UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31,
    2010ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number
    001-34496
 PENN MILLERS HOLDING
    CORPORATION
 (Exact name of registrant as
    specified in its charter)
  Pennsylvania(State or other jurisdiction
    of
    incorporation or organization)

80-0482459(I.R.S. Employer
    Identification No.)   72 North Franklin Street, Wilkes-Barre, PA 18773
 (Address of principal executive
    offices) (Zip Code)
  Registrants telephone number, including area code:
    (800) 233-8347
  Securities Registered Pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange of Which RegisteredCommon Stock, par value $0.01 per share

NASDAQ Global Market   Securities Registered Pursuant to Section 12(g) of the
    Act: None
  o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer o

Smaller reporting company þ(Do not check if a smaller
    reporting company)   Rule 12b-2
  o þ
      DOCUMENTS INCORPORATED BY REFERENCE




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PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  FORM 10-K
  For the
    Year Ended December 31, 2010
  Table of
    Contents
  PageNumberPART IItem 1.

Business


1Item 1A.

Risk Factors


26Item 1B.

Unresolved Staff Comments


35Item 2.

Properties


35Item 3.

Legal Proceedings


35Item 4.

Removed and Reserved


36PART IIItem 5.

Market for Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities


36Item 6.

Selected Financial Data


37Item 7.

Managements Discussion and Analysis of Financial Condition
    and Results of Operations


38Item 7A.

Quantitative and Qualitative Disclosures about Market Risk


73Item 8.

Financial Statements and Supplementary Data


75Item 9.

Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure


76Item 9A.

Controls and Procedures


76Item 9B.

Other Information


76PART IIIItem 10.

Directors, Executive Officers and Corporate Governance


76Item 11.

Executive Compensation


77Item 12.

Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters


77Item 13.

Certain Relationships and Related Transactions, and Director
    Independence


77Item 14.

Principal Accounting Fees and Services


77PART IVItem 15.

Exhibits, Financial Statement Schedules


77SIGNATURES


80




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##### 



PART I  Item 1.
    Business  Background
                  Business
    Segments
   1




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##### 



2




---



##### 



Net Premiums Earned by Business SegmentFor the Years Ended December 31,2010


% of Total


2009


% of TotalBusiness Segment:Agribusiness

$
45,226



66.4
%

$
45,289



60.1
%Commercial Business


22,405



32.9
%


28,961



38.4
%Other


466



0.7
%


1,108



1.5
%Total

$
68,097



100.0
%

$
75,358



100.0
%     Geographic
    Distribution
    Consolidated

Agribusiness Segment

Commercial Business SegmentState

% of Total

State

% of Total

State

% of TotalPennsylvania


10.0
%

Illinois


11.1
%

New Jersey


31.5
%New Jersey


9.5
%

Georgia


8.3
%

Pennsylvania


24.8
%Illinois


7.8
%

North Carolina


7.8
%

Virginia


14.2
%Georgia


6.0
%

Arkansas


7.2
%

Connecticut


10.4
%North Carolina


5.6
%

Louisiana


6.8
%

Massachusetts


8.3
%Arkansas


5.1
%

Missouri


6.3
%

Tennessee


6.2
%Virginia


5.0
%

Kansas


5.8
%

All others(1)


4.6
%Louisiana


4.8
%

Ohio


5.0
%

Total


100.0
%Missouri


4.5
%

Minnesota


4.5
%Kansas


4.1
%

Pennsylvania


3.8
%Ohio


3.5
%

South Carolina


3.5
%All others(1)


34.1
%

Mississippi


3.5
%Total


100.0
%

All others(1)


26.4
%Total


100.0
%     (1)
    
    No other single state accounted for 3.5% or more of the
    individual total of direct written premiums. 3




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##### 



Our
    Products
    Net Premiums Earned by Product LineFor the Years Ended December 31,2010


% of Total


2009


% of TotalProduct Line:Property  Agribusiness

$
16,273



23.9
%

$
16,546



22.0
%Liability  Agribusiness


9,192



13.5
%


9,196



12.2
%Property and liability  Commercial Business(1)


13,542



19.9
%


17,731



23.5
%Workers compensation  Agribusiness and
    Commercial Business


11,933



17.5
%


13,473



17.9
%Commercial auto  Agribusiness and Commercial Business


15,741



23.1
%


16,378



21.7
%Other(2)


1,416



2.1
%


2,034



2.7
%Total

$
68,097



100.0
%

$
75,358



100.0
%     (1)
    
    Commercial business property and liability line of
    business is comprised primarily of a commercial multi-peril line
    of business where property and liability coverages under our
    business owners policy are rated together.(2)
    
    Other includes our non-core lines of business as described
    below, and the net premiums earned in our other segment of $466
    and $1,108, for the years ended December 31, 2010 and,
    2009, respectively.            Our
    Business Strategies
   4




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##### 



Niche
    Strategies
  
    Our principal business strategy in both our agribusiness and
    commercial business segments is to identify niche segments where
    competition is limited and we can add value through personal
    service to our producers and insureds. Our plans are to continue
    to develop and market products for niche businesses and
    industries:  
    Agribusiness  Grow our established niche    
    We have taken actions in 2010 in order to allow us to write our
    agribusiness product in Texas and South Dakota beginning in
    mid-2011. Because of its large footprint and significant
    agricultural resources, we believe that Texas especially
    provides us business opportunities that our agribusiness segment
    can capitalize on.
    We have transferred staff from other areas of the organization
    into our agribusiness marketing and underwriting operations, and
    we have positioned seasoned production underwriters in the
    Northwest and Midwest to generate new business. These production
    underwriters have extensive experience in agribusiness-specific
    property and casualty insurance and are extremely familiar with
    the areas we look to compete in, and the business and economic
    issues that matter to prospective customers in these areas.
    We have also organized our agribusiness staffing into territory
    teams made up of raters and underwriters with geographic
    knowledge and business development experience. We believe that
    this enhanced customer-centric focus will provide us with
    opportunities to expand our business (both agribusiness and
    PennEdge) in states where we are under-represented.  
    Commercial Business  Move from being a generalist
    insurer of small business to being a specialist focused on
    select industries for small and middle market customers.  
    In early 2009, we introduced our new PennEdge product. PennEdge
    provides property and liability coverage to accounts that
    require a broader range of coverages than our traditional
    business owners or agribusiness products offer.
    PennEdge will allow us to develop additional niche markets out
    of our existing commercial business target markets. We will
    focus our marketing and underwriting efforts on those industry
    segments that we understand, and in which we can differentiate
    ourselves from other insurance companies.
    PennEdge is specifically tailored to unique business and
    industry segments, including wholesalers, manufacturing,
    hospitality, commercial laundries and dry cleaners, and
    printers. In 2010, we added hunting and fishing lodges, clubs,
    guides and outfitters and metal recyclers to our target classes
    of insureds. We choose our targeted segments based on the
    experience of our underwriting staff, the market opportunities
    available to our existing producers and where we believe there
    are opportunities to reach producers who have not traditionally
    carried our products.
    As of December 31, 2010 the PennEdge product was approved
    in twenty-four states, up from eight states at the end of 2009.
    Our plans are to sell the PennEdge product through existing
    commercial business agents and to capitalize on our already
    strong and established relationships with agents and brokers who
    sell our agribusiness program.  
    Strategic Alliances  We have differentiated our
    coverage offerings by entering into strategic alliances in both
    our agribusiness and commercial business segments to offer
    equipment breakdown, employment practices liability, and
    miscellaneous professional liability coverage; and we have
    recently entered into a strategic alliance to begin offering
    environmental impairment liability (pollution) coverage. Under
    such strategic alliances, we typically reinsure all of the risk
    of loss to the strategic partner and earn a ceding commission. 5




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##### 



Growth
    Strategies
        
    We believe that there are significant cross-selling
    opportunities available to us by having products like PennEdge
    and our agribusiness lines. The brokers and agents, to whom we
    look to promote our products, serve a diverse group of potential
    insureds: middle market customers in the businesses we target,
    as well as larger businesses in the agricultural sector. We also
    believe that our capital adequacy will allow us access to
    larger, more sophisticated classes of insureds.
    We will add new classes of business in areas we feel we can
    differentiate ourselves, capitalize on our established name and
    leverage our existing processes. For example, in 2010 we added
    coverage specifically tailored to hunting and fishing lodges,
    clubs, guides and outfitters, and metal recyclers.
    We will develop strategic relationships with third parties that
    have a particular expertise in order to meet the specialized
    needs of our insureds. This will allow us to grow premium
    volume, without incurring excessive costs, by offering unique,
    value-added products to potential or existing insureds. In 2010,
    we entered into an agreement with a national workers
    compensation consulting firm that specializes in providing
    tools, training and support to employers in order to manage and
    ultimately reduce workers compensation costs. We believe
    that offering this program to our insureds will not only
    differentiate us from our competitors who do not offer a similar
    service, but will also ultimately lower our workers
    compensation loss ratios over time.
    Penn Millers Insurance Companys policies are sold through
    select independent insurance producers. These producers
    significantly influence the insureds decision to choose
    our products over those of our competitors. We are currently
    represented by a small number of producers in a large geographic
    area. New producers are an important part of our growth
    strategy, and we intend to continue to add them in areas where
    we want to increase our market presence.
    In order to increase our market penetration, we have begun to
    more actively market our agribusiness and PennEdge offerings by
    using in-house out-bound telemarketing to reach out directly to
    potential commercial business insureds, targeted agribusiness
    customers, and brokers and agents who do not currently
    distribute our products.
    In 2010, we changed the roles of our marketing representatives
    and realigned our marketing and underwriting teams by creating a
    production underwriter position that combines the
    business-building expertise of a marketing representative with
    the underwriting acumen of a traditional underwriter. We believe
    that combining these disciplines improves efficiencies and gives
    us increased opportunities to quote accounts directly, with very
    specific underwriting and pricing guidelines and authority. The
    home office approves all 6




---



##### 



accounts beyond the individual production underwriters
    defined authority, and reviews all accounts written that are
    within the production underwriters authority.  
    We implemented new procedures in 2010 to more effectively use
    financial responsibility and credit information (credit) as part
    of the rating and risk selection process when underwriting our
    commercial business offerings. We believe that credit-based
    scoring is an effective predictor of risk with respect to the
    issuance of our policies, and have begun to place more reliance
    on this data in the underwriting and pricing of new and renewal
    policies.
    Although we do not have any current plans to grow our business
    by acquisition, we will consider any relevant opportunities that
    complement our strategies.  Profit
    Improvement Strategies
  
    Our Solutions business owners policy is offered in eight
    states and provides enhanced coverages intended for small
    business insureds. While the Solutions offering has served a
    business need, it has not performed consistently well because
    its design serves a relatively small population of potential
    customers, and its use beyond preferred small business insureds
    has resulted in less-than profitable loss ratios. Our aim is to
    have a smaller but more profitable Solutions book of business.
    In order to improve the future results in our Solutions product,
    we have implemented the following strategies that we feel will
    improve our loss ratios in this product in the future:  
    In late 2008, we made the strategic decision to withdraw from
    certain unprofitable classes of business and terminate
    relationships with several underperforming producers. We believe
    that refocusing the Solutions offering toward select agents and
    preferred insureds will improve the profitability of the
    Solutions policy over time. This decision has resulted in
    significantly lower premium volume in our commercial business
    segment, but we believe that our development of PennEdge and our
    cost containment efforts in Solutions will improve our
    underwriting profit.
    We have begun to take aggressive pricing actions on renewing
    policies that have not been profitable to us, or present
    high-risk exposures. These pricing actions are intended to
    either generate an immediate underwriting profit, or to remove
    the business from our existing portfolio.
    As previously mentioned, we will place more reliance on
    credit-based scoring data in the underwriting and pricing of new
    and renewal Solutions policies. We think that this data can
    provide valuable insight as to the amount of risk we are
    ultimately taking on, thereby allowing us to price the risk more
    appropriately.  
    Reduce our ratio of expenses to net premiums earned  
    We are a relatively small insurance company competing on an
    almost national scale. We believe that the support functions we
    have in place  information technology, accounting and
    finance, human resources, and management expertise 
    can support significantly more production without increasing
    much of our costs. We believe that we will only need to add
    staff that directly relate to increased revenues  the
    underwriting, marketing, claims and loss control functions. We
    believe that we can achieve improved economies of scale and
    lower underwriting expense ratios through our growth strategies.
    We continually try to identify opportunities for process
    efficiencies and expense reductions throughout the organization.
    In February 2011, we reduced staff by nearly 10% and identified
    other expense reductions that, all together, we expect will
    total approximately $1 million annually.  Balance
    Sheet Management
  
    Investments  
    Our investment objectives are (i) accumulation and
    preservation of capital, (ii) optimization, within accepted
    risk levels, of after-tax returns, (iii) assuring proper
    levels of liquidity, (iv) providing for an acceptable and
    stable level of current income, (v) managing the maturities
    of our investment securities to 7




---



##### 



reflect the maturities of our liabilities, and
    (vi) maintaining a quality portfolio which will help attain
    the highest possible rating from A.M. Best.  
    We invest in high-quality corporate, government and municipal
    bonds with relatively short durations so as to position us to
    take advantage of changing market conditions and to match our
    estimated timing of claims payments.
    For more information regarding our investments, see
    Item 7  Managements Discussion and
    Analysis of Financial Condition and Results of
    Operations  Critical Accounting Estimates 
    Investments.  
    Loss reserves  Estimating the ultimate liability for
    losses and LAE is an inherently uncertain process and reflects
    our best estimate at the balance sheet date. Our objective is to
    establish loss reserves that will ultimately prove to be
    adequate. For more information regarding our losses and loss
    adjustment expense reserves, refer to Item 7 
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations  Critical
    Accounting Estimates  Losses and Loss Adjustment
    Expense Reserves.
    Strong reinsurers  
    Our reinsurance providers, the majority of whom are longstanding
    partners who understand our business, are all carefully selected
    with the help of our reinsurance brokers. We monitor the
    solvency of reinsurers through regular review of their financial
    statements and, if available, their A.M. Best ratings. All
    of our significant reinsurance partners that A.M. Best
    follows have at least an A- A.M. Best rating.
    According to A.M. Best, companies with a rating of
    A- or better have an excellent ability to meet
    their ongoing obligations to policyholders. In certain
    instances, we may partner with a reinsurer who is not rated by
    A.M. Best. However, in such instances the reinsurer must be
    well capitalized, and have a strong credit rating from Standard
    and Poors or Moodys rating agencies. We will
    generally only make exceptions for property related reinsurance
    in which there is typically little or no delay in the reporting
    of losses by insureds and the settlement of the claims. We have
    experienced no significant difficulties collecting amounts due
    from our reinsurers.
    For additional information concerning reinsurance, see
    Item 1  Business 
    Reinsurance and Note 11 of the notes to the
    Companys consolidated financial statements in Part II
    Item 8  Financial Statements and
    Supplementary Data.  Alignment
    of the Interests of Our Employees with Those of Our
    Shareholders
    Marketing
    and Distribution
       8




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Underwriting,
    Risk Assessment and Pricing
       9




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Claims
    Management
        Technology
          Reinsurance
  Reinsurance Ceded.
  
    reduce net liability on individual risks;
    mitigate the effect of individual loss occurrences (including
    catastrophic losses);
    stabilize underwriting results;
    decrease leverage; and
    increase our underwriting capacity. 10




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
    Treaty reinsurance automatically reinsures an
    agreed-upon
    portion of a class of business without the need for approval by
    the reinsurer of the individual risks covered. We primarily use
    excess of loss reinsurance, where we limit our liability to all,
    or a particular portion, of the amount in excess of a
    predetermined deductible or retention.
    Facultative reinsurance reinsures each policy or portion of a
    risk individually with the prior approval of the reinsurer. We
    use facultative reinsurance to provide additional capacity to
    write higher limits of insurance coverage or to reduce
    retentions on an individual risk basis.
    Catastrophe reinsurance indemnifies us for an amount of loss
    resulting from a catastrophic event in excess of a predetermined
    retention.
    The Terrorism Risk Insurance Act of 2002, which was modified and
    extended through December 31, 2014 by the Terrorism Risk
    Insurance Program Reauthorization Act of 2007 (collectively
    referred to as TRIA), provides additional protection
    to us. For further information regarding TRIA, see
     Regulation  Other Regulation
    and Item 1A  Risk Factors of this
    Form 10-K.        Property
    Excess of Loss Reinsurance
      2010

2011Ceded Under



Ceded UnderReinsurance



ReinsuranceProperty Losses Incurred

Retained by Company

Treaties

Retained by Company

TreatiesUp to $500,000


100
%


0
%


100
%


0
%$500,000 in excess of $500,000


60
%


40
%


100
%


0
%$4 million in excess of $1 million


0
%


100
%


0
%


100
%$15 million in excess of $5 million


0
%


100
%


0
%


100
%  11




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##### 




    For 2010, the $500,000 in excess of $500,000 layer provided
    unlimited reinstatements; no annual aggregate limit;
    For 2010 and 2011, the $4 million in excess of
    $1 million layer provides three reinstatements;
    For 2010 and 2011, the $5 million in excess of
    $5 million layer provides two reinstatements; and
    For 2010 and 2011, the $10 million in excess of
    $10 million layer provides one reinstatement.  Property
    Automatic Facultative Treaty
    Property
    Catastrophe Excess of Loss Reinsurance
      Casualty
    Excess of Loss Reinsurance
    2010

2011Ceded Under



Ceded UnderReinsurance



ReinsuranceCasualty Losses Incurred

Retained by Company

Treaties

Retained by Company

TreatiesUp to $500,000


100
%


0
%


100
%


0
%$500,000 in excess of $500,000


60
%


40
%


100
%


0
%$4 million in excess of $1 million


0
%


100
%


0
%


100
%$5 million in excess of $5 million


0
%


100
%


0
%


100
%       
    For 2010, the $500,000 in excess of $500,000 layer provided
    unlimited reinstatements, no annual aggregate limit;
    For 2010 and 2011, the $4 million in excess of
    $1 million layer provides two reinstatements; and
    For 2010 and 2011, the $5 million in excess of
    $5 million layer provides one reinstatement.  Umbrella
    Treaty Reinsurance
   12




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Accident
    Year Aggregate Excess of Loss Reinsurance (Stop Loss
    Reinsurance)
             13




---



##### 



CumulativeCumulative


Accrue for Expected


Accounting





ExperienceRecorded at





Total


Commutation and


Impact


Net


ActivityDecember 31,


Experience in


December 31,


Profit Sharing


At December 31,


Recorded in


Recorded in2008


2009


2009


in 2009


2009


2009


2010Stop loss ceded premiums  base

$
2,464


$
2,401


$
4,865


$



$
4,865


$
2,401


$
Additional premium @ 20% of ceded losses


858



(78
)


780



(780
)






(858
)


Profit sharing  returned premiums














(3,260
)


(3,260
)


(3,260
)


Total ceded premiums


3,322



2,323



5,645



(4,040
)


1,605



(1,717
)


Estimated accident year 2008 ceded losses


(4,292
)


394



(3,898
)


3,898







4,292



Interest expense


86



171



257



(257
)






(86
)


Stop loss reinsurance (benefit) cost

$
(884
)

$
2,888


$
2,004


$
(399
)

$
1,605


$
2,489


$
           Losses & LossExpenseRecoverable


Percentage ofon Unpaid


Total


A.M. BestClaims


Recoverable


RatingHannover Rueckversicherung AG

$
7,786



34.9
%


ASwiss Reinsurance America Corporation


3,569



16.0
%


ATransatlantic Reinsurance Company


2,414



10.8
%


AEmployers Mutual Casualty Co.


2,350



10.5
%


A-Partner Reinsurance Co. of the U.S.


2,298



10.3
%


A+R+V Versicherung AG(1)


1,255



5.6
%


NR-5Platinum Underwriters Reinsurance, Inc.


504



2.3
%


AGeneral Reinsurance Corporation


470



2.1
%


A++Aspen Insurance UK Limited


453



2.0
%


AAll Other


1,223



5.5
%Total

$
22,322



100.0
%  14




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##### 



(1)
    
    R+V Versicherung AG is not formally followed by A.M. Best.
    The company holds a Standard & Poors (S&P)
    financial strength rating of A+. This reinsurer participates in
    our property per-risk and catastrophe excess reinsurance
    programs, and has posted a letter of credit with us in order to
    mitigate the risk of non-performance.  Reinsurance Assumed.
  Losses
    and LAE Reserves
            greater-than-normal
 15




---



##### 



For the Years EndedDecember 31,2010


2009(In thousands)Balance at January 1

$
106,710


$
108,065Less Reinsurance recoverable on unpaid losses and LAE


18,356



22,625Net liability at January 1


88,354



85,440Losses and LAE incurred, net:Current year

$
55,772


$
51,199Prior years


(2,086
)


1,555Total incurred losses and LAE


53,686



52,754Less losses and LAE paid, net:Current year

$
24,755


$
21,296Prior years


29,634



28,544Total losses and LAE expenses paid


54,389



49,840Net liability for unpaid losses and LAE, at December 31

$
87,651


$
88,354Reinsurance recoverable on unpaid losses and LAE


22,322



18,356Reserve for unpaid losses and LAE at December 31

$
109,973


$
106,710           Return of 2008 losses ceded under stop loss contract

$
4,292Favorable development in 2009 on December 31, 2008 unpaid
    losses and LAE reserves


(2,737
)Net prior years reserve development in 2009 
    unfavorable

$
1,555    16




---



##### 



Reconciliation
    of Reserve for Losses and Loss Adjustment Expenses
            For the Years Ended December 31,2000


2001


2002


2003


2004


2005


2006


2007


2008


2009


2010(In thousands)Liability for unpaid losses and LAE, net of reinsurance
    recoverables

$
29,476


$
35,656


$
42,731


$
48,072


$
55,804


$
61,032


$
69,316


$
77,229


$
85,440


$
88,354


$
87,651Cumulative amount of liability paid throughOne year later


12,523



15,441



15,279



18,849



19,288



21,262



19,681



22,591



28,544



29,634



Two years later


20,032



23,640



25,731



27,719



28,977



32,372



31,974



35,344



46,138







Three years later


25,184



28,897



31,372



34,125



35,481



40,950



40,378



47,263











Four years later


28,118



32,311



35,104



37,135



41,365



45,128



46,969















Five years later


30,318



33,755



36,561



39,446



43,494



48,754



















Six years later


31,333



34,786



37,978



40,937



45,462























Seven years later


32,039



35,847



38,932



41,969



























Eight years later


33,002



36,408



39,628































Nine years later


33,531



37,051



































Ten years later


34,144







































 17




---



##### 



For the Years Ended December 31,2000


2001


2002


2003


2004


2005


2006


2007


2008


2009


2010(In thousands)Liability re-estimated as ofOne year later


34,545



38,657



44,764



49,658



54,729



61,017



64,679



72,004



86,995



86,268



Two years later


34,864



40,138



44,591



48,718



54,948



61,081



63,847



70,030



85,704







Three years later


35,865



40,527



44,424



49,954



54,510



59,884



62,422



68,497











Four years later


36,594



40,416



45,405



49,617



54,411



58,891



62,555















Five years later


37,108



40,696



45,603



49,284



53,575



59,175



















Six years later


37,402



41,157



45,744



48,918



54,031























Seven years later


38,193



41,513



45,308



49,161



























Eight years later


38,590



41,271



45,629































Nine years later


38,315



41,570



































Ten years later


38,688







































Cumulative total redundancy (deficiency)

$
(9,212
)

$
(5,914
)

$
(2,898
)

$
(1,089
)

$
1,773


$
1,857


$
6,761


$
8,732


$
(264
)

$
2,086


$
Gross liability  end of year

$
37,056


$
47,084


$
53,462


$
69,463


$
73,287


$
83,849


$
89,405


$
95,956



108,065


$
106,710


$
109,973Reinsurance recoverables


7,580



11,428



10,731



21,391



17,483



22,817



20,089



18,727



22,625



18,356



22,322Net liability  end of year

$
29,476


$
35,656


$
42,731


$
48,072


$
55,804


$
61,032


$
69,316


$
77,229


$
85,440


$
88,354


$
87,651Gross re-estimated liability  latest

$
58,565


$
63,414


$
66,106


$
68,906


$
73,029


$
85,952


$
81,443


$
89,029


$
103,374


$
106,205Re-estimated reinsurance recoverables  latest


19,877



21,844



20,477



19,745



18,998



26,777



18,888



20,532



17,670



19,937Net re-estimated liability  latest

$
38,688


$
41,570


$
45,629


$
49,161


$
54,031


$
59,175


$
62,555


$
68,497


$
85,704


$
86,268Gross cumulative redundancy (deficiency)

$
(21,509
)

$
(16,330
)

$
(12,644
)

$
557


$
258


$
(2,103
)

$
7,962


$
6,927


$
4,691


$
505   Investments
      
    Commodities and futures contracts;
    Options (except covered call options);
    Non-investment grade debt obligations (individual securities) at
    time of purchase excluding mutual funds with at least an average
    S&P credit rating of B;
    Preferred stocks (except trust preferred securities);
    Interest-only, principal-only, and residual tranche
    collateralized mortgage obligations;
    Private placements other than section 144A issuances with
    registration rights;
    Non-U.S. dollar
    denominated bonds;
    Foreign currency trading;
    Limited partnerships;
    Convertible securities; 18




---



##### 




    Venture-capital investments;
    Real estate properties (except Real Estate Investment Trusts);
    Securities lending;
    Portfolio leveraging, i.e., margin transactions; and
    Short selling.          At December 31,2010


2009Cost or Amortized


Estimated Fair


Cost or Amortized


Estimated FairCost


Value


Cost


ValueAgencies not backed by the full faith and credit of the U.S.
    government

$
14,111


$
14,458


$
16,933


$
17,441U.S. Treasury securities


721



736



4,499



4,612State and political subdivisions


43,224



44,559



37,415



39,334Corporate securities


76,325



78,441



71,470



73,691Commercial mortgage-backed securities


1,589



1,662



3,806



3,775Residential mortgage-backed securities


22,223



22,915



27,607



28,302Total fixed maturities

$
158,193



162,771


$
161,730


$
167,155Total equity securities(1)

$
10,885


$
10,874


$




     (1)
    
    Equity securities represent the amount invested in a high-yield
    bond mutual fund invested primarily in corporate fixed maturity
    securities. 19




---



##### 



Estimated


PercentRating(1)

Fair Value


of Total(2)Agencies not backed by the full faith and credit of the U.S.
    government

$
14,458



8.3
%U.S. Treasury securities


736



0.4
%AAA


48,482



27.9
%AA


41,254



23.8
%A


45,354



26.1
%BBB


12,487



7.2
%B(3)


10,874



6.3
%Total

$
173,645



100.0
%     (1)
    
    The ratings set forth in this table are based on the ratings
    assigned by S&P. If S&Ps ratings were
    unavailable, the equivalent ratings supplied by Moodys
    Investor Service, Fitch Investors Service, Inc. or the National
    Association of Insurance Commissioners (NAIC) would be used
    where available.(2)
    
    Represents percent of fair value for classification as a percent
    of the total invested assets portfolio.(3)
    
    Represents the amount invested in a high-yield bond mutual fund
    invested primarily in corporate fixed maturity securities with
    an average S&P credit rating of B.    Estimated FairAmortized Cost


Value(1)Less than one year

$
10,144


$
10,283One though five years


88,455



91,582Five through ten years


25,521



26,098Greater than ten years


10,261



10,231Commercial mortgaged-backed securities(2)


1,589



1,662Residential mortgaged-backed securities(2)


22,223



22,915Total fixed maturities

$
158,193


$
162,771     (1)
    
    Fixed maturity securities are carried at fair value in our
    financial statements.(2)
    
    Mortgage-backed securities consist of residential and commercial
    mortgage-backed securities and securities collateralized by home
    equity loans. These securities are presented separately in the
    maturity schedule due to the inherent risk associated with
    prepayment or early amortization. Prepayment rates are
    influenced by a number of factors that cannot be predicted with
    certainty, including: the relative sensitivity of the underlying
    mortgages or other collateral to changes in interest rates; a
    variety of economic, geographic and other factors; and the
    repayment priority of the securities in the overall
    securitization structures.     20




---



##### 



Fair Value at


Fair Value atDecember 31,


December 31,Insurer

2010


2009AMBAC

$
3,262


$
3,321FGIC


4,871



5,524FSA


8,242



9,494MBIA


3,687



4,356Total

$
20,062


$
22,695     At December 31,At December 31, 2010


2009With


Without


WithGuarantee


Guarantee


GuaranteeRating

Fair Value


Fair Value


Fair ValueAAA

$
8,175


$
1,104


$
9,476AA


9,179



13,521



11,021A


2,708



5,437



2,198Total

$
20,062


$
20,062


$
22,695   Competition
    Regulation
  Insurance Company Regulation
 21




---



##### 




    approval of policy forms and premium rates;
    standards of solvency, including establishing statutory and
    risk-based capital requirements for statutory surplus;
    classifying assets as admissible for purposes of determining
    statutory surplus;
    licensing of insurers and their producers;
    advertising and marketing practices;
    restrictions on the nature, quality and concentration of
    investments;
    assessments by guaranty associations;
    restrictions on the ability of Penn Millers Insurance Company to
    pay dividends to us;
    restrictions on transactions between Penn Millers Insurance
    Company and its affiliates;
    restrictions on the size of risks insurable under a single
    policy;
    requiring deposits for the benefit of policyholders;
    requiring certain methods of accounting;
    periodic examinations of our operations and finances;
    claims practices;
    prescribing the form and content of reports of financial
    condition required to be filed; and
    requiring reserves for unearned premiums, losses and other
    purposes.    Accounting and Financial Reporting.
  Examinations.
  NAIC Risk-Based Capital Requirements.
 22




---



##### 



NAIC Ratios.
  Market Conduct Regulation.
  Property and Casualty Regulation.
  Mandatory Pooling Arrangements.
  Guaranty Fund Laws.
  Dividends.
  Holding Company Laws. and/or
 23




---



##### 



Other
    Regulation
  Sarbanes-Oxley Act of 2002.
  Terrorism Risk Insurance Act of 2002.
    Privacy.
  OFAC.
 24




---



##### 



New and Proposed Legislation and
    Regulations.
      Employees
    Available
    Information
  Form 10-K, Form 10-Q Form 8-K, Form 10-K.
 25




---



##### 



A.M. Best
    Rating
    Item 1A.
    Risk
    Factors    Catastrophic
    or other significant natural or man-made losses may negatively
    affect our financial results and liquidity.
           26




---



##### 



A
    reduction in our A.M. Best rating could affect our ability
    to write new business or renew our existing
    business.
      Turmoil
    in the capital markets and an economic downturn may impact our
    business activity level, results of operations, capital position
    and stock price.
    Debt-to-gross
 27




---



##### 



Our
    investment performance may suffer as a result of adverse capital
    market developments, which may affect our financial results and
    ability to conduct business.
    The
    geographic distribution of our business exposes us to
    significant natural disasters, which may negatively affect our
    financial and operating results.
        
    determining whether damages were caused by flooding versus wind;
    evaluating general liability and pollution exposures;
    the impact of increased demand for products and services
    necessary to repair or rebuild damaged properties;
    infrastructure disruption;
    fraud;
    the effect of mold damage;
    business interruption costs; and
    reinsurance collectability.   28




---



##### 



Losses
    resulting from political instability, acts of war or terrorism
    may negatively affect our financial and operating
    results.
        Our
    results may fluctuate as a result of many factors, including
    cyclical changes in the insurance industry, and we are currently
    in a soft market phase of the insurance industry
    cycle, which may lead to reduced premium volume.
    
    rising levels of actual costs that are not known by companies at
    the time they price their products;
    volatile and unpredictable developments, including man-made and
    natural catastrophes;
    changes in reserves resulting from the general claims and legal
    environments as different types of claims arise and judicial
    interpretations relating to the scope of insurers
    liability develop; and
    fluctuations in interest rates, inflationary pressures and other
    changes in the investment environment, which affect returns on
    invested capital and may impact the ultimate payout of losses.   29




---



##### 



Because
    estimating future losses is difficult and uncertain, if our
    actual losses exceed our estimates of losses and loss reserves,
    our operating results may be adversely affected.
    
    trends in claim frequency and severity;
    information regarding each claim for losses;
    health care reform;
    legislative enactments, judicial decisions and legal
    developments regarding damages; and
    trends in general economic conditions, including inflation.    If our
    reinsurers do not pay our claims in accordance with our
    reinsurance agreements, we may incur losses.
    We may
    be unable to effectively develop and market new products, like
    PennEdge, which may negatively affect our
    operations.
      
    the availability of alternative products from our competitors;
    the price of our product relative to our competitors;
    the commissions paid to producers for the sale of our products
    relative to our competitors;
    the timing of our market entry; and
    our ability to market and distribute our products effectively. 30




---



##### 



The
    property and casualty insurance market in which we operate is
    highly competitive, which limits our ability to increase
    premiums for our products and recruit new
    producers.
    Our
    results of operations may be adversely affected by any loss of
    business from key producers.
    Assessments
    and premium surcharges for state guaranty funds, second injury
    funds and other mandatory pooling arrangements may reduce our
    profitability.
     31




---



##### 



Our
    revenues may fluctuate with our investment results and changes
    in interest rates.
    and/or
    Volatility
    in commodity and other prices could impact our financial
    results.
    Proposals
    to federally regulate the insurance business could affect our
    business.
    If we
    fail to comply with insurance industry regulations, or if those
    regulations become more burdensome, we may not be able to
    operate profitably.
   32




---



##### 




    approval of policy forms and premium rates;
    standards of solvency, including establishing requirements for
    minimum capital and surplus, and for risk-based capital;
    classifying assets as admissible for purposes of determining
    solvency and compliance with minimum capital and surplus
    requirements;
    licensing of insurers and their producers;
    advertising and marketing practices;
    restrictions on the nature, quality and concentration of
    investments;
    assessments by guaranty associations and mandatory pooling
    arrangements;
    restrictions on the ability to pay dividends;
    restrictions on transactions between affiliated companies;
    restrictions on the size of risks insurable under a single
    policy;
    requiring deposits for the benefit of policyholders;
    requiring certain methods of accounting;
    periodic examinations of our operations and finances;
    claims practices;
    prescribing the form and content of reports of financial
    condition required to be filed; and
    requiring reserves for unearned premiums, losses and other
    purposes.      Our
    ability to manage our exposure to underwriting risks depends on
    the availability and cost of reinsurance coverage.
     33




---



##### 



We
    could be adversely affected by the loss of our existing
    management or key employees.
    We
    could be adversely affected by any interruption to our ability
    to conduct business at our current location.
    Statutory
    provisions and our articles and bylaws may discourage takeover
    attempts on Penn Millers that you may believe are in your best
    interests or that might result in a substantial profit to
    you.
      
    a prohibition on a person, including a group acting in concert,
    from acquiring voting control of more than 10% of our
    outstanding stock without prior approval of the board of
    directors;
    a classified board of directors divided into three classes
    serving for successive terms of three years each;
    the prohibition of cumulative voting in the election of
    directors;
    the requirement that nominations for the election of directors
    made by shareholders and any shareholder proposals for inclusion
    on the agenda at any annual meeting must be made by notice (in
    writing) delivered or mailed to us not less than 90 days
    prior to the meeting;
    the prohibition of shareholders action without a meeting
    and of shareholders right to call a special meeting;
    unless otherwise waived by the board of directors, to be elected
    as a director, a person must be a shareholder of Penn Millers
    Holding Corporation for the lesser of one year or the time that
    has elapsed since the completion of the conversion;
    the requirement imposing a mandatory tender offering requirement
    on a shareholder that has a combined voting power of 25% or more
    of the votes that our shareholders are entitled to cast; 34




---



##### 




    the requirement that certain provisions of our articles of
    incorporation can only be amended by an affirmative vote of
    shareholders entitled to cast at least 80% of all votes that
    shareholders are entitled to cast, unless approved by an
    affirmative vote of at least 80% of the members of the board of
    directors; and
    the requirement that certain provisions of our bylaws can only
    be amended by an affirmative vote of shareholders entitled to
    cast at least
    662/3%,
    or in certain cases 80%, of all votes that shareholders are
    entitled to cast.    If
    Penn Millers Insurance Company is not sufficiently profitable,
    our ability to pay dividends will be limited.
    If our
    controls to ensure compliance with legal and regulatory policies
    and guidelines are not effective, our business, financial
    results and reputation could be materially adversely
    affected.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings   35




---



##### 



Item 4.
    (Removed
    and Reserved) PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities        Share Price RangePeriod:

High

Low2010 First Quarter

$
12.15


$
10.402010 Second Quarter


14.95



12.632010 Third Quarter


14.81



12.002010 Fourth Quarter


14.75



13.23October 17, 2009 - December 31, 2009

$
11.08


$
10.00   Issuer
    Purchases of Equity Securities
      Rule 10-b-18.
   36




---



##### 



Form 10-K.
  Equity
    Compensation Plan Information
    Number of SecuritiesNumber of Securities

Weighted-Average

Remaining Available forto be Issued upon Exercise

Exercise Price of

Future Issuance Underof Outstanding Options,

Outstanding Options,

Equity CompensationPlan Category

Warrants and Rights

Warrants and Rights

PlansEquity compensation plans approved by security holders


114,960


$
14.83



506,081Equity compensation plans not approved by security holders










Total


114,960


$
14.83



506,081   Item 6.
    Selected
    Financial Data   37




---



##### 



Item 7.
    PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY MANAGEMENTS
    DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    Dollars in Thousands, Except Per Share Amounts
    (Unaudited)
  Form 10-K
        Managements
    Overview
  2010
    Financial Results Summary
  
    2010 Consolidated Results of Operations  
    Our net loss of $3,488 includes income tax expense of $2,615
    mostly related to federal tax expense of $3,309 from a valuation
    allowance against our net deferred tax assets, and unusually
    high catastrophe losses in the second quarter of 2010.
    Our net premiums earned of $68,097 were $7,261 lower than 2009
    as a result of underwriting actions taken in our commercial
    business segment during 2009 and 2010.
    We experienced pre-tax catastrophe losses of $5,578 (net of
    reinsurance), which were $3,599 higher than 2009. 38




---



##### 




    We experienced net favorable prior year reserve development of
    $2,086, as compared to unfavorable development of $1,555 in 2009
    ($4,292 of which was related to the stop loss reversal).
    Our consolidated GAAP combined ratio was 113.8% in 2010, an
    increase of 10.1 points compared to 2009.
    Our pre-tax net investment income of $5,700 was a modest
    increase over 2009.
    We recognized pre-tax net realized investment gains of $2,712 in
    2010, compared to pre-tax net realized gains of $199 in 2009.  
    2010 Consolidated Financial Condition  
    Our book value per share was $20.85 at December 31, 2010,
    compared to $21.31 at December 31, 2009.
    Total investments were $173,645 at December 31, 2010,
    compared to $167,155 at December 31, 2009.
    Total assets were $254,721 at December 31, 2010, compared
    to $263,450 at December 31, 2009.
    We repurchased 287,131 shares of our common stock at a
    total cost of $4,155 under our share repurchase program during
    2010.
    Shareholders equity was $93,028 at December 31, 2010,
    compared to $100,048 at December 31, 2009.  2011
    Expectations
  
    For both our agribusiness and commercial business segments, we
    continue to emphasize that we will not compromise profitability
    for top line growth. However, competitive pressures in the
    marketplace continue to exert downward pressure on our prices,
    which will continue to affect our writing of new and renewal
    business.
    In our agribusiness segment, our focus on underwriting
    discipline and rate adequacy in the midst of this soft market (a
    market we expect to continue in 2011) has resulted in our
    premium revenue growth being relatively modest.
    In our commercial business segment, we believe that the steps we
    have taken to improve the quality of our accounts through more
    targeted underwriting, increased use of financial scoring, and
    more proactive agency management will improve our loss ratios in
    this segment over time.
    We believe our plans for the expansion of our PennEdge product,
    our strategic alliances and our plan to grow our producer
    network will position us to take advantage of profitable growth
    opportunities in the future.  Principal
    Revenue and Expense Items
    Gross and
    net premiums written
    Premiums
    earned
   39




---



##### 



Net
    investment income and net realized gains (losses) on
    investments
      Losses
    and loss adjustment expenses
    Underwriting
    expenses
    Income
    taxes
    Key
    Financial Measures
   40




---



##### 



Loss and
    loss adjustment expense ratio (loss ratio)
    Underwriting
    expense ratio (expense ratio)
    GAAP
    combined ratio
    Underwriting
    (loss) income
    Earnings
    per share
    Book
    value per share
    Results
    excluding the impact of our aggregate stop loss
    contract
   41




---



##### 



Critical
    Accounting Estimates
  General
    Losses
    and Loss Adjustment Expense Reserves
  How
    reserves are established
    claim-by-claim
        Paid Loss Development Method
    
    2, 3, 4, and
    5-Year
    Averages (straight averages and loss-weighted averages);
    5-Year
    Average Excluding Highest and Lowest LDFs;
    All-Year Average (straight average and loss-weighted
    average); and
    Selected LDF Pattern (LDFs are selected for each evaluation
    based on the actuarys review of the historical
    development). 42




---



##### 



Incurred Loss Development Method
  Bornhuetter-Ferguson Method (Paid and
    Incurred) a
    priori
  Frequency/Severity Method
         43




---



##### 



As of


As ofDecember 31,


December 31,2010


2009Case reserves

$
53,330


$
55,258IBNR reserves


34,321



33,096Net unpaid losses and LAE


87,651



88,354Reinsurance recoverable on unpaid losses and LAE


22,322



18,356Reserves for unpaid losses and LAE

$
109,973


$
106,710     Reserve Range for Unpaid Losses and LAELow End

Recorded

High End$80,201

$87,651

$91,372     Reserve Range for Unpaid Losses and LAELow End

Recorded

High End$78,154

$88,354

$91,086     
    Historical industry development experience in our business lines;
    Historical company development experience;
    Trends in social and economic factors that may affect our loss
    experience, such as the impact of economic conditions on the
    speed in which injured workers return to their jobs;
    The impact of court decisions on insurance coverage issues,
    which can impact the ultimate cost of settling claims;
    Trends and risks in claim costs, such as risk that medical cost
    inflation could increase, or that increasing unemployment rates
    can impact workers compensation claim costs;
    The relatively small base of claims we have increases the risk
    that a few claims experiencing adverse development could
    significantly impact our loss reserve levels; and
    The impact of changes in our net retention (i.e., changes in
    reinsurance) over the past few years on the potential magnitude
    of reserve development.   44




---



##### 




    The rate of increase in labor costs, medical costs, material
    costs, and commodity prices that underlie insured risks;
    Development of risk associated with our expanding producer
    relationships, new classes of business, and our growth in states
    where we currently have small market share;
    Impact of unemployment rates on behavior of injured insured
    workers;
    Impact of changes in laws or regulations;
    Adequacy of current pricing in relatively soft insurance
    markets; and
    Variability related to asbestos and environmental claims due to
    issues as to whether coverage exists, the definition of
    occurrence, the determination of ultimate damages, and the
    allocation of such damages to responsible parties.  Lines of
    Business and Actuarial Range
   45




---



##### 



As of
    December 31, 2010
  Actuarially DeterminedTotal


Range of EstimatesCase Reserves


IBNR Reserves


Reserves


Low


HighCommercial auto liability

$
8,586


$
5,899


$
14,485


$
13,428


$
15,023Workers compensation


12,290



8,201



20,491



19,545



21,204Commercial multi-peril


11,518



6,391



17,909



16,582



18,743Liability


9,515



9,096



18,611



16,823



19,162Fire & allied


5,748



1,109



6,857



5,826



7,190Assumed


4,372



3,202



7,574



6,574



8,040Other


1,301



423



1,724



1,423



2,010Total net reserves


53,330



34,321



87,651


$
80,201


$
91,372Reinsurance recoverables


12,784



9,538



22,322Gross reserves

$
66,114


$
43,859


$
109,973   As of
    December 31, 2009
  Actuarially DeterminedTotal


Range of EstimatesCase Reserves


IBNR Reserves


Reserves


Low


HighCommercial auto liability

$
9,115


$
5,386


$
14,501


$
12,719


$
14,681Workers compensation


13,675



7,262



20,937



19,472



21,109Commercial multi-peril


14,262



6,778



21,040



19,413



21,597Liability


9,209



7,851



17,060



14,343



17,470Fire & allied


3,546



1,244



4,790



3,927



4,920Assumed


4,264



4,008



8,272



6,972



9,066Other


1,187



567



1,754



1,308



2,243Total net reserves


55,258



33,096



88,354


$
78,154


$
91,086Reinsurance recoverables


8,261



10,095



18,356Gross reserves

$
63,519


$
43,191


$
106,710    46




---



##### 



Recent
    Variabilities of the Liability for Unpaid Losses and LAE, Net of
    Reinsurance Recoverables
  2004


2005


2006


2007


2008


2009As originally estimated

$
55,804


$
61,032


$
69,316


$
77,229


$
85,440


$
88,354As estimated at December 31, 2010


54,031



59,175



62,555



68,497



85,704



86,268Net cumulative redundancy (deficiency)

$
1,773


$
1,857


$
6,761


$
8,732


$
(264
)

$
2,086% redundancy (deficiency)


3.2
%


3.0
%


9.8
%


11.3
%


(0.3
)%


2.4
%     Percentage Change inAggregate Loss and

ShareholdersReserve Range for Unpaid Losses and LAE

LAE Reserve

Equity(1)Low End

$
80,201



5.3
%Recorded


87,651



High End


91,372



(2.6
)%     (1)
    
    Net of tax      Specific
    considerations for major lines of business
  Commercial
    Multi-Peril
    Workers
    Compensation
   47




---



##### 



Liability
    Commercial
    Automobile Liability
    Fire and
    Allied
   48




---



##### 



Assumed
    greater-than-normal
  Investments
  available-for-sale other-than-temporarily
 49




---



##### 



Less than 12 Months


12 Months or Longer


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedDescription of Securities

Value


Losses


Value


Losses


Value


LossesDecember 31, 2010:U.S. Treasuries

$
284


$
17


$



$



$
284


$
17State and political subdivisions


9,477



182



2,803



47



12,280



229Residential mortgage-backed securities


3,094



64



361



2



3,455



66Corporate securities


9,658



200



928



9



10,586



209Total fixed maturity securities


22,513



463



4,092



58



26,605



521Equity securities(1)


10,874



11











10,874



11Total temporarily impaired securities

$
33,387


$
474


$
4,092


$
58


$
37,479


$
532     (1)
    
    Equity securities represent the amount invested in a high-yield
    bond mutual fund invested primarily in corporate fixed maturity
    securities.  Less than 12 Months


12 Months or Longer


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedDescription of Securities

Value


Losses


Value


Losses


Value


LossesDecember 31, 2009:Agencies not backed by the full faith and credit of the U.S.
    government

$
5,965


$
30


$



$



$
5,965


$
30State and political subdivisions


5,021



65



555



10



5,576



75Commercial mortgage-backed securities










1,938



65



1,938



65Residential mortgage-backed securities


9,549



149











9,549



149Corporate securities


21,283



179



3,471



63



24,754



242Total temporarily impaired securities

$
41,818


$
423


$
5,964


$
138


$
47,782


$
561       other-than-temporary.
 50




---



##### 



other-than-temporary other-than-temporary
  other-than-temporary other-than-temporary
        U.S. government agencies
  States and political subdivisions:
 51




---



##### 



Commercial mortgage-backed securities:
  Residential mortgage-backed
    securities:
  Corporate securities: and/or
        Fair Value Measurements and
    Disclosures
  Deferred
    Policy Acquisition Costs
  Financial
    Services  Insurance
 52




---



##### 



December 31,2010

2009Agribusiness segmentDeferred policy acquisition costs

$
6,658


$
6,386Unearned premium reserves

$
30,117


$
28,727Commercial business segmentDeferred policy acquisition costs

$
3,075


$
3,665Unearned premium reserves

$
12,683


$
14,577OtherDeferred policy acquisition costs

$
2


$
2Unearned premium reserves

$
7


$
9TotalDeferred policy acquisition costs

$
9,735


$
10,053Unearned premium reserves

$
42,807


$
43,313   Income
    Taxes
     53




---



##### 



Income Taxes
        Pension
    Benefit Obligation
     54




---



##### 



and/or
      Results
    of Operations
     55




---



##### 



For the Years EndedDecember 31,2010


2009Revenues:Premiums earned:Agribusiness

$
45,226


$
45,289Commercial Business


22,405



28,961Other


466



1,108Total premiums earned


68,097



75,358Investment income, net of investment expense


5,700



5,648Realized investment gains, net


2,712



199Other income


325



223Total revenues

$
76,834


$
81,428Components of net (loss) income:Underwriting (loss) income:Agribusiness

$
(592
)

$
1,985Commercial Business


(7,922
)


(4,509
)Other


(362
)


175Total underwriting losses


(8,876
)


(2,349
)Investment income, net of investment expense


5,700



5,648Realized investment gains, net


2,712



199Other income


325



223Corporate expense


(539
)


(429
)Interest expense


(31
)


(22
)Other expense, net


(164
)


(209
)(Loss) income from continuing operations, before income taxes


(873
)


3,061Income tax expense (benefit)


2,615



(346
)(Loss) income from continuing operations


(3,488
)


3,407Discontinued operations:Income from discontinued operations, before income taxes






39Income tax expense






879Loss from discontinued operations






(840
)Net (loss) income

$
(3,488
)

$
2,567GAAP ratios:Loss and loss adjustment expense ratio


78.8
%


70.0
%Underwriting expense ratio


35.0
%


33.7
%Combined ratio


113.8
%


103.7
%  56




---



##### 



Consolidated
    Premiums Written and Premiums Earned
    Consolidated

2010


2009Written


Earned


Written


EarnedDirect

$
86,524


$
86,638


$
88,356


$
90,332Assumed


295



297



873



876Ceded  Stop loss contract reversal










1,717



1,717Ceded  All other


(19,082
)


(18,838
)


(17,300
)


(17,567
)Net

$
67,737


$
68,097


$
73,646


$
75,358     
    Consolidated direct premiums earned declined $3,694 primarily
    from a decline in direct premiums earned in our commercial
    business segment of $5,479 as we continue to see the effects of
    our efforts to improve our underwriting results in this segment
    by aggressively managing underperforming producers and classes
    of business. In 2010, direct premiums earned in our agribusiness
    segment increased by $1,848, or 3.2%, compared to 2009. This
    increase in direct premiums earned was due to improved retention
    of existing business, although competitive pressures have
    resulted in the loss of a few larger accounts in 2010, as well
    as the timing of new business acquired in 2009 and 2010. In our
    other segment, net premiums earned declined $642 for the year
    ended 2010, compared to the same period of 2009 due mostly to a
    decline in premiums assumed from the national workers
    compensation pool.
    For the year ended December 31, 2009, the net adjustment of
    ceded premium recorded under the stop loss contract was $1,717.
    The premiums ceded under the contract for the 2008 accident year
    were reversed in the third quarter of 2009 as a result of
    favorable development in the loss ratio subject to the contract.
    The stop loss contract was not renewed for 2010 because the
    reinsurance protection is no longer necessary as we raised
    additional capital through our stock offering which closed in
    October 2009. For additional information concerning the stop
    loss reinsurance contract, see Item 1 
    Business  Reinsurance.
    Ceded premiums earned (excluding the stop loss) were higher in
    the year ended December 31, 2010, compared to the same
    period of 2009 primarily from increases in reinsurance rates on
    our 2010 reinsurance program. Also, the year ended 2009 includes
    a benefit from the reversal of a $645 reinsurance reinstatement
    premium accrual we had recognized in the second quarter of 2009.
    In 2010, we raised our participation rate on our per-risk
    reinsurance treaty: losses between $500 and $1,000 being
    retained at 60.0% in 2010 versus 52.5% in 2009.  Net
    Investment Income
    For the Years EndedDecember 31,2010

2009(1)Average cash and invested assets

$
183,765


$
147,425Pre-tax investment income, net of expenses


5,700



5,648Average pre-tax return on average cash and invested assets(1)


3.1
%


3.8
%     (1)
    
    Our initial public offering on October 16, 2009 increased
    our cash and invested assets on that date by $45,666.
    Accordingly, we have weighted the average cash and invested
    assets for 2009 to account for the days in 2009 we were a public
    company.   57




---



##### 



Realized
    Investment Gains, Net
    other-than-temporary
  Other
    Income
    Consolidated
    Underwriting (Loss) Income
      Losses
    and Loss Adjustment Expenses
    For the Years EndedConsolidated

December 31,2010


2009Net premiums earned

$
68,097


$
75,358Incurred losses and LAE:Losses

$
46,721


$
47,032Catastrophe losses


5,578



1,979Other weather losses


3,473



2,188Stop loss ceded reversal






4,292Favorable prior year development(1)


(2,086
)


(2,737
)Total incurred losses and LAE

$
53,686


$
52,754Loss and LAE ratios:Losses


68.6
%


62.4
%Catastrophe losses


8.2
%


2.6
%Other weather losses


5.1
%


2.9
%Stop loss ceded reversal



%


5.7
%Prior year development(1)


(3.1
)%


(3.6
)%Total Loss and LAE ratio


78.8
%


70.0
%     (1)
    
    2009 Prior year development excludes the impact of the stop loss
    reversal. 58




---



##### 




    On a consolidated basis, losses not attributable to catastrophes
    or weather were lower by $311 primarily due to lower claim
    severity in our commercial auto line of business and lower claim
    frequency in our workers compensation and liability lines
    of business within our agribusiness segment. In our commercial
    business segment, these losses were higher due to increased
    severity arising from several large property losses in our
    commercial multi-peril line, adverse workers compensation
    development in 2009 that impacted our estimates for 2010, and
    increased frequency in commercial auto liability and other
    liability claims in 2010 compared to 2009.
    Catastrophe losses were $3,599 higher in the year to date period
    of 2010, compared to the same period of 2009 due to severe
    second quarter 2010 storms in the Midwest that affected several
    of our large agribusiness insureds. These storm losses arose
    from catastrophic wind events in Arkansas, Minnesota, Kansas,
    and Illinois. Our loss ratio from catastrophes in 2010 was 8.2
    points compared to 2.6 points in 2009. Catastrophe and weather
    loss ratios will vary significantly year to year and quarter to
    quarter due to the volatility of the frequency and the severity
    of such losses, relative to the small size of our company. We
    typically experience the highest level of weather-related loss
    activity in the second quarter of the year. Also, our
    catastrophe losses for 2010 include late winter storms in the
    Northeast and Mid-Atlantic states that adversely impacted first
    quarter 2010 results in our commercial business segment.
    The favorable prior year reserve development for 2010 of $2,086
    includes reversals in additional reserves carried above the
    actuarial central estimate (see our discussion of Losses
    and Loss Adjustment Expense Reserves under the section
    entitled Critical Accounting Estimates) and was due
    to a lower level of incurred loss emergence relative to
    expectations in the workers compensation, commercial auto,
    and liability lines of business in our agribusiness segment.
    Within our agribusiness segment, the commercial auto line of
    business was also impacted positively by favorable prior year
    claims settlements. This favorable development was partly offset
    by unfavorable development in the fire and allied lines of
    business due to updated information on previously reported large
    property claims. In our commercial business segment, we
    experienced net favorable prior year reserve development of $26.
    Favorable loss emergence, relative to expectations, in the
    commercial multi-peril line and favorable claims settlements in
    the fire and allied lines were offset by unfavorable development
    in the commercial auto liability line and other liability lines.  Underwriting
    Expenses
      
    In 2010, the combination of higher reinsurance costs (and
    therefore lower earned premium) and an overall decline in direct
    earned premium from our reduction of unprofitable business in
    our commercial business segment has caused this underwriting
    expense ratio to increase.
    Consolidated underwriting and administrative expenses, including
    amortization of deferred policy acquisition costs, were $23,826
    for the year ended 2010 and $25,382 for the year ended 2009. In
    the second quarter of 2010, we recognized a net gain from the
    SERP termination of $679. The remainder of the decrease in
    underwriting and administrative expenses is primarily due to
    lower amortization of deferred policy acquisition costs of
    $1,213 resulting from our lower direct and assumed earned
    premiums, and the 2009 59




---



##### 



underwriting and administrative costs included employee
    incentive costs based on company performance. The lower deferred
    policy acquisition costs were partially offset by increases in
    insurance, consulting and legal costs associated with public
    company compliance requirements.  Interest
    Expense
    Other
    Expense, net
      (Loss)
    Income
    from Continuing Operations, before Income Taxes    
    Net premiums earned in 2010 were $7,261 lower than 2009. The
    favorable impact of the stop loss on 2009 earned premiums was
    $1,717.
    For the year ended December 31, 2010 compared to the same
    period of 2009, losses and LAE were $53,686 and $52,754,
    respectively; catastrophe and weather-related losses were higher
    by $4,884, and losses and LAE were unfavorably impacted in 2009
    by $4,292 from the stop loss reversal.
    Net realized gains from sales of fixed maturity and equity
    securities were higher by $2,316 in 2010 compared to 2009. Total
    net realized gains in 2009 included an
    other-than-temporary
    impairment charge of $197.
    Total underwriting and administrative expenses were lower by
    $1,556 in 2010 compared to 2009, due primarily to our lower
    level of earned premium in 2010 compared to 2009, which resulted
    in lower amortization expense for policy acquisition costs. The
    SERP termination gain recorded in the second quarter of 2010 was
    partly offset by increased public company compliance-related
    costs incurred in 2010.  Income
    Tax Expense (Benefit)
     60




---



##### 



Net
    Loss from Discontinued Operations
      Net
    (Loss) Income
    Results
    of Operations by Segment
    Agribusiness
    Agribusiness

For the Years Ended December 31,2010


2009Direct premiums written

$
60,787


$
58,675Net premiums written


46,605



46,787Revenues:Net premiums earned

$
45,226


$
45,289Other income


95



31Total revenues(1)

$
45,321


$
45,320Operating (loss) income:Underwriting (loss) income

$
(592
)

$
1,985Other income


95



31Interest & other expenses


(83
)


(35
)Total operating (loss) income(1)

$
(580
)

$
1,981Loss and loss expense ratio


71.5
%


65.5
%Underwriting expense ratio


29.8
%


30.1
%GAAP combined ratio


101.3
%


95.6
%     (1)
    
    Revenues exclude net realized investment gains (losses) and net
    investment income. Operating income equals pre-tax net income
    from continuing operations excluding the impact of net realized
    investment gains (losses) and net investment income. 61




---



##### 



Agribusiness
    Segment: Premiums Written and Premiums Earned
    Agribusiness

2010


2009Written


Earned


Written


EarnedDirect

$
60,787


$
59,128


$
58,675


$
57,280Ceded  Stop loss contract reversal










615



615Ceded  All other


(14,182
)


(13,902
)


(12,503
)


(12,606
)Net

$
46,605


$
45,226


$
46,787


$
45,289           Agribusiness
    Segment: Underwriting (Loss) Income
    Losses
    and Loss Adjustment Expenses and Loss and LAE ratio
    For the Years EndedAgribusiness

December 31,2010


2009Net premiums earned

$
45,226


$
45,289Incurred losses and LAE:Losses

$
27,688


$
28,495Catastrophe losses


4,204



1,758Other weather losses


2,586



1,348Stop loss ceded reversal






568Favorable prior year development(1)


(2,136
)


(2,515
)Total incurred losses and LAE

$
32,342


$
29,654 62




---



##### 



For the Years EndedAgribusiness

December 31,2010


2009Loss and LAE ratios:Losses


61.2
%


62.9
%Catastrophe losses


9.3
%


3.9
%Other weather losses


5.7
%


3.0
%Stop loss ceded reversal



%


1.3
%Prior year development(1)


(4.7
)%


(5.6
)%Total Loss and LAE ratio


71.5
%


65.5
%     (1)
    
    2009 prior year development excludes the impact of the stop loss
    reversal.    
    Other current accident year losses were lower by $807 primarily
    due to lower claims severity in our commercial auto line of
    business and lower claim frequency in our workers
    compensation and liability lines of business. These improvements
    were partially offset by increased severity in our liability
    lines of business.
    Weather-related losses from both catastrophic and
    non-catastrophic events increased by $3,684 in 2010 compared to
    2009. The catastrophe losses were primarily from several Midwest
    storms in the second quarter of 2010 that resulted in large
    claims mostly incurred by four of our agribusiness
    policyholders. Catastrophe losses accounted for 9.3 loss ratio
    points in 2010, compared to 3.9 loss ratio points in 2009.
    In 2009 we recorded a reversal of 2008 accident year losses we
    had previously ceded under our aggregate stop loss contract as a
    result of favorable development on that accident year. The
    impact of the reversal on our losses and LAE was $568 in the
    year ended December 31, 2009. We did not renew the stop
    loss contract in 2010.
    The favorable prior year reserve development of $2,136 in 2010
    was due to favorable development in the workers
    compensation, commercial auto, and liability lines of business
    as a result of a lower level of incurred loss emergence relative
    to expectations. This favorable development was partly offset by
    unfavorable development in the fire and allied lines of business
    due to updated information on previously reported large property
    claims.  Agribusiness
    Underwriting Expenses and GAAP Combined Ratio
     63




---



##### 



Agribusiness
    Segment  Lines of Business
    For the Years EndedAgribusiness

December 31,2010


2009Direct Premiums Written:Property

$
22,815


$
21,394Commercial Auto


13,123



13,025Liability


10,023



10,595Workers Compensation


8,590



7,950Other


6,236



5,711Total

$
60,787


$
58,675Net Premiums Earned:Property

$
16,273


$
16,546Commercial Auto


11,569



11,632Liability


9,192



9,196Workers Compensation


7,464



7,238Other


728



677Total

$
45,226


$
45,289Loss and Loss Adjustment Expense Ratios:Property


103.7
%


70.8
%Commercial Auto


52.9
%


72.8
%Liability


62.5
%


52.3
%Workers Compensation


43.4
%


63.3
%Other


49.9
%


11.2
%Total


71.5
%


65.5
%   Property
    Commercial
    Auto
    Liability
   64




---



##### 



Workers
    Compensation
    Other
    Commercial
    Business
    For the Years EndedCommercial Business

December 31,2010


2009Direct premiums written

$
25,568


$
29,449Net premiums written


20,668



25,754Revenues:Net premiums earned

$
22,405


$
28,961Other income


230



189Total revenues(1)

$
22,635


$
29,150Operating loss:Underwriting loss

$
(7,922
)

$
(4,509
)Other income


230



189Interest & other expenses


(113
)


(118
)Total operating loss(1)

$
(7,805
)

$
(4,438
)Loss and loss adjustment expense ratio


93.0
%


78.4
%Underwriting expense ratio


42.4
%


37.2
%GAAP combined ratio


135.4
%


115.6
%     (1)
    
    Revenues exclude net realized investment gains (losses) and net
    investment income. Operating income (loss) equals pre-tax net
    income (loss) from continuing operations excluding the impact of
    net realized investment gains (losses) and net investment income.  Commercial
    Business Segment: Premiums Written and Premiums Earned
    Commercial Business

2010


2009Written


Earned


Written


EarnedDirect

$
25,568


$
27,341


$
29,449


$
32,820Ceded  Stop loss contract reversal










1,102



1,102Ceded  All other


(4,900
)


(4,936
)


(4,797
)


(4,961
)Net

$
20,668


$
22,405


$
25,754


$
28,961  65




---



##### 




    In late 2008 and 2009 we elected to withdraw from certain
    unprofitable classes of business and terminate relationships
    with several underperforming producers. These actions have
    continued to have an adverse impact on the premium volume in
    this segment as our agents adapted to our increased selectivity
    in the business we are willing to write.
    The commercial insurance marketplace continues to be very
    competitive, and we continue to experience downward pressure on
    our pricing.      Commercial
    Business Segment: Underwriting Loss
    Losses
    and Loss Adjustment Expenses and Loss and LAE ratio
    For the Years EndedCommercial Business

December 31,2010


2009Net premiums earned

$
22,405


$
28,961Incurred losses and LAE:Losses

$
18,603


$
17,587Catastrophe losses


1,374



221Other weather losses


887



840Stop loss ceded reversal






3,724Prior year development(1)


(26
)


323Total incurred losses and LAE

$
20,838


$
22,695Loss and LAE ratios:Losses


83.0
%


60.7
%Catastrophe losses


6.1
%


0.8
%Other weather losses


4.0
%


2.9
%Stop loss ceded reversal



%


12.9
%Prior year development(1)


(0.1
)%


1.1
%Total Loss and LAE ratio


93.0
%


78.4
%  66




---



##### 



(1)
    
    2009 prior year development excludes the impact of the stop loss
    reversal.    
    Current accident year losses in our commercial business segment
    were $1,016 higher in 2010 compared to 2009. The increase is
    primarily attributable to our commercial multi-peril line, which
    experienced three large fire losses, as well as an increase in
    the frequency of smaller-size claims. In addition, we have
    experienced greater severity on workers compensation
    claims in 2010 compared to 2009. Increases in the frequency of
    commercial auto liability and other liability claims also
    contributed to the increases in current year losses in 2010
    compared to 2009.
    Catastrophe losses were $1,153 higher in 2010, compared to 2009.
    The spring storms that severely affected our agribusiness
    insureds also affected our commercial policyholders, and several
    winter storms in the first quarter of 2010 were designated as
    catastrophes.
    The reversal of the stop loss in the third quarter of 2009
    resulted in $3,724 of ceded incurred losses being reversed for
    the commercial business segment. We did not renew the stop loss
    contract in 2010.
    Modest favorable prior year reserve development of $26 in 2010
    represented an improvement over the $323 of unfavorable
    development in 2009. In 2010, we had favorable development in
    the commercial multi-peril line and the fire and allied lines of
    business. The development in the commercial multi-peril line was
    due to changes in loss emergence relative to expectations and
    the fire and allied lines development was the result of
    favorable claim settlements. This favorable development was
    mostly offset by unfavorable development in the liability lines
    as a result of changes in loss emergence relative to
    expectations and in the commercial auto liability line as a
    result of unfavorable development on prior year commercial auto
    claims.  Commercial
    Business Underwriting Expenses and GAAP Combined
    Ratio
      Commercial
    Business Segment  Lines of Business
    For the Years EndedCommercial Business

December 31,2010


2009Direct Premiums Written:Property & Liability

$
14,170


$
16,453Workers Compensation


4,315



5,465Commercial Auto


4,171



4,560Other


2,912



2,971Total

$
25,568


$
29,449 67




---



##### 



For the Years EndedCommercial Business

December 31,2010


2009Net Premiums Earned:Property & Liability

$
13,542


$
17,731Workers Compensation


4,469



6,235Commercial Auto


4,172



4,746Other


222



249Total

$
22,405


$
28,961Loss and Loss Adjustment Expense Ratios:Property & Liability


91.8
%


63.7
%Workers Compensation


99.9
%


136.7
%Commercial Auto


88.1
%


61.3
%Other


117.0
%


(10.3
)%Total


93.0
%


78.4
%   Property
    and Liability
    Workers
    Compensation
    Commercial
    Automobile
    Other
    Segment
   68




---



##### 



For the Years EndedOther

December 31,2010


2009Net premiums written

$
464


$
1,105Revenues:Net premiums earned

$
466


$
1,108Total revenues

$
466


$
1,108Underwriting (loss) income

$
(362
)

$
175Total operating (loss) income

$
(362
)

$
175Loss and loss adjustment expense ratio


108.6
%


36.6
%Underwriting expense ratio


69.1
%


47.7
%GAAP combined ratio


177.7
%


84.3
%       For the Years EndedDecember 31,2010


2009Mandatory assumed reinsurance

$
372


$
203Personal lines  runoff






177Voluntary assumed reinsurance  runoff


(734
)


(205
)Total operating (loss) income

$
(362
)

$
175   Financial
    Position
     69




---



##### 



Liquidity
    and Capital Resources
                 70




---



##### 



For the Years EndedDecember 31,2010


2009Cash flows (used in) provided by operating activities

$
(6,439
)

$
6,280Cash flows used in investing activities


(3,116
)


(39,087
)Cash flows (used in) provided by financing activities


(4,155
)


41,068Net (decrease) increase in cash and cash equivalents

$
(13,710
)

$
8,261     available-for-sale
         71




---



##### 



Impact of
    Inflation
    Recent
    Accounting Pronouncements
    2010-20, Disclosures about the Credit Quality of Financing Receivables
    and the Allowance for Credit Losses
  2010-26, Accounting for Costs Associated with Acquiring or Renewing
    Insurance Contracts (a consensus of the FASB Emerging Issues
    Task Force). Financial
    Services  Insurance
 72




---



##### 



340-20, Other Assets and Deferred Costs  Capitalized
    Advertising Costs.
    Off-Balance
    Sheet Arrangements
    Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk      Interest
    Rate Risk
         73




---



##### 



Hypothetical Change in

Estimated ChangeInterest Rates

in Fair Value

Fair Value200 basis point increase

$
(13,187
)

$
160,458100 basis point increase


(6,425
)


167,220No change






173,645100 basis point decrease


5,880



179,525200 basis point decrease


11,342



184,987   Credit
    Risk
      Equity
    Risk
   74




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data  PageConsolidated Financial StatementsReport of Independent Registered Public Accounting Firm


F-1Consolidated Balance Sheets as of December 31, 2010 and 2009


F-2Consolidated Statements of Operations for the Years Ended
    December 31, 2010 and 2009


F-3Consolidated Statements of Shareholders Equity for the
    Years Ended December 31, 2010 and 2009


F-4Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2010 and 2009


F-5Notes to the Consolidated Financial Statements


F-6  75




---



##### 



Report of
    Independent Registered Public Accounting Firm               F-1




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
    Consolidated Balance SheetsDecember 31, 2010 and 2009  December 31,


December 31,2010


2009(Dollars in thousands,except share data)ASSETSInvestments:Fixed maturities:Available for sale, at fair value (amortized cost $158,193 in
    2010 and $161,730 in 2009)

$
162,771



167,155Equity Securities:Available for sale, at fair value (cost $10,885 in 2010)


10,874



Cash and cash equivalents


6,510



20,220Premiums and fees receivable


28,394



29,526Reinsurance receivables and recoverables


24,912



19,502Deferred policy acquisition costs


9,735



10,053Prepaid reinsurance premiums


4,320



4,076Accrued investment income


1,621



1,810Property and equipment, net of accumulated depreciation


3,323



3,769Income taxes receivable


1,253



Deferred income taxes






3,518Other


1,008



3,821Total assets

$
254,721



263,450LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Losses and loss adjustment expense reserves

$
109,973



106,710Unearned premiums


42,807



43,313Accounts payable and accrued expenses


8,913



12,762Income taxes payable






617Total liabilities


161,693



163,402Shareholders equity:Preferred stock, no par value, authorized 1,000,000; no shares
    issued or outstanding






Common stock, $0.01 par value, authorized 10,000,000;
    issued 2010, 5,444,022 and 2009, 5,444,022; outstanding 2010,
    4,462,131 shares and 2009, 4,695,262 shares


54



54Additional paid-in capital


51,068



50,520Accumulated other comprehensive income


2,054



2,519Retained earnings


50,993



54,481Unearned ESOP, 476,999 and 530,999 shares


(4,770
)


(5,310
)Treasury stock, at cost, 504,892 and 217,761 shares


(6,371
)


(2,216
)Total shareholders equity


93,028



100,048Total liabilities and shareholders equity

$
254,721



263,450    F-2




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
    Consolidated Statements of OperationsYears ended December 31, 2010 and
    2009  2010


2009(Dollars in thousands, except share data)Revenues:Premiums earned

$
68,097



75,358Investment income, net of investment expense


5,700



5,648Realized investment gains, net:Total
    other-than-temporary
    impairment losses






(197
)Portion of loss recognized in other comprehensive income






Other realized investment gains, net


2,712



396Total realized investment gains, net


2,712



199Other income


325



223Total revenues


76,834



81,428Losses and expenses:Losses and loss adjustment expenses


53,686



52,754Amortization of deferred policy acquisition costs


20,170



21,383Underwriting and administrative expenses


3,656



3,999Interest expense


31



22Other expense, net


164



209Total losses and expenses


77,707



78,367(Loss) income from continuing operations, before income taxes


(873
)


3,061Income tax expense (benefit)


2,615



(346
)(Loss) income from continuing operations


(3,488
)


3,407Discontinued operations:Income from discontinued operations, before income taxes






39Income tax expense






879Loss from discontinued operations






(840
)Net (loss) income

$
(3,488
)


2,567Earnings per share (see note 19):Basic:(Loss) income from continuing operations

$
(0.76
)


0.19Loss from discontinued operations






Net (loss) income per common share

$
(0.76
)


0.19Diluted:(Loss) income from continuing operations

$
(0.76
)


0.19Loss from discontinued operations






Net (loss) income per common share

$
(0.76
)


0.19    F-3




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
    Consolidated Statements of Shareholders EquityYears ended December 31, 2010 and
    2009  AccumulatedAdditional


OtherCommon Stock


Paid-in


Comprehensive


Retained


Unearned


TreasuryShares


Amount


Capital


(Loss) Income


Earnings


ESOP


Stock


Total(Dollars in thousands, except share data)Balance at December 31, 2008





$








(1,159
)


51,914











50,755Net income


















2,567











2,567Other comprehensive income, net of taxes:Unrealized investment holding gain arising during period, net of
    related income tax expense of $1,440














2,796















2,796Reclassification adjustment for realized gains included in net
    income, net of related income tax expense of $61














(119
)














(119
)Net unrealized investment gain






























2,677Defined benefit pension plan, net of related income tax benefit
    of $48














(94
)














(94
)Curtailment benefit, net of related tax expense of $564














1,095















1,095Comprehensive income






























6,245Net proceeds from issuance of common stock


5,444,022



54



50,518











(5,400
)






45,172ESOP shares released










2











90







92Treasury stock purchased, 217,761 shares


























(2,216
)


(2,216
)Balance at December 31, 2009


5,444,022



54



50,520



2,519



54,481



(5,310
)


(2,216
)


100,048Net loss


















(3,488
)










(3,488
)Other comprehensive income, net of taxes:Unrealized investment holding gain arising during period, net of
    related income tax expense of $0














1,854















1,854Reclassification adjustment for realized gains included in net
    loss, net of related income tax expense of $0














(2,712
)














(2,712
)Net unrealized investment loss






























(858
)Defined benefit pension plans, net of related income tax expense
    of $0














(70
)














(70
)Recognition of prior service costs related to curtailment and
    settlement, net of tax expense of $0 (see note 8)














463















463Comprehensive loss






























(3,953
)Stock-based compensation










385



















385ESOP shares released










163











540







703Treasury stock purchased, 287,131 shares


























(4,155
)


(4,155
)Balance at December 31, 2010


5,444,022


$
54



51,068



2,054



50,993



(4,770
)


(6,371
)


93,028    F-4




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
    Consolidated Statements of Cash FlowsYears ended December 31, 2010 and
    2009  2010


2009(Dollars in thousands)Cash flows from operating activities:Net (loss) income

$
(3,488
)


2,567Loss from discontinued operations






840Adjustments to reconcile net (loss) income to net cash (used in)
    provided by operating activities:Change in receivables, unearned premiums, and prepaid reinsurance


(5,028
)


1,366Change in losses and loss adjustment expense reserves


3,263



(1,355
)Change in accounts payable and accrued expenses


(3,456
)


926Change in current income taxes


(1,870
)


1,246Deferred income taxes


3,518



(685
)Change in deferred acquisition costs


318



548Change in accrual and amortization of investment income


1,171



71Amortization and depreciation


626



668ESOP share allocation


703



92Amortization of stock-based compensation


385



Realized investment gains, net


(2,712
)


(199
)Other, net


131



195Net cash (used in) provided by operating activities


(6,439
)


6,280Cash flows from investing activities:Available-for-sale
    investments:Purchases of fixed maturity securities


(64,376
)


(69,637
)Purchases of equity securities


(22,025
)


Sales of fixed maturity securities


49,772



21,328Sales of equity securities


11,542



Maturities of fixed maturity securities


19,470



6,800Proceeds from disposition of corporate owned life insurance
    policies


2,682



Proceeds on sale of net assets of subsidiaries






2,628Purchases of property and equipment, net


(181
)


(206
)Cash used in investing activities  continuing
    operations


(3,116
)


(39,087
)Cash provided by investing activities  discontinued
    operations






285Net cash used in investing activities


(3,116
)


(38,802
)Cash flows from financing activities:Net proceeds from issuance of common stock






49,040Purchase of treasury stock


(4,155
)


(2,216
)Initial public offering costs paid






(3,374
)Net payments on line of credit






(950
)Repayment of long-term debt






(1,432
)Cash (used in) provided by financing activities 
    continuing operations


(4,155
)


41,068Cash used in financing activities  discontinued
    operations






(285
)Net cash (used in) provided by financing activities


(4,155
)


40,783Net (decrease) increase in cash


(13,710
)


8,261Cash and cash equivalents at beginning of period


20,220



11,959Cash and cash equivalents at end of period


6,510



20,220Less cash of discontinued operations at end of period






Cash and cash equivalents of continuing operations at end of
    period

$
6,510



20,220    F-5




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY Notes to
    Consolidated Financial Statements
    (Dollars in thousands, except per share amounts)
  (1)
    Description
    of Business             F-6




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
  (2)
    Summary
    of Significant Accounting Policies  (a)
    Basis
    of Presentation    (b)
    Use of
    Estimates  other-than-temporary
  (c)
    Concentration
    of Risk      (d)
    Investments      other-than-temporary.
 F-7




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
    other-than-temporary other-than-temporary
  other-than-temporary other-than-temporary other-than-temporarily other-than-temporary
    (e)
    Cash
    and Cash Equivalents    (f)
    Reinsurance
    Accounting and Reporting    (g)
    Deferred
    Policy Acquisition Costs   F-8




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
    (h)
    Property
    and Equipment      (i)
    Income
    Taxes    (j)
    Deferred
    Offering Costs  Expenses of
    Offering
  (k)
    Discontinued
    Operations    (l)
    Losses
    and Loss Adjustment Expenses     F-9




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
    (m)
    Employee
    Benefit Plans      (n)
    Employee
    Stock Ownership Plan    (o)
    Premium
    Revenue    (p)
    Earnings
    per Share    (q)
    Adoption
    of New Accounting Standards   F-10




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2010-20, Disclosures about the Credit Quality of Financing Receivables
    and the Allowance for Credit Losses
  2010-26, Accounting for Costs Associated with Acquiring or Renewing
    Insurance Contracts (a consensus of the FASB Emerging Issues
    Task Force). Financial Services  Insurance 340-20, Other Assets and Deferred Costs  Capitalized
    Advertising Costs.
    (3)
    Fair
    Value Measurements     F-11




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Level 1 
  Level 2 
  Level 3 
      Level 1


Level 2


Level 3


TotalDecember 31, 2010:Fixed maturities, available for saleU.S. Treasuries

$
736











736Agencies not backed by the full faith and credit of the U.S.
    government






14,458







14,458State and political subdivisions






44,559







44,559Commercial mortgage-backed securities






1,662







1,662Residential mortgage-backed securities






22,915







22,915Corporate securities






78,441







78,441Total available for sale

$
736



162,035







162,771Equity securitiesHigh yield bond fund

$
10,874











10,874Total equities

$
10,874











10,874Total assets

$
11,610



162,035







173,645   F-12




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Level 1


Level 2


Level 3


TotalDecember 31, 2009:Fixed maturities, available for saleU.S. Treasuries

$
4,612











4,612Agencies not backed by the full faith and credit of the U.S.
    government






17,441







17,441State and political subdivisions






39,334







39,334Commercial mortgage-backed securities






3,775







3,775Residential mortgage-backed securities






28,302







28,302Corporate securities






73,691







73,691Total available for sale

$
4,612



162,543







167,155     U.S. government agencies (depending on the specific
    market or program):
  States and political subdivisions:
  Commercial mortgage-backed securities:
  Residential mortgage-backed
    securities:
  Corporate securities: and/or
   F-13




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
        (4)
    Investments    Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueDecember 31, 2010:U.S. Treasuries

$
721



32



17



736Agencies not backed by the full faith and credit of the U.S.
    government


14,111



347







14,458State and political subdivisions


43,224



1,564



229



44,559Commercial mortgage-backed securities


1,589



73







1,662Residential mortgage-backed securities


22,223



758



66



22,915Corporate securities


76,325



2,325



209



78,441Total fixed maturities

$
158,193



5,099



521



162,771Total equity securities

$
10,885







11



10,874 F-14




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueDecember 31, 2009:U.S. Treasuries

$
4,499



113







4,612Agencies not backed by the full faith and credit of the U.S.
    government


16,933



538



30



17,441State and political subdivisions


37,415



1,994



75



39,334Commercial mortgage-backed securities


3,806



34



65



3,775Residential mortgage-backed securities


27,607



844



149



28,302Corporate securities


71,470



2,463



242



73,691Total fixed maturities

$
161,730



5,986



561



167,155     Amortized


EstimatedCost


Fair ValueDue in one year or less

$
10,144



10,283Due after one year through five years


88,455



91,582Due after five years through ten years


25,521



26,098Due after ten years


10,261



10,231134,381



138,194Commercial mortgage-backed securities


1,589



1,662Residential mortgage-backed securities


22,223



22,915Total fixed maturities

$
158,193



162,771         2010


2009Interest on fixed maturities

$
6,134



6,187Dividends on equity securities


155



Interest on cash and cash equivalents


7



19Total investment income


6,296



6,206Investment expense


(596
)


(558
)Investment income, net of investment expense

$
5,700



5,648  F-15




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2010


2009Fixed maturity securities:Available for sale:Gross gains

$
2,913



555Gross losses


(201
)


(178
)Other-than-temporary
    impairment losses






(197
)Realized investment gains, net


2,712



180Change in value of interest rate swap






19Realized investment gains after change in value of interest rate
    swap, net

$
2,712



199Change in difference between fair value and cost of investments:Fixed maturity securities for continuing operations

$
(847
)


4,049Equity securities for continuing operations


(11
)


Total for continuing operations


(858
)


4,049Equity securities for discontinued operations






7Total including discontinued operations

$
(858
)


4,056       Less than 12 Months


12 Months or Longer


TotalUnrealized





Unrealized





UnrealizedDescription of Securities

Fair Value


Losses


Fair Value


Losses


Fair Value


Losses2010:U.S. Treasuries


284



17











284



17State and political subdivisions


9,477



182



2,803



47



12,280



229Residential mortgage-backed securities


3,094



64



361



2



3,455



66Corporate securities

$
9,658



200



928



9



10,586



209Total fixed maturity securities


22,513



463



4,092



58



26,605



521Equity securities


10,874



11











10,874



11Total temporarily impaired securities

$
33,387



474



4,092



58



37,479



532 F-16




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Less than 12 Months


12 Months or Longer


TotalUnrealized





Unrealized





UnrealizedDescription of Securities

Fair Value


Losses


Fair Value


Losses


Fair Value


Losses2009:Agencies not backed by the full faith and credit of the U.S.
    government

$
5,965



30











5,965



30State and political subdivisions


5,021



65



555



10



5,576



75Commercial mortgage-backed securities










1,938



65



1,938



65Residential mortgage-backed securities


9,549



149











9,549



149Corporate securities


21,283



179



3,471



63



24,754



242Total temporarily impaired securities

$
41,818



423



5,964



138



47,782



561     other-than-temporarily
    other-than-temporarily
     F-17




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
    (5)
    Comprehensive
    (Loss) Income    2010


2009Net (loss) income

$
(3,488
)


2,567Other comprehensive (loss) income:Unrealized gains on securities:Unrealized investment holding gains arising during period


1,854



2,796Less:Reclassification adjustment for realized gains included in net
    (loss) income


(2,712
)


(119
)Net unrealized investment (losses) gains


(858
)


2,677Change in defined benefit pension plans


(70
)


(94
)Recognition of prior service costs related to curtailment and
    settlement (see note 8)


463



1,095Other comprehensive (loss) income


(465
)


3,678Comprehensive (loss) income

$
(3,953
)


6,245     December 31,


December 31,2010


2009Unrealized investment gains for continuing operations

$
2,722



3,580Defined benefit pension plans  net actuarial loss


(668
)


(1,061
)Accumulated other comprehensive income

$
2,054



2,519     (6)
    Deferred
    Policy Acquisition Costs    2010


2009Balance, January 1

$
10,053



10,601Policy acquisition costs deferred


19,852



20,835Amortization charged to operations


(20,170
)


(21,383
)Balance, December 31

$
9,735



10,053   (7)
    Property
    and Equipment   F-18




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
        2011


742012


452013


29Total

$
148   (8)
    Employee
    Benefit Plans  Retirement
    Plans
       F-19




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
  (a)
    Obligations
    and Funded Status at December 31  2010


2009Change in benefit obligation:Benefit obligation at beginning of year

$
9,059



9,773Service and administrative costs


102



465Interest cost


475



571Benefit payments


(309
)


(732
)Administrative expense payments


(65
)


(76
)Actuarial loss


517



717Curtailment


(404
)


(1,659
)Settlement


(747
)


Benefit obligation at end of year


8,628



9,059Change in plan assets:Fair value of plan assets at beginning of year


5,268



4,941Employer contributions


952



371Benefit payments


(309
)


(732
)Administrative expenses


(65
)


(76
)Actual return on plan assets


806



764Fair value of plan assets at end of year


6,652



5,268Funded status (net liability recognized)

$
(1,976
)


(3,791
)     2010


2009Unrecognized prior service cost

$




(487
)Unrecognized net loss


(1,216
)


(1,122
)Accumulated other comprehensive loss

$
(1,216
)


(1,609
)       (b)
    Components
    of Net Periodic Benefit Cost  2010


2009Service and administrative costs

$
102



465Interest cost


475



571Expected return on plan assets


(414
)


(358
)Amortization of prior service costs


15



41Amortization of net loss


30



128Net periodic pension expense

$
208



847  F-20




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
  (c)
    Assumptions    Pension Plan

SERP2010

2009

2010

2009Discount rate


5.31
%


5.84
%


5.01
%


5.67
%Rate of compensation increase














5.00     Pension Plan

SERP2010

2009

2010

2009Discount rate


5.84
%


6.16
%


5.67
%


6.56
%Expected long-term return on plan assets


7.50



7.50



N/A



N/ARate of compensation increase






4.00



5.00



5.00     (d)
    Plan
    Assets        Fair
    Value Measurement  Pension Plan Assets
     F-21




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Level 1


Level 2


Level 3


TotalDecember 31, 2010:Equity mutual funds:Vanguard Developed Markets Index Fund(a)

$
658











658Vanguard Small Cap Index Fund(b)


687











687Vanguard 500 Index Fund(c)


3,042











3,042Debt mutual funds:Vanguard Bond Index Fund(d)


2,227











2,227Cash and cash equivalents


38











38Total assets

$
6,652











6,652   Level 1


Level 2


Level 3


TotalDecember 31, 2009:Equity mutual funds:Vanguard Developed Markets Index Fund(a)

$
472











472Vanguard Small Cap Index Fund(b)


503











503Vanguard 500 Index Fund(c)


2,314











2,314Debt mutual funds:Vanguard Bond Index Fund(d)


1,955











1,955Cash and cash equivalents


24











24Total assets

$
5,268











5,268     (a)
    
    This category seeks to track the performance of a benchmark
    index that measures the investment return of stocks issued by
    companies located in the major markets of Europe and the Pacific
    region. It follows a passively managed, full replication
    approach.(b)
    
    This category seeks to track the performance of the
    MSCI®

    US Small Cap 1750 Index and it is a small-cap equity,
    diversified across growth and value styles. It follows a
    passively managed, full replication approach.(c)
    
    This category seeks to track the performance of a benchmark
    index that measures the investment return of
    large-capitalization stocks. The fund employs a passive
    management investment approach designed to track the performance
    of the Standard & Poors 500 index. It invests
    all, or substantially all, of its assets in the stocks that make
    up the index, holding each stock in approximately the same
    proportion as its weighting in the index.(d)
    
    This category seeks to track the performance of the Barclays
    Capital U.S. Long Government/Credit Float Adjusted Bond Index
    with diversified exposure to the long-term, investment-grade
    U.S. bond market. It is passively managed using index sampling. F-22




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
   (e)
    Cash
    Flows  Estimated
    Future Benefit Payments
    2011

$
2602012


5982013


3402014


2862015


3952016  2020


3,517       Savings
    Plan
    ESOP
    10-year
 F-23




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
    For the PeriodFor the Year Ended

October 17 throughDecember 31, 2010

December 31, 2009Suspense shares


530,999



539,999Allocated shares


9,000



Shares committed to be released


54,000



9,000Average price per share

$
13.02



10.20Stock compensation expense

$
703



92       (9)
    Stock-Based
    Compensation  718-10, Compensation  Stock Based Compensation ASC 718-10 ASC 718-10
        Expected volatility





36.00%Expected term (in years)





5Risk-free interest rate





2.26%Expected dividend yield





0.00%    F-24




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
            Stock OptionsWeighted-

Restricted Stock AwardsNumber of

Average

Number of

Weighted-Shares

Exercise Price

Shares

Average PriceOutstanding at December 31, 2009





$







$
Granted


114,960



14.83



141,122



14.83Exercised














Vested














Cancelled














Outstanding at December 31, 2010


114,960


$
14.83



141,122


$
14.83   (10)
    Federal
    Income Tax    2010


2009Current (benefit) expense:Federal

$
(903
)


339Deferred expense (benefit):Federal


3,518



(685
)Total tax expense (benefit)

$
2,615



(346
)    F-25




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2010


2009Expected tax (benefit) expense at 34%

$
(297
)


1,041State income tax benefit


(19
)


(80
)Nontaxable investment income


(483
)


(385
)Stock based compensation


77



Change in valuation allowance  federal taxes


3,468



(1,026
)Change in valuation allowance  state taxes


19



80Deferred tax on items in other comprehensive income


(159
)


Other items, net


9



24Total tax expense (benefit)

$
2,615



(346
)     2010


2009Deferred tax assets:Discounting of unpaid losses

$
3,229



3,391Unearned premium reserve


2,618



2,669Accrued retirement benefit


689



1,112Federal net operating losses


765



State net operating losses


648



629Guaranty fund liability


500



510Capital loss carryforwards


384



1,191Alternative minimum tax credit carryforwards


272



Compensation related accruals


220



471Other items


312



233Gross deferred tax assets


9,637



10,206Valuation allowance


(4,116
)


(629
)Net deferred tax assets after valuation allowance


5,521



9,577Deferred tax liabilities:Deferred policy acquisition costs


3,310



3,418Unrealized investment gains, net


1,553



1,845Accrued premium tax credits


206



206Depreciation and amortization


202



279Prepaid expenses


134



125Other items


116



186Gross deferred tax liabilities


5,521



6,059Net deferred tax asset

$




3,518    F-26




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
            Change for2010


2009


the YearNet unrealized investment gainsBefore tax gain


4,567



5,425



(858
)Tax expense


(1,845
)


(1,845
)


After tax gain


2,722



3,580



(858
)Defined benefit pension plans  net actuarial lossBefore tax loss


(1,216
)


(1,609
)


393Tax benefit


548



548



After tax loss


(668
)


(1,061
)


393Total Accumulated Other Comprehensive IncomeBefore tax income


3,351



3,816



(465
)Tax expense


(1,297
)


(1,297
)


After tax income


2,054



2,519



(465
)  F-27




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
    (11)
    Reinsurance  excess-of-loss
          (a)
    Premiums  2010


2009Written


Earned


Written


EarnedDirect

$
86,524



86,638



88,356



90,332Assumed


295



297



873



876Ceded


(19,082
)


(18,838
)


(15,583
)


(15,850
)Net

$
67,737



68,097



73,646



75,358   (b)
    Losses
    and Loss Adjustment Expenses  2010


2009Direct

$
67,338



58,665Assumed


423



462Ceded


(14,075
)


(6,373
)Net

$
53,686



52,754  F-28




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
  (c)
    Unearned
    Premiums  2010


2009Direct

$
42,800



43,304Assumed


7



9Prepaid reinsurance (ceded)


(4,320
)


(4,076
)Net

$
38,487



39,237   (d)
    Loss
    and Loss Adjustment Expense Reserves  2010


2009Direct

$
101,876



97,889Assumed


8,097



8,821Gross

$
109,973



106,710   (12)
    Liability
    for Losses and Loss Adjustment Expenses    2010


2009Balance at January 1

$
106,710



108,065Less reinsurance recoverables


18,356



22,625Net liability at January 1


88,354



85,440Incurred related to:Current year


55,772



51,199Prior years


(2,086
)


1,555Total incurred


53,686



52,754Paid related to:Current year


24,755



21,296Prior years


29,634



28,544Total paid


54,389



49,840Net liability at December 31


87,651



88,354Add reinsurance recoverables


22,322



18,356Balance at December 31

$
109,973



106,710      F-29




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
      (13)
    Commitments
    and Contingencies      (14)
    Guaranty
    Fund and Other Insurance-Related Assessments    (15)
    Segment
    Information     F-30




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2010


2009Revenues:Premiums earned:Agribusiness

$
45,226



45,289Commercial business


22,405



28,961Other


466



1,108Total premiums earned


68,097



75,358Investment income, net of investment expense


5,700



5,648Realized investment gains, net


2,712



199Other income


325



223Total revenues

$
76,834



81,428Components of net (loss) income:Underwriting (loss) income:Agribusiness

$
(592
)


1,985Commercial business


(7,922
)


(4,509
)Other


(362
)


175Total underwriting losses


(8,876
)


(2,349
)Investment income, net of investment expense


5,700



5,648Realized investment gains, net


2,712



199Other income


325



223Corporate expense


(539
)


(429
)Interest expense


(31
)


(22
)Other expense, net


(164
)


(209
)(Loss) income from continuing operations, before income taxes


(873
)


3,061Income tax expense (benefit)


2,615



(346
)(Loss) income from continuing operations


(3,488
)


3,407Discontinued operations:Income from discontinued operations, before income taxes






39Income tax expense






879Loss from discontinued operations






(840
)Net (loss) income

$
(3,488
)


2,567  F-31




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2010


2009Net premiums earned:AgribusinessProperty

$
16,273



16,546Commercial auto


11,569



11,632Liability


9,192



9,196Workers compensation


7,464



7,238Other


728



677Agribusiness subtotal


45,226



45,289Commercial linesProperty & liability


13,542



17,731Workers compensation


4,469



6,235Commercial auto


4,172



4,746Other


222



249Commercial lines subtotal


22,405



28,961Other


466



1,108Total net premiums earned

$
68,097



75,358   (16)
    Reconciliation
    of Statutory Filings to Amounts Reported Herein    2010


2009Net (loss) income:Statutory net income

$
378



3,422Deferred policy acquisition costs


(318
)


(548
)Deferred federal income taxes


(3,518
)


685Other, including noninsurance amounts


(30
)


(152
)Discontinued operations






(840
)GAAP net (loss) income

$
(3,488
)


2,567Surplus:Statutory capital and surplus

$
68,191



72,491Equity of noninsurance entities


11,179



15,065Deferred policy acquisition costs


9,735



10,053Deferred federal income taxes






(3,760
)Nonadmitted assets


659



2,150Unrealized gains on fixed maturities, net of tax


3,022



3,581Other items, net


242



468GAAP shareholders equity

$
93,028



100,048  F-32




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
      (17)
    Discontinued
    Operations      (18)
    Shareholders
    Equity        2010


2009(Number of shares)Common stock issuedBalance, beginning December 31, 2009 and October 16,
    2009


5,444,022



Issuance of shares






5,444,022Balance, end of year


5,444,022



5,444,022Treasury stockBalance, beginning December 31, 2009 and October 16,
    2009


217,761



Repurchase of shares


287,131



217,761Issuance of shares  stock incentive plan


(141,122
)


Balance, end of year


363,770



217,761     (19)
    Earnings
    Per Share   F-33




---



##### 



PENN
    MILLERS HOLDING CORPORATION AND SUBSIDIARY
  Notes to
    Consolidated Financial
    Statements  (Continued)
      For the PeriodFor the Year Ended


October 17 throughDecember 31,


December 31,2010


2009Numerator:Net (loss) income

$
(3,488
)


929Denominator:Weighted average shares outstanding


4,565,503



4,820,280Effect of dilutive securities






Weighted average shares diluted


4,565,503



4,820,280Basic (loss) income per share

$
(0.76
)


0.19Diluted (loss) income per share

$
(0.76
)


0.19  F-34




---



##### 



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  (a)
    Evaluation
    of Disclosure Controls and Procedures    (b)
    Changes
    in Internal Control Over Financial Reporting  13a-15(f) 15d-15(f)
  
    Pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of the assets of the company;
    Provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that receipts and expenditures of the company are being made
    only in accordance with authorizations of management and
    directors of the company; and
    Provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use, or disposition of
    the companys assets that could have a material effect on
    the financial statements.  Internal Control-Integrated
    Framework.
    Rule 13a-15(f)
  Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance   76




---



##### 



Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services   PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules  (
      Regulation S-K
  EXHIBIT INDEX
  2
.1

Penn Millers Mutual Holding Company Plan of Conversion from
    Mutual to Stock Form is incorporated by reference herein to
    Exhibit No. 2.1 to the Companys Pre-Effective
    Amendment No. 1 to
    Form S-1,
    (Commission File
    No. 333-156936).3
.1

Articles of Incorporation of Penn Millers Holding Corporation
    are incorporated by reference herein to
    Exhibit No. 3.1 to the Companys Pre-Effective
    Amendment No. 1 to
    Form S-1,
    (Commission File
    No. 333-156936).3
.2

Bylaws of Penn Millers Holding Corporation are incorporated by
    reference herein to Exhibit No. 3.2 to the
    Companys Pre-Effective Amendment No. 1 to
    Form S-1,
    (Commission File
    No. 333-156936). 77




---



##### 



4
.1

Form of certificate evidencing shares of common stock of Penn
    Millers Holding Corporation is incorporated by reference herein
    to Exhibit No. 4.1 to the Companys Pre-Effective
    Amendment No. 1 to
    Form S-1,
    (Commission File
    No. 333-156936).10
.1

Executive Employment Agreement between Penn Millers Mutual
    Holding Company, Penn Millers Holding Corporation, Penn Millers
    Insurance Company and Douglas A. Gaudet, as amended and
    restated, dated August 14, 2009, is incorporated by
    reference herein to Exhibit No. 10.2 to the
    Companys Pre-Effective Amendment No. 4 to
    Form S-1,
    (Commission File
    No. 333-156936).10
.2

Employment Agreement between Penn Millers Mutual Holding
    Company, Penn Millers Holding Corporation, Penn Millers
    Insurance Company and Michael O. Banks dated August 14,
    2009, is incorporated by reference herein to
    Exhibit No. 10.3 to the Companys Pre-Effective
    Amendment No. 4 to
    Form S-1,
    (Commission File
    No. 333-156936).10
.3

Employment Agreement between Penn Millers Mutual Holding
    Company, Penn Millers Holding Corporation, Penn Millers
    Insurance Company and Kevin D. Higgins dated August 14,
    2009 is incorporated by reference herein to
    Exhibit No. 10.4 to the Companys Pre-Effective
    Amendment No. 4 to
    Form S-1,
    (Commission File
    No. 333-156936).10
.4

Employment Agreement between Penn Millers Mutual Holding
    Company, Penn Millers Holding Corporation, Penn Millers
    Insurance Company and Harold W. Roberts dated August 14,
    2009, is incorporated by reference herein to
    Exhibit No. 10.5 to the Companys Pre-Effective
    Amendment No. 4 to
    Form S-1,
    (Commission File
    No. 333-156936).10
.5

Employment Agreement between Penn Millers Mutual Holding
    Company, Penn Millers Holding Corporation, Penn Millers
    Insurance Company and Jonathan C. Couch dated August 14,
    2009, is incorporated by reference herein to
    Exhibit No. 10.8 to the Companys Pre-Effective
    Amendment No. 4 to
    Form S-1,
    (Commission File
    No. 333-156936).10
.6

Employment Agreement, between Penn Millers Mutual Holding
    Company, Penn Millers Holding Corporation, Penn Millers
    Insurance Company and Keith A. Fry dated February 9, 2010
    is incorporated by reference herein to
    Exhibit No. 10.1 to the Companys Current Report
    on
    Form 8-K
    filed February 9, 2010, (Commission File
    No. 001-34496).10
.7

Whole Account Accident Year Aggregate Excess of Loss Reinsurance
    Contract effective January 1, 2008 through January 1,
    2009 is incorporated by reference herein to
    Exhibit No. 10.10 to the Companys Pre-Effective
    Amendment No. 1 to
    Form S-1,
    (Commission File
    No. 333-156936).10
.8

Property Catastrophe Excess of Loss Reinsurance Contract
    Effective January 1, 2011*10
.9

Casualty Excess of Loss Reinsurance Contract Effective
    January 1, 2011*10
.10

Umbrella Quota Share Reinsurance Contract Effective
    January 1, 2011*10
.11

Property Excess of Loss Reinsurance Contract Effective
    January 1, 2011*10
.12

Penn Millers Holding Corporation Supplemental Executive
    Retirement Plan, as amended and restated, effective
    January 1, 2006 is incorporated by reference herein to
    Exhibit No. 10.16 to the Companys
    Form S-1
    Registration Statement, (Commission File
    No. 333-156936).10
.13

Amendment of the Penn Millers Holding Corporation Supplemental
    Executive Retirement Plan, effective October 31, 2009 is
    incorporated by reference to Exhibit 99.1 to the
    Companys Current Report on
    Form 8-K
    filed January 29, 2010, (Commission File
    No. 001-34496).10
.14

Penn Millers Holding Corporation Nonqualified Deferred
    Compensation and Company Incentive Plan, effective June 1,
    2006 is incorporated by reference herein to
    Exhibit No. 10.17 to the Companys
    Form S-1
    Registration Statement, (Commission File
    No. 333-156936).10
.15

2009 Success Sharing Program for Employees of Penn Millers is
    incorporated by reference herein to Exhibit No. 10.18
    to the Companys Pre-Effective Amendment No. 2 to
    Form S-1
    Registration Statement, (Commission File
    No. 333-156936).10
.16

Penn Millers Holding Corporation Employee Stock Ownership Plan
    is incorporated by reference herein to
    Exhibit No. 10.19 to the Companys Pre-Effective
    Amendment No. 4 to
    Form S-1,
    (Commission File
    No. 333-156936).10
.17

Penn Millers Stock Incentive Plan, effective as of May 12,
    2010 is incorporated by reference herein to
    Exhibit No. 10.1 to the Companys Current Report
    on
    Form 8-K
    filed May 14, 2010, (Commission File
    No. 001-34496). 78




---



##### 



10
.18

Penn Millers Holding Corporation Open Market Share Purchase
    Incentive Plan is incorporated by reference herein to
    Exhibit No. 10.2 to the Companys Current Report
    on
    Form 8-K
    filed May 14, 2010, (Commission File
    No. 001-34496).10
.19

Form of Penn Millers Stock Incentive Plan Restricted Stock
    Agreement is incorporated by reference herein to
    Exhibit No. 10.3 to the Companys Current Report
    on
    Form 8-K
    filed May 14, 2010, (Commission File
    No. 001-34496).10
.20

Form of Penn Millers Stock Incentive Plan Restricted Stock Unit
    Agreement is incorporated by reference herein to
    Exhibit No. 10.4 to the Companys Current Report
    on
    Form 8-K
    filed May 14, 2010, (Commission File
    No. 001-34496).10
.21

Form of Penn Millers Stock Incentive Plan Stock Option Agreement
    for Incentive Stock Option is incorporated by reference herein
    to Exhibit No. 10.5 to the Companys Current
    Report on
    Form 8-K
    filed May 14, 2010, (Commission File
    No. 001-34496).10
.22

Form of Penn Millers Stock Incentive Plan Stock Option Agreement
    for Nonqualified Stock Option for Non-Management Directors is
    incorporated by reference herein to Exhibit No. 10.6
    to the Companys Current Report on
    Form 8-K
    filed May 14, 2010, (Commission File
    No. 001-34496).10
.23

Form of Penn Millers Stock Incentive Plan Stock Option Agreement
    for Employees is incorporated by reference herein to
    Exhibit No. 10.7 to the Companys Current Report
    on
    Form 8-K
    filed May 14, 2010, (Commission File
    No. 001-34496).21
.1

Subsidiaries of Penn Millers Holding Corporation.*23
.1

Consent of Independent Registered Public Accounting Firm.*24
.1

Powers of Attorney (contained on signature page).*31
.1

Certification of Chief Executive Officer in accordance with
    Section 302 of the Sarbanes-Oxley Act of 2002.*31
.2

Certification of Chief Financial Officer in accordance with
    Section 302 of the Sarbanes-Oxley Act of 2002.*32
.1

Certification of Chief Executive Officer in accordance with
    Section 906 of the Sarbanes-Oxley Act of 2002.*32
.2

Certification of Chief Financial Officer in accordance with
    Section 906 of the Sarbanes-Oxley Act of 2002.*  79




---



##### 



SIGNATURES    PENN MILLERS HOLDING CORPORATIONMarch 28, 2011

By:

/s/  Douglas A. GaudetDouglas A. Gaudet, President andChief Executive OfficerMarch 28, 2011

By:

/s/  Michael O. BanksMichael O. Banks, Executive Vice President andChief Financial Officer  80




---



##### 



POWER OF
    ATTORNEY
      Signature

Capacity

Date/s/  Douglas
    A. GaudetDouglas
    A. Gaudet

Director
    President and Chief Executive Officer (Principal Executive
    Officer)

March 28, 2011/s/  F.
    Kenneth Ackerman, Jr.F.
    Kenneth Ackerman, Jr.

Director and Chairman

March 28, 2011/s/  Heather
    M. AckerHeather
    M. Acker

Director

March 28, 2011/s/  E.
    Lee BeardE.
    Lee Beard

Director

March 28, 2011Dorrance
    R. Belin, Esq.

Director

March 28, 2011/s/  John
    L. ChurnetskiJohn
    L. Churnetski

Director

March 28, 2011/s/  John
    M. ColemanJohn
    M. Coleman

Director

March 28, 2011/s/  Kim
    E. MichelsteinKim
    E. Michelstein

Director

March 28, 2011/s/  Robert
    A. Nearing, Jr.Robert
    A. Nearing, Jr.

Director

March 28, 2011/s/  Donald
    A. PizerDonald
    A. Pizer

Director

March 28, 2011James
    M. Revie

Director

March 28, 2011  81