    %Asset-backed
    
    
    10,698
    
    
    
    3.8
    %
    
    
    7,692
    
    
    
    4.7
    %Total fixed-income
    
    
    208,002
    
    
    
    72.9
    %
    
    
    107,334
    
    
    
    64.6
    %Cash and cash equivalents
    
    
    63,162
    
    
    
    22.1
    %
    
    
    46,039
    
    
    
    27.8
    %Equity securities  common shares
    
    
    12,543
    
    
    
    4.4
    %
    
    
    11,376
    
    
    
    6.9
    %Other investments
    
    
    1,803
    
    
    
    0.6
    %
    
    
    1,088
    
    
    
    0.7
    %Total
    
    $
    285,510
    
    
    
    100.0
    %
    
    $
    165,837
    
    
    
    100.0
    %
   As of September 30, 2007Less than 12 months
    
    
    12 months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    
    Loss

    
    Fair Value





    Loss(Dollars in thousands)U.S. governmental and agency securities
    
    $
    
    
    
    $
    
    
    
    $
    9,175
    
    
    $
    45
    
    
    $
    9,175
    
    
    $
    45Foreign governmental
    
    
    
    
    
    
    
    
    
    
    303
    
    
    
    2
    
    
    
    303
    
    
    
    2Corporate securities
    
    
    4,391
    
    
    
    61
    
    
    
    20,472
    
    
    
    603
    
    
    
    24,863
    
    
    
    664Municipal securities
    
    
    3,790
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    3,790
    
    
    
    7Mortgage-backed securities
    
    
    1,105
    
    
    
    8
    
    
    
    23,492
    
    
    
    639
    
    
    
    24,597
    
    
    
    647Asset-backed
    
    
    3,146
    
    
    
    39
    
    
    
    2,942
    
    
    
    48
    
    
    
    6,088
    
    
    
    87Total debt securities
    
    $
    12,432
    
    
    $
    115
    
    
    $
    56,384
    
    
    $
    1,337
    
    
    $
    68,816
    
    
    $
    1,452Equity securities
    
    $
    1,658
    
    
    $
    123
    
    
    $
    
    
    
    $
    
    
    
    $
    1,658
    
    
    $
    123
 31




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##### Table of Contents



Unpaid Losses and Loss Adjustment Expenses
      Net Reserves at September 30, 2007Total NetPersonal
    
    Commercial
    
    
    
    
    
    Reserves atLines
    
    Lines
    
    
    
    
    
    December 31,Segment
    
    Segment
    
    Total
    
    2006(Dollars in thousands)High end of range
    
    $
    3,941
    
    
    $
    127,529
    
    
    $
    131,470
    
    
    $
    60,715Carried reserves
    
    
    3,812
    
    
    
    116,663
    
    
    
    120,475
    
    
    
    56,434Low end of range
    
    
    3,704
    
    
    
    110,196
    
    
    
    113,900
    
    
    
    53,672
 32




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##### Table of Contents



September 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Case:Commercial lines productsWorkers compensation
    
    $
    39,658
    
    
    $
    Liability
    
    
    14,208
    
    
    
    12,061Property
    
    
    5,406
    
    
    
    9,643Commercial multi-peril
    
    
    12,272
    
    
    
    14,483Commercial automobile
    
    
    11,621
    
    
    
    3,705Other
    
    
    1,273
    
    
    
    1,063Total commercial lines
    
    
    84,438
    
    
    
    40,955Personal lines productsPersonal automobile
    
    
    3,920
    
    
    
    4,758Homeowners
    
    
    2,690
    
    
    
    2,713Personal other
    
    
    
    
    
    
    Total personal lines
    
    
    6,610
    
    
    
    7,471Total case reserves
    
    $
    91,048
    
    
    $
    48,426IBNR:Commercial lines productsWorkers compensation
    
    $
    25,472
    
    
    $
    Liability
    
    
    23,558
    
    
    
    12,042Property
    
    
    992
    
    
    
    786Commercial multi-peril
    
    
    14,262
    
    
    
    18,628Commercial automobile
    
    
    11,038
    
    
    
    2,851Other
    
    
    1,182
    
    
    
    511Total commercial lines
    
    
    76,504
    
    
    
    34,818Personal lines productsPersonal automobile
    
    
    2,426
    
    
    
    4,015Homeowners
    
    
    673
    
    
    
    2,496Personal other
    
    
    5
    
    
    
    Total personal lines
    
    
    3,104
    
    
    
    6,511Total IBNR reserves
    
    $
    79,608
    
    
    $
    41,329Total:Commercial lines productsWorkers compensation
    
    $
    65,130
    
    
    $
    Liability
    
    
    37,766
    
    
    
    24,103Property
    
    
    6,398
    
    
    
    10,429Commercial multi-peril
    
    
    26,534
    
    
    
    33,111Commercial automobile
    
    
    22,659
    
    
    
    6,556Other
    
    
    2,455
    
    
    
    1,574Total commercial lines
    
    
    160,942
    
    
    
    75,773Personal lines productsPersonal automobile
    
    
    6,346
    
    
    
    8,773Homeowners
    
    
    3,363
    
    
    
    5,209Personal other
    
    
    5
    
    
    
    Total personal lines
    
    
    9,714
    
    
    
    13,982Total gross reserves
    
    $
    170,656
    
    
    $
    89,755
 33




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands)Gross reserves, beginning of period
    
    $
    77,228
    
    
    $
    96,429
    
    
    $
    89,755
    
    
    $
    117,778Less reinsurance recoverables, excluding
Citizens assessment (1)
    
    
    22,677
    
    
    
    37,010
    
    
    
    33,321
    
    
    
    60,034Capital City net reserves at July 2, 2007
    
    
    64,658
    
    
    
    
    
    
    
    64,658
    
    
    
    Adjusted net balance
    
    
    119,209
    
    
    
    59,419
    
    
    
    121,092
    
    
    
    57,744Incurred related toCurrent year
    
    
    17,411
    
    
    
    8,225
    
    
    
    38,725
    
    
    
    29,743Prior years
    
    
    1,188
    
    
    
    (930
    )
    
    
    (582
    )
    
    
    (2,426
    )Total incurred
    
    
    18,599
    
    
    
    7,295
    
    
    
    38,143
    
    
    
    27,317Paid related toCurrent year
    
    
    5,470
    
    
    
    4,854
    
    
    
    12,170
    
    
    
    10,941Prior years
    
    
    11,863
    
    
    
    3,997
    
    
    
    26,590
    
    
    
    16,257Total paid
    
    
    17,333
    
    
    
    8,851
    
    
    
    38,760
    
    
    
    27,198Net balance, end of period
    
    
    120,475
    
    
    
    57,863
    
    
    
    120,475
    
    
    
    57,863Plus reinsurance recoverables, excluding
Citizens assessment (1)
    
    
    50,181
    
    
    
    32,836
    
    
    
    50,181
    
    
    
    32,836Gross reserves, end of period
    
    $
    170,656
    
    
    $
    90,699
    
    
    $
    170,656
    
    
    $
    90,699
 
 (1)
    
    For the purpose of comparability at September 30, 2006, the Citizens assessment of
$669,000 is excluded from the reinsurance recoverable amounts in the above summary. Reinsurance
    34




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##### Table of Contents



New Reinsurance Acquired
    Line
    
    Retention

    
    Limit

    
    ReinstatementExcess of LossWorkers Compensation
    
    $
    2.7 million
    
    
    $
    20.0
    millionAuto Liability
    
    $
    300,000
    
    
    $
    1.0
    millionGeneral Liability
    
    $
    750,000
    
    
    $
    1.0
    millionUmbrella
    
    $
    50,000
    
    
    $
    5.0
    millionProperty
    
    $
    500,000
    
    
    $
    1.5
    millionCatastrophicProperty
    
    $
    1.3 million
    
    
    $
    9.0
    million
    
    100.0% as to amount
 Contingencies
  35




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  Interest Rate Risk
   Hypothetical PercentageEstimated
    
    Increase (Decrease) inHypothetical Change in Interest Rates
    
    Estimated
    
    Change in
    
    
    
    
    
    ShareholdersAs of September 30, 2007
    
    Fair Value
    
    Fair Value
    
    Fair Value
    
    Equity(Dollars in thousands)200 basis point increase
    
    $
    192,483
    
    
    $
    (15,519
    )
    
    
    (7.5)
    %
    
    
    (10.9)
    %100 basis point increase
    
    
    200,232
    
    
    
    (7,779
    )
    
    
    (3.7
    )
    
    
    (5.5
    )No Change
    
    
    208,002
    
    
    
    
    
    
    
    
    
    
    
    100 basis point decrease
    
    
    215,729
    
    
    
    7,727
    
    
    
    3.7
    
    
    
    5.4200 basis point decrease
    
    
    223,433
    
    
    
    15,431
    
    
    
    7.4
    
    
    
    10.8
 Credit Risk
    Effects of Inflation
  36




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##### Table of Contents



Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls over Financial Reporting
  37




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
 Our potential inability to integrate acquired operations could have a negative effect on our
expenses and results of operations.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  38




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##### Table of Contents



Item 6. Exhibits.
 ExhibitNumber
    
    Exhibit10.1
    
    Stock Purchase Agreement by and among Safe Harbour Holdings, L.L.C., American Capital Assurance Corp., North
Pointe Holdings Corporation and North Pointe Financial Services, Inc., Relating to the Purchase and Sale of
100% of the Capital Stock of Home Pointe Insurance Company Dated as of October 22, 2007.99.1
    
    North Pointe Holdings Corporation Investment Policy and Guidelines Dated as of September 17, 2007.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) under the
Securities Exchange Act of 1934.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350 and Rule 13a-14(b) under the
Securities Exchange Act of 1934.
 39




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##### Table of Contents



NORTH POINTE HOLDINGS CORPORATIONDate: November 13th, 2007
    By:
    /s/ James G. PetcoffJames G. PetcoffChief Executive Officer, President & Chairman
of the BoardDate: November 13th, 2007
    By:
    /s/ Brian J. RoneyBrian J. RoneyChief Financial Officer & Vice President -- Finance (Principal
Accounting Officer) 40