##### 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 March 31, 2006
 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)
    
    (I.R.S. Employer
Identification No.)28819 Franklin Road, Southfield, MI
    
    48034(Address of Principal Executive Offices)
    
    (Zip Code)
 (248) 358-1171
 (Registrants Telephone Number, Including Area Code)
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  o þ




---



##### 



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
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    29Part II. Other InformationItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults Upon Senior Securities
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    30Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    30Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)Certification of Chief Financial Officer Pursuant to Rule 13a-14(b)
  2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 North Pointe Holdings Corporation and Subsidiaries
 Condensed Consolidated Balance Sheets
As of March 31, 2006 (Unaudited) and December 31, 2005
 2006
    
    
    2005(Dollars in thousands)ASSETSInvestmentsDebt securities, available for sale, at fair value (amortized cost
of $98,379 and $100,337, respectively)
    
    $
    95,210
    
    
    $
    98,018Common stocks, available for sale, at fair value (cost of $8,739 and $8,681,
respectively)
    
    
    10,407
    
    
    
    10,001Other investments
    
    
    553
    
    
    
    553Total investments
    
    
    106,170
    
    
    
    108,572Cash and cash equivalents
    
    
    65,154
    
    
    
    34,119Restricted cash
    
    
    200
    
    
    
    200Accrued investment income
    
    
    803
    
    
    
    840Premiums and agents balances receivable, net
    
    
    21,144
    
    
    
    21,324Reinsurance recoverables onPaid losses
    
    
    12,080
    
    
    
    11,470Unpaid losses
    
    
    53,327
    
    
    
    65,989Prepaid reinsurance premiums
    
    
    6,825
    
    
    
    7,424Deferred policy acquisition costs
    
    
    11,427
    
    
    
    9,578Deferred federal income taxes, net
    
    
    6,090
    
    
    
    5,843Federal income tax recoverable
    
    
    1,274
    
    
    
    2,199Fixed assets, net of accumulated depreciation
    
    
    5,500
    
    
    
    4,990Prepaid expenses and other assets
    
    
    3,806
    
    
    
    2,488Total assets
    
    $
    293,800
    
    
    $
    275,036LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesUnpaid losses and loss adjustment expenses
    
    $
    107,809
    
    
    $
    117,778Unearned premiums
    
    
    62,741
    
    
    
    44,701Debt
    
    
    23,231
    
    
    
    5,026Amounts due to reinsurers
    
    
    4,862
    
    
    
    3,048Accrued expenses and other liabilities
    
    
    10,472
    
    
    
    15,160Premiums in advance
    
    
    1,080
    
    
    
    7,096Total liabilities
    
    
    210,195
    
    
    
    192,809Commitments and Contingent LiabilitiesShareholders equityCommon stock, no par value; 50,000,000 shares authorized; 9,116,687 issued and
outstanding in 2006 and 2005
    
    
    50,315
    
    
    
    50,233Preferred stock, no par value; 5,000,000 shares authorized and 0 issued and
outstanding in 2006 and 2005
    
    
    
    
    
    
    Retained earnings
    
    
    34,280
    
    
    
    32,653Accumulated other comprehensive lossNet unrealized losses on investments, net of deferred federal income
tax benefit of $511 and $340, respectively
    
    
    (990
    )
    
    
    (659
    )Total shareholders equity
    
    
    83,605
    
    
    
    82,227Total liabilities and shareholders equity
    
    $
    293,800
    
    
    $
    275,036
  3




---



##### Table of Contents



North Pointe Holdings Corporation and Subsidiaries
 Unaudited Condensed Consolidated Statements of Income
For the Three Months Ended March 31, 2006 and 2005
 2006
    
    
    2005(Dollars in thousands, exceptshare data)RevenuesDirect premiums written
    
    $
    45,564
    
    
    $
    45,194Assumed premiums written
    
    
    4
    
    
    
    627Gross premiums written
    
    
    45,568
    
    
    
    45,821Premiums ceded
    
    
    (8,412
    )
    
    
    (4,155
    )Net premiums written
    
    
    37,156
    
    
    
    41,666Increase in net unearned premiums
    
    
    (16,965
    )
    
    
    (19,531
    )Net premiums earned
    
    
    20,191
    
    
    
    22,135Investment income, net of investment expenses
    
    
    1,298
    
    
    
    762Net realized capital losses
    
    
    (369
    )
    
    
    (133
    )Fees and other income
    
    
    453
    
    
    
    343Total revenues
    
    
    21,573
    
    
    
    23,107ExpensesLosses and loss adjustment expenses, net
    
    
    9,494
    
    
    
    9,091Policy acquisition costs
    
    
    5,647
    
    
    
    6,029Other underwriting and operating expenses
    
    
    3,706
    
    
    
    3,865Interest expense
    
    
    249
    
    
    
    230Total expenses
    
    
    19,096
    
    
    
    19,215Income before federal income tax expense
    
    
    2,477
    
    
    
    3,892Federal income tax expense
    
    
    850
    
    
    
    1,346Net income
    
    $
    1,627
    
    
    $
    2,546Earnings Per ShareBasic
    
    $
    0.18
    
    
    $
    0.52Diluted
    
    
    0.18
    
    
    
    0.52Weighted average number of common shares outstandingBasic
    
    
    9,114,187
    
    
    
    4,889,187Diluted
    
    
    9,114,631
    
    
    
    4,889,187
  4




---



##### Table of Contents



North Pointe Holdings Corporation and Subsidiaries
 Unaudited Condensed Consolidated Statements of Shareholders Equity and Comprehensive Income
For the Three Months Ended March 31, 2006 and 2005
 AccumulatedOtherCommon
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Total(Dollars in thousands)Balances, December 31, 2004
    
    $
    5,880
    
    
    $
    28,803
    
    
    $
    9
    
    
    $
    34,692Comprehensive incomeNet income
    
    
    
    
    
    
    2,546
    
    
    
    
    
    
    
    2,546Unrealized losses on investments, net of
deferred federal income tax benefit of $411
    
    
    
    
    
    
    
    
    
    
    (800
    )
    
    
    (800
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,746Balances, March 31, 2005
    
    $
    5,880
    
    
    $
    31,349
    
    
    $
    (791
    )
    
    $
    36,438Balances, December 31, 2005
    
    $
    50,233
    
    
    $
    32,653
    
    
    $
    (659
    )
    
    $
    82,227Stock-based employee compensation
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    82Comprehensive incomeNet income
    
    
    
    
    
    
    1,627
    
    
    
    
    
    
    
    1,627Unrealized losses on investments, net of
deferred federal income tax benefit of $171
    
    
    
    
    
    
    
    
    
    
    (331
    )
    
    
    (331
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,296Balances, March 31, 2006
    
    $
    50,315
    
    
    $
    34,280
    
    
    $
    (990
    )
    
    $
    83,605
  5




---



##### Table of Contents



North Pointe Holdings Corporation and Subsidiaries
 Unaudited Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2006 and 2005
 2006
    
    
    2005(Dollars in thousands)Cash flows from operating activitiesNet income
    
    $
    1,627
    
    
    $
    2,546Adjustments to reconcile net income to cash provided by operating activitiesDepreciation and amortization
    
    
    180
    
    
    
    149Net realized losses on sales and other dispositions of investments
    
    
    369
    
    
    
    133Stock compensation expense
    
    
    82
    
    
    
    Deferred federal income tax expense
    
    
    (75
    )
    
    
    469Change in assets and liabilitiesPremiums and agents balances receivable, net
    
    
    180
    
    
    
    (2,655
    )Accrued investment income
    
    
    37
    
    
    
    (187
    )Reinsurance recoverable, net
    
    
    13,866
    
    
    
    6,811Prepaid reinsurance premiums
    
    
    599
    
    
    
    (1,511
    )Deferred policy acquisition costs
    
    
    (1,849
    )
    
    
    (1,637
    )Federal income tax recoverable/payable
    
    
    925
    
    
    
    (316
    )Prepaid expenses and other assets
    
    
    (8
    )
    
    
    (503
    )Losses and loss adjustment expenses
    
    
    (9,969
    )
    
    
    (7,497
    )Unearned premiums
    
    
    18,040
    
    
    
    19,268Accrued expenses and other liabilities
    
    
    (4,716
    )
    
    
    1,368Premiums in advance
    
    
    (6,016
    )
    
    
    (310
    )Net cash provided by operating activities
    
    
    13,272
    
    
    
    16,128Cash flows from investing activitiesProceeds from maturities of debt securities
    
    
    1,562
    
    
    
    1,851Proceeds from sales of debt securities
    
    
    15,889
    
    
    
    8,894Proceeds from sales of equity securities
    
    
    953
    
    
    
    774Purchase of debt securities
    
    
    (16,018
    )
    
    
    (25,758
    )Purchase of equity securities
    
    
    (947
    )
    
    
    (725
    )Purchase of fixed assets
    
    
    (634
    )
    
    
    (1,551
    )Contribtion to NP Capital Trust I
    
    
    (620
    )
    
    
    Change in restricted cash
    
    
    
    
    
    
    (2,886
    )Net cash provided by (used in) investing activities
    
    
    185
    
    
    
    (19,401
    )Cash flows from financing activitiesProceeds from issuance of debt (net of $627 of issuance costs paid in 2006)
    
    
    20,234
    
    
    
    8,039Repayments of debt
    
    
    (2,656
    )
    
    
    (8,827
    )Net cash provided by (used in) financing activities
    
    
    17,578
    
    
    
    (788
    )Increase (decrease) in cash and cash equivalents
    
    
    31,035
    
    
    
    (4,061
    )Cash and cash equivalentsBeginning of period
    
    
    34,119
    
    
    
    29,678End of period
    
    $
    65,154
    
    
    $
    25,617Supplemental cash flow information  cash paid during the period forInterest
    
    $
    194
    
    
    $
    288Federal income taxes
    
    
    
    
    
    
    1,193
  6




---



##### Table of Contents



North Pointe Holdings Corporation And Subsidiaries
 Notes To Condensed Consolidated Financial Statements
 1. Basis of Financial Presentation and Principles of Consolidation
      7




---



##### Table of Contents



2. Earnings Per Share
  Three Months EndedMarch 31,2006
    
    
    2005(Dollars in thousands,except share data)Net income
    
    $
    1,627
    
    
    $
    2,546Weighted average shares outstanding
    
    
    9,116,687
    
    
    
    4,889,187Unvested restricted stock
    
    
    (2,500
    )
    
    
    Weighted average shares outstanding used for Basic EPS
    
    
    9,114,187
    
    
    
    4,889,187Dilutive effect of restricted stock
    
    
    444
    
    
    
    Weighted average shares outstanding used for Diluted EPS
    
    
    9,114,631
    
    
    
    4,889,187Basic earnings per share
    
    $
    0.18
    
    
    $
    0.52Diluted earnings per share
    
    $
    0.18
    
    
    $
    0.52
  3. Income Taxes
  Three Months EndedMarch 31,2006
    
    
    2005(Dollars in thousands)Current tax expense
    
    $
    925
    
    
    $
    877Deferred tax expense relating toNOL Carryforwards
    
    
    358
    
    
    
    401Other deferred tax (benefits) expenses
    
    
    (433
    )
    
    
    68Total federal income tax
expense
    
    $
    850
    
    
    $
    1,346
 8




---



##### Table of Contents



Three Months EndedMarch 31,2006
    
    
    2005(Dollars in thousands)Tax provision at the 34% statutory rate
    
    $
    842
    
    
    $
    1,323Tax effect ofDividend received deduction
    
    
    (8
    )
    
    
    (7
    )Other, net
    
    
    16
    
    
    
    30Total federal income tax expense
    
    $
    850
    
    
    $
    1,346
   March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Deferred federal income tax assetsLoss and loss adjustment expenses
    
    $
    2,385
    
    
    $
    2,445Unearned premiums
    
    
    3,812
    
    
    
    2,659Net operating loss carryforwards
    
    
    2,271
    
    
    
    2,629Premiums receivable
    
    
    85
    
    
    
    85Lease obligation
    
    
    154
    
    
    
    165Intangible asset
    
    
    332
    
    
    
    340Net unrealized losses on investments
    
    
    511
    
    
    
    340Citizens assessment
    
    
    104
    
    
    
    186Other
    
    
    432
    
    
    
    389Total deferred tax assets
    
    
    10,086
    
    
    
    9,238Deferred federal income tax liabilitiesDeferred policy acquisition costs
    
    
    3,885
    
    
    
    3,257Other
    
    
    111
    
    
    
    138Total deferred tax liabilities
    
    
    3,996
    
    
    
    3,395Net deferred federal income tax assets
    
    $
    6,090
    
    
    $
    5,843
 4. Outstanding Debt
   9




---



##### Table of Contents



(Dollars inYear
    
    thousands)2006
    
    $
    1002007
    
    
    1222008
    
    
    1302009
    
    
    1382010
    
    
    1462011 and thereafter
    
    
    22,595$
    23,231
 10




---



##### Table of Contents



5. Contingencies
    6. Segment Reporting
   11




---



##### Table of Contents



Three Months EndedMarch 31,2006
    
    
    2005(Dollars in thousands)Total RevenuesCommercial lines productsLiability
    
    $
    5,702
    
    
    $
    5,816Property
    
    
    1,674
    
    
    
    1,860Commercial multi-peril
    
    
    5,883
    
    
    
    5,509Commercial automobile
    
    
    1,569
    
    
    
    1,514Other
    
    
    628
    
    
    
    631Total commercial lines
    
    
    15,456
    
    
    
    15,330Personal lines productsPersonal automobile
    
    
    
    
    
    
    1,225Homeowners
    
    
    4,735
    
    
    
    5,580Total personal lines
    
    
    4,735
    
    
    
    6,805Administrative servicesAffiliated companies
    
    
    11,706
    
    
    
    9,684Non-affiliated companies
    
    
    453
    
    
    
    34312,159
    
    
    
    10,027Corporate and eliminationsInvestment activity
    
    
    929
    
    
    
    629Eliminations
    
    
    (11,706
    )
    
    
    (9,684
    )Total revenues
    
    $
    21,573
    
    
    $
    23,107Income (loss) before federal income tax expenseCommercial lines productsLiability
    
    $
    4,741
    
    
    $
    166Property
    
    
    (943
    )
    
    
    (378
    )Commercial multi-peril
    
    
    (1,352
    )
    
    
    1,310Commercial automobile
    
    
    (515
    )
    
    
    (771
    )Other
    
    
    (293
    )
    
    
    (24
    )Total commercial lines
    
    
    1,638
    
    
    
    303Personal lines productsPersonal automobile
    
    
    (1,263
    )
    
    
    (109
    )Homeowners
    
    
    (1,390
    )
    
    
    1,121Total personal lines
    
    
    (2,653
    )
    
    
    1,012Administrative services
    
    
    2,830
    
    
    
    2,376Corporate and eliminationsInvestment activity
    
    
    929
    
    
    
    629Other expense, net
    
    
    (267
    )
    
    
    (428
    )Income before federal income tax expense
    
    $
    2,477
    
    
    $
    3,892
 12




---



##### 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
  §
    
    our ability to accurately price the risks we underwrite;§
    
    existing and future regulations by local, state and federal governments, including
regulatory limitations on our ability to increase rates in Florida in order to absorb
increases in reinsurance costs and catastrophe losses;§
    
    the occurrence of severe weather conditions and other catastrophes;§
    
    risks associated with high concentration of our business in certain geographic markets;§
    
    the availability and pricing of reinsurance and the potential for non-payment or delay in payment by reinsurers;§
    
    the establishment of adequate loss and loss adjustment expense reserves;§
    
    retention and recruiting of independent agents and the potential loss of key personnel;§
    
    failure to pay claims accurately;§
    
    inability to implement our growth strategies;§
    
    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;§
    
    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;§
    
    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;
 13




---



##### Table of Contents



§
    
    reliance on information technology and telecommunication systems;§
    
    our limited history writing homeowners insurance policies to homeowners in Florida;§
    
    changes in insurance-related laws and regulations;§
    
    our ability to implement and maintain adequate internal controls in our business;§
    
    managements ability to effectively manage a public company; and§
    
    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
  14




---



##### Table of Contents



Results of Operations for the Three Months Ended March 31, 2006 and 2005
 Results of Operations
  Three Months EndedMarch 31,2006
    
    
    2005(Dollars in thousands)Gross premiums written:Commercial lines
    
    $
    20,991
    
    
    $
    18,622Personal lines
    
    
    24,577
    
    
    
    27,199Total gross premiums written
    
    
    45,568
    
    
    
    45,821Net premiums written:Commercial lines
    
    
    15,675
    
    
    
    15,685Personal lines
    
    
    21,481
    
    
    
    25,981Total net premiums written
    
    
    37,156
    
    
    
    41,666Revenues:Net premiums earned:Commercial lines
    
    
    15,456
    
    
    
    15,330Personal lines
    
    
    4,735
    
    
    
    6,805Total net premiums earned
    
    
    20,191
    
    
    
    22,135Investment income, net
    
    
    1,298
    
    
    
    762Net realized capital losses
    
    
    (369
    )
    
    
    (133
    )Fees and other income
    
    
    453
    
    
    
    343Total revenues
    
    
    21,573
    
    
    
    23,107Expenses:Losses and loss adjustment expenses, net
    
    
    9,494
    
    
    
    9,091Policy acquisition costs
    
    
    5,647
    
    
    
    6,029Other underwriting and operating expenses
    
    
    3,706
    
    
    
    3,865Interest expense
    
    
    249
    
    
    
    230Total expenses
    
    
    19,096
    
    
    
    19,215Income before federal income tax expense
    
    
    2,477
    
    
    
    3,892Federal income tax expense
    
    
    850
    
    
    
    1,346Net income
    
    $
    1,627
    
    
    $
    2,546Loss ratio:Commercial lines
    
    
    33.8
    %
    
    
    43.3
    %Personal lines
    
    
    90.1
    %
    
    
    36.0
    %Consolidated
    
    
    46.0
    %
    
    
    40.4
    %Expense ratio
    
    
    45.3
    %
    
    
    44.0
    %Combined ratio
    
    
    91.3
    %
    
    
    84.4
    %
 15




---



##### Table of Contents



Overview
     Gross Premiums Written
     16




---



##### Table of Contents



Net Premiums Written
    st
 Net Premiums Earned
   17




---



##### Table of Contents



2006
    
    
    2005(Dollars in thousands)Gross premiums earned:Commercial lines
    
    $
    19,718
    
    
    $
    18,179Personal lines
    
    
    7,810
    
    
    
    8,375Total
    
    
    27,528
    
    
    
    26,554Ceded premiums earned:Commercial lines
    
    
    4,262
    
    
    
    2,849Personal lines
    
    
    3,075
    
    
    
    1,570Total
    
    
    7,337
    
    
    
    4,419Net premiums earned:Commercial lines
    
    
    15,456
    
    
    
    15,330Personal lines
    
    
    4,735
    
    
    
    6,805Total
    
    $
    20,191
    
    
    $
    22,135
 Net Investment Income
    Net Realized Losses on Investments
  Fees and Other Income
  18




---



##### Table of Contents



Losses and Loss Adjustment Expenses
    All Lines
    
    2006
    
    2005Loss ratios before effects of reserve development
    
    
    57.3
    %
    
    
    47.4
    %Decrease in loss ratios attributable to reserve
development
    
    
    -11.3
    %
    
    
    -7.0
    %Total lines loss ratios
    
    
    46.0
    %
    
    
    40.4
    %
    Commercial Lines
    
    2006
    
    2005Loss ratios before effects of reserve development
    
    
    55.0
    %
    
    
    47.1
    %Decrease in loss ratios attributable to reserve
development
    
    
    -21.2
    %
    
    
    -3.8
    %Total commerical lines loss ratios
    
    
    33.8
    %
    
    
    43.3
    %
  19




---



##### Table of Contents



Personal Lines
    
    2006
    
    2005Loss ratios before effects of reserve development
    
    
    70.3
    %
    
    
    50.7
    %Increase (decrease) in loss ratios attributable to reserve
development
    
    
    19.8
    %
    
    
    -14.7
    %Total personal lines loss ratios
    
    
    90.1
    %
    
    
    36.0
    %
  Policy Acquisition Costs
   Other Underwriting and Operating Expenses
   Interest Expense
  20




---



##### Table of Contents



Federal Income Tax Expense
  Liquidity and Capital Resources
 Sources and Uses of Funds
       Cash Flows
  21




---



##### Table of Contents



Contractual Obligations and Commitments
  2011 and2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    thereafter
    
    
    Total(Dollars in thousands)Junior subordinated debt
    
    $
    1,345
    
    
    $
    1,794
    
    
    $
    1,794
    
    
    $
    1,794
    
    
    $
    1,794
    
    
    $
    65,728
    
    
    $
    74,249
 Investments
   22




---



##### Table of Contents



As of March 31, 2006
    
    
    As of December 31, 2005Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    portfolio
    
    
    Amount
    
    
    portfolio(Dollars in thousands)Fixed Income:U.S. governmental and agency securities
    
    $
    21,014
    
    
    
    12.3
    %
    
    $
    20,672
    
    
    
    14.5
    %Foreign governmental
    
    
    300
    
    
    
    0.2
    %
    
    
    561
    
    
    
    0.4
    %Corporate securities
    
    
    25,216
    
    
    
    14.7
    %
    
    
    31,509
    
    
    
    22.0
    %Muncipal securities
    
    
    6,981
    
    
    
    4.0
    %
    
    
    
    
    
    
    0.0
    %Mortgage-backed securities
    
    
    29,858
    
    
    
    17.4
    %
    
    
    32,847
    
    
    
    23.0
    %Asset-backed
    
    
    11,841
    
    
    
    6.9
    %
    
    
    12,429
    
    
    
    8.7
    %Total fixed-income
    
    
    95,210
    
    
    
    55.5
    %
    
    
    98,018
    
    
    
    68.6
    %Cash, cash equivalents and restricted cash
    
    
    65,354
    
    
    
    38.1
    %
    
    
    34,319
    
    
    
    24.0
    %Equity securities:Common shares
    
    
    10,407
    
    
    
    6.1
    %
    
    
    10,001
    
    
    
    7.0
    %Total equity
securities
    
    
    10,407
    
    
    
    6.1
    %
    
    
    10,001
    
    
    
    7.0
    %Other investments
    
    
    553
    
    
    
    0.3
    %
    
    
    553
    
    
    
    0.4
    %Total
    
    $
    171,524
    
    
    
    100.0
    %
    
    $
    142,891
    
    
    
    100.0
    %
   As of March 31, 2006Less 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
    
    $
    12,869
    
    
    $
    275
    
    
    $
    7,698
    
    
    $
    263
    
    
    $
    20,567
    
    
    $
    538Foreign governmental
    
    
    300
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    300
    
    
    
    11Corporate securities
    
    
    14,584
    
    
    
    589
    
    
    
    10,552
    
    
    
    477
    
    
    
    25,136
    
    
    
    1,066Municipal securities
    
    
    6,981
    
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    6,981
    
    
    
    71Mortgage-backed securities
    
    
    16,668
    
    
    
    573
    
    
    
    13,018
    
    
    
    660
    
    
    
    29,686
    
    
    
    1,233Asset-backed
    
    
    5,739
    
    
    
    84
    
    
    
    5,160
    
    
    
    81
    
    
    
    10,899
    
    
    
    165Total debt
securities
    
    $
    57,141
    
    
    $
    1,603
    
    
    $
    36,428
    
    
    $
    1,481
    
    
    $
    93,569
    
    
    $
    3,084Equity securities
    
    $
    1,736
    
    
    $
    96
    
    
    $
    122
    
    
    $
    34
    
    
    $
    1,858
    
    
    $
    130
 Unpaid Losses and Loss Adjustment Expenses
  23




---



##### Table of Contents



24




---



##### Table of Contents



Net Reserves at March 31, 2006Personal
    
    CommercialLines
    
    LinesSegment
    
    Segment
    
    Total(Dollars in thousands)High end of range
    
    $
    9,224
    
    
    $
    54,179
    
    
    $
    63,403Carried reserves
    
    
    8,555
    
    
    
    49,356
    
    
    
    57,911Low end of range
    
    
    7,799
    
    
    
    46,757
    
    
    
    54,556
  25




---



##### Table of Contents



March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Case:Commercial lines productsLiability
    
    $
    13,091
    
    
    $
    13,180Property
    
    
    8,089
    
    
    
    8,246Commercial multi-peril
    
    
    21,110
    
    
    
    19,942Commercial automobile
    
    
    3,448
    
    
    
    4,325Other
    
    
    1,075
    
    
    
    772Total commercial lines
    
    
    46,813
    
    
    
    46,465Personal lines productsPersonal automobile
    
    
    5,807
    
    
    
    6,128Homeowners
    
    
    4,487
    
    
    
    8,893Total personal lines
    
    
    10,294
    
    
    
    15,021Total case reserves
    
    $
    57,107
    
    
    $
    61,486IBNR:Commercial lines productsLiability
    
    $
    13,205
    
    
    $
    13,742Property
    
    
    3,680
    
    
    
    3,868Commercial multi-peril
    
    
    17,682
    
    
    
    14,613Commercial automobile
    
    
    3,975
    
    
    
    2,622Other
    
    
    826
    
    
    
    805Total commercial lines
    
    
    39,368
    
    
    
    35,650Personal lines productsPersonal automobile
    
    
    4,926
    
    
    
    9,451Homeowners
    
    
    6,408
    
    
    
    11,191Total personal lines
    
    
    11,334
    
    
    
    20,642Total IBNR reserves
    
    $
    50,702
    
    
    $
    56,292Total:Commercial lines productsLiability
    
    $
    26,296
    
    
    $
    26,922Property
    
    
    11,769
    
    
    
    12,114Commercial multi-peril
    
    
    38,792
    
    
    
    34,555Commercial automobile
    
    
    7,423
    
    
    
    6,947Other
    
    
    1,901
    
    
    
    1,577Total commercial lines
    
    
    86,181
    
    
    
    82,115Personal lines productsPersonal automobile
    
    
    10,733
    
    
    
    15,579Homeowners
    
    
    10,895
    
    
    
    20,084Total personal lines
    
    
    21,628
    
    
    
    35,663Total gross reserves
    
    $
    107,809
    
    
    $
    117,778
  26




---



##### Table of Contents



2006
    
    
    2005(Dollars in thousands)Gross reserves, beginning of period
    
    $
    117,778
    
    
    $
    96,561Less reinsurance recoverables, excluding Citizens assessment (1)
    
    
    60,034
    
    
    
    36,544Net balance
    
    
    57,744
    
    
    
    60,017Incurred related toCurrent year
    
    
    11,837
    
    
    
    10,664Prior years
    
    
    (2,343
    )
    
    
    (1,573
    )Total incurred
    
    
    9,494
    
    
    
    9,091Paid related toCurrent year
    
    
    2,136
    
    
    
    1,551Prior years
    
    
    7,191
    
    
    
    7,445Total paid
    
    
    9,327
    
    
    
    8,996Net balance, end of period
    
    
    57,911
    
    
    
    60,112Plus reinsurance recoverables, excluding Citizens assessment (1)
    
    
    49,898
    
    
    
    28,952Gross reserves, end of period
    
    $
    107,809
    
    
    $
    89,064
 
 (1)
    
    Reinsurance recoverables exclude a $3,429,000 and $5,955,000 recoverable attributable to the
liability established for the anticipated Citizens assessment at March 31, 2006 and December 31,
2005, respectively. The liability for the Citizens assessment is not included in unpaid losses and
loss adjustment expenses, therefore the related recoverable from reinsurers is also excluded. Contingencies
 Citizens Property Insurance Company
     27




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  Interest Rate Risk
   Hypothetical PercentageEstimated
    
    Increase (Decrease) inEstimated
    
    Change in
    
    
    
    
    
    ShareholdersHypothetical Change in Interest Rates
    
    Fair Value
    
    Fair Value
    
    Fair Value
    
    EquityAs of March 31, 2006
    
    (Dollars in thousands)200 basis point increase
    
    $
    88,253
    
    
    $
    (6,957
    )
    
    
    (7.3
    )%
    
    
    (5.5
    )%100 basis point increase
    
    
    91,687
    
    
    
    (3,523
    )
    
    
    (3.7
    )
    
    
    (2.8
    )No Change
    
    
    95,210
    
    
    
    
    
    
    
    
    
    
    
    100 basis point decrease
    
    
    98,700
    
    
    
    3,490
    
    
    
    3.7
    
    
    
    2.8200 basis point decrease
    
    
    102,033
    
    
    
    6,823
    
    
    
    7.2
    
    
    
    5.4
 28




---



##### Table of Contents



Credit Risk
    Effects of Inflation
  
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls over Financial Reporting
  29




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 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.
  
 Item 6. Exhibits.
 ExhibitNumber
    
    Exhibit31.1
    
    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.
 30




---



##### Table of Contents



NORTH POINTE HOLDINGS CORPORATIONDate: May 12, 2006
    By:
    /s/ James G. PetcoffJames G. PetcoffChief Executive Officer, President & Chairman
of the Board Date: May 12, 2006
    By:
    /s/ John H. BerryJohn H. BerryChief Financial Officer & Treasurer (Principal
Accounting Officer) 31




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit31.1
    
    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.
 32