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

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

| Pennsylvania(State      or other jurisdiction ofincorporation      or organization) |   | 80-0482459(I.R.S.      EmployerIdentification      No.) |
|-------------------------------------------------------------------------------------|--------|---------------------------------------------------------|

| Title of each class                          |   | Name of each exchange of which      registered |
|----------------------------------------------|--------|------------------------------------------------|
|                                         |   |                                           |
| Common      Stock, par value $0.01 per share |   | NASDAQ      Global Market                      |

| Large accelerated filer   o |   | Accelerated filer   o |   | Non-accelerated filer   þ           |   | Smaller reporting company   o |
|---------------------------------------|--------|---------------------------------|--------|----------------------------------------------------|--------|-----------------------------------------|
|                                  |   |                            |   | (Do      not check if a smaller reporting company) |   |                                    |

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|          |                                                                                                                         | Page   |
|---------------|------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                         | Number |
| PART      I   | 3                                                                                                                            |
| Item      1.  | Business                                                                                                                     | 25     |
| Item      1A. | Risk      Factors                                                                                                            | 33     |
| Item      1B. | Unresolved      Staff Comments                                                                                               | 33     |
| Item      2.  | Properties                                                                                                                   | 33     |
| Item      3.  | Legal      Proceedings                                                                                                       | 33     |
| Item      4.  | Removed      and Reserved                                                                                                    | 33     |
| PART      II  | 33                                                                                                                           |
| Item      5.  | Market      for Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities | 33     |
| Item      6.  | Selected      Financial Data                                                                                                 | 36     |
| Item      7.  | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                        | 38     |
| Item      7A. | Quantitative      and Qualitative Disclosures about Market Risk                                                              | 69     |
| Item      8.  | Financial      Statements and Supplementary Data                                                                             | 70     |
| Item      9.  | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure                               | 71     |
| Item      9A. | Controls      and Procedures                                                                                                 | 71     |
| Item      9B. | Other      Information                                                                                                       | 71     |
| PART      III | 71                                                                                                                           |
| Item      10. | Directors,      Executive Officers and Corporate Governance                                                                  | 71     |
| Item      11. | Executive      Compensation                                                                                                  | 72     |
| Item      12. | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                     | 72     |
| Item      13. | Certain      Relationships and Related Transactions, and Director      Independence                                          | 72     |
| Item      14. | Principal      Accounting Fees and Services                                                                                  | 72     |
| Part      IV  | 72                                                                                                                           |
| Item      15. | Exhibits,      Financial Statement Schedules                                                                                 | 72     |
| SIGNATURES    | 74                                                                                                                           |

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|                     |   | Net Premiums Earned by Business Segment |   |
|--------------------------|--------|------------------------------------------------------------------|--------|
|                     |   | For the Years Ended December 31,        |   |
|                     |   | 2009                                                             |   |   | % of Total |   |   | 2008 |   |   | % of Total |   |   | 2007 |   |   | % of Total |   |
| Business      Segment:   |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agribusiness             |   | $                                                                | 45,289 |   |   |   | 60.1 | % |   | $ | 45,298 |   |   |   | 57.5 | % |   | $ | 40,245 |   |   |   | 56.7 | % |
| Commercial      Business |   |                                                             | 28,961 |   |   |   | 38.4 | % |   |   | 31,805 |   |   |   | 40.4 | % |   |   | 29,260 |   |   |   | 41.2 | % |
| Other                    |   |                                                             | 1,108  |   |   |   | 1.5 | % |   |   | 1,634 |   |   |   | 2.1 | % |   |   | 1,465 |   |   |   | 2.1 | % |
| Total                    |   | $                                                                | 75,358 |   |   |   | 100.0 | % |   | $ | 78,737 |   |   |   | 100.0 | % |   | $ | 70,970 |   |   |   | 100.0 | % |

----

| Consolidated        |   |                 | Agribusiness Segment |   |   | Commercial Business Segment |                 |
|---------------------|--------|----------------------|---------------------------|--------|--------|---------------------------------------|----------------------|
| State               |   | % of Total |                      |   | State  |                                  | % of Total |   |   | State |   | % of Total |   |
|                |   |                 |                      |   |   |                                  |                 |   |   |   |   |   |   |
| New      Jersey     |   |                 | 11.3                      | %      |   | Illinois                              |                 |   | 9.9 | % |   | New      Jersey |   |   | 33.4 | % |
| Pennsylvania        |   |                 | 10.6                      | %      |   | North      Carolina                   |                 |   | 9.8 | % |   | Pennsylvania |   |   | 23.8 | % |
| Illinois            |   |                 | 6.6                       | %      |   | Georgia                               |                 |   | 9.4 | % |   | Virginia |   |   | 11.5 | % |
| North      Carolina |   |                 | 6.5                       | %      |   | Arkansas                              |                 |   | 8.4 | % |   | Connecticut |   |   | 10.9 | % |
| Georgia             |   |                 | 6.2                       | %      |   | Louisiana                             |                 |   | 7.0 | % |   | Massachusetts |   |   | 9.0 | % |
| Virginia            |   |                 | 4.7                       | %      |   | Ohio                                  |                 |   | 4.9 | % |   | Tennessee |   |   | 6.5 | % |
| Arkansas            |   |                 | 5.6                       | %      |   | Missouri                              |                 |   | 4.7 | % |   | New      York |   |   | 4.3 | % |
| Connecticut         |   |                 | 4.0                       | %      |   | Kansas                                |                 |   | 4.3 | % |   | Maryland |   |   | 0.6 | % |
| All      others (1) |   |                 | 44.5                      | %      |   | Pennsylvania                          |                 |   | 3.9 | % |   | Ohio |   |   | 0.0 | % |
| Total               |   |                 | 100.0                     | %      |   | Minnesota                             |                 |   | 3.9 | % |   | Total |   |   | 100.0 | % |
|                |   |                 |                      |   |   | Florida                               |                 |   | 3.7 | % |   |   |   |   |   |   |
|                |   |                 |                      |   |   | Mississippi                           |                 |   | 3.6 | % |   |   |   |   |   |   |
|                |   |                 |                      |   |   | All      others (1)                   |                 |   | 26.5 | % |   |   |   |   |   |   |
|                |   |                 |                      |   |   | Total                                 |                 |   | 100.0 | % |   |   |   |   |   |   |

|                                                                          |   | Net Premiums Earned by Product Line |   |
|-------------------------------------------------------------------------------|--------|--------------------------------------------------------------|--------|
|                                                                          |   | For the Years Ended December 31,    |   |
|                                                                          |   | 2009                                                         |   |   | % of Total |   |   | 2008 |   |   | % of Total |   |   | 2007 |   |   | % of Total |   |
| Product      Line:                                                            |   |                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property      – Agribusiness                                            |   | $                                                            | 16,546 |   |   |   | 22.0 | % |   | $ | 16,412 |   |   |   | 20.8 | % |   | $ | 13,772 |   |   |   | 19.4 | % |
| Liability      – Agribusiness                                           |   |                                                         | 9,196  |   |   |   | 12.2 | % |   |   | 8,795 |   |   |   | 11.1 | % |   |   | 7,540 |   |   |   | 10.6 | % |
| Property      and liability – Commercial Business (1)                   |   |                                                         | 17,731 |   |   |   | 23.5 | % |   |   | 19,428 |   |   |   | 24.7 | % |   |   | 18,301 |   |   |   | 25.8 | % |
| Workers’      compensation – Agribusiness and Commercial Business |   |                                                         | 13,473 |   |   |   | 17.9 | % |   |   | 14,761 |   |   |   | 18.8 | % |   |   | 12,918 |   |   |   | 18.2 | %  |
| Commercial      auto – Agribusiness and Commercial Business             |   |                                                         | 16,378 |   |   |   | 21.7 | % |   |   | 16,778 |   |   |   | 21.3 | % |   |   | 16,053 |   |   |   | 22.6 | % |
| Other (2)                                                                |   |                                                         | 2,034  |   |   |   | 2.7 | % |   |   | 2,563 |   |   |   | 3.3 | % |   |   | 2,386 |   |   |   | 3.4 | %  |
| Total                                                                         |   | $                                                            | 75,358 |   |   |   | 100.0 | % |   | $ | 78,737 |   |   |   | 100.0 | %  |   | $ | 70,970 |   |   |   | 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 $1,108, $1,634 and $1,465 for the      years ended December 31, 2009, 2008 and 2007,      respectively.      |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Our      insurance policies are primarily sold through select independent insurance      producers. We view these producers as our customers, because we believe      that they significantly influence the insured’s decision to choose our      insurance products over those of acompetitor. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | We      strive to win our producers’ support for our insurance products by      differentiating ourselves from our competitors through positive      relationships with our producers and by responding to their      needs. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | The      key to building and maintaining these positive relationships is      communication between our producers and one of our underwriter and      marketing representative teams, supported by loss control representatives,      claims adjusters, and management. This approach provides the producers      with responsive, consistent and predictable communications, service and      decisions from us. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Our      principal business strategy in both our agribusiness and commercial      business segments is to identify discrete underwriting risks 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: |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Agribusiness      – Grow our established niche |
|--------|---|------------------------------------------------------|

|   | o | 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. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | We      offer our business owner’s “Solutions” commercial policy in eight states,      and in early 2009 we introduced our new Penn Edge product that we      currently market in fifteenstates. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Our      Solutions business owners’ policy provides enhanced coverages      intended for select producers and preferred small business      insureds.  In the past, this was our only policy available to      commercial lines accounts. The Solutions offering, while serving a      business need, 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. 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.  |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | PennEdge      provides property and liability coverage to accounts that require a      broader range of coverages than our traditional business owners or      agribusiness products. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | PennEdge      will allow us to develop additional niche markets out of our existing      commercial business target markets. We will focus our business on those      industry segments we understand, and in which we can differentiate      ourselves from other insurancecompanies. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | PennEdge      is specifically tailored to unique business and industry segments,      including wholesalers, light manufacturing, hospitality, commercial      laundries and dry cleaners, and printers. These segments were chosen based      on the experience of our underwriting staff and the market opportunities      available to our existingproducers. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | As      of December 31, 2009 the PennEdge product was approved in seven of the      eight states where we market our Solutions product. Currently PennEdge is      approved in fifteen states. Our plans are to sell the PennEdge product      through existing commercial business agents and to expand the product      availability to additional states (twenty-four in 2010) where we plan to      capitalize on already strong and established relationships with agents and      brokers that sell our agribusinessprogram. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Strategic      Alliances - We have differentiated our products by entering into strategic      alliances through both our agribusiness and commercial business segments      to offer equipment breakdown, employment practices liability, and      miscellaneous professional liability coverage; and we are exploring a      strategic alliance to offer environmental impairment liability coverage      and other strategic alliance opportunities. Under such strategic      alliances, we typically reinsure all of the risk of loss to the strategic      partner and earn a cedingcommission. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Grow      the business of our existing agents and producers – We believe that our      PennEdge offering will provide us with access to our agents’ existing      business that we may be unable to write under our Solutions policy. Also,      we believe that our capital adequacy will allow us access to larger, more      sophisticated classes of insureds. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Increase      our distribution channel - 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. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Although      we do not have any current plans or intent to expand or grow our business      by acquisition, we will consider any relevant opportunities that are      presented to us. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | § | Reduce      our ratio of expenses to net premiumsearned |
|--------|--------|---------------------------------------------------------|

|   | o | 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. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | We      believe that we can achieve improved economies of scale and lower      underwriting expense ratios through our growth  strategies. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Reduce      our reliance on reinsurance |
|--------|--------|-----------------------------------------|

|   | o | The      capital raised from our public offering provided us with significant      capital adequacy and will allow us to reduce our reliance on reinsurance.      Therefore, we have not renewed the stop loss reinsurance agreement in      2010. This contract had a cost to us of $1.6 million for fiscal years 2008      and 2009 combined. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | We      have increased our reinsurance retentions overall to save the cost of      reinsurance, which may add volatility to our results. Over the long-term,      we believe that the reduced costs will increase our profitability. See      Item 1– “Business – Reinsurance.” |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Investments |
|--------|--------|-------------|

|   | o | 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 match our estimated timing of claims      payments. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | A      small percentage of our assets will be invested in equity securities,      which over the long run have produced higher returns relative to fixed      maturity investments. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | The      investment portfolio is managed by an independent asset manager with      extensive experience in investing insurance company  assets. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | 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” and Item 7A      – “Quantitative and Qualitative Disclosures about Market      Risk.” |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | 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 |
|--------|--------|------------------------|

|   | o | Our      reinsurance providers, the majority of whom are longstanding partners who      understand our business, are all carefully selected with the help of our      reinsurance broker, Towers Watson. We monitor the solvency of reinsurers      through regular review of their financial statements and, if available,      their A.M. Best ratings. All of our reinsurance partners have at least an      “A-” rating from A.M. Best. According to A.M. Best, companies with a      rating of “A-” or better “have an excellent ability to meet their ongoing      obligations to policyholders.” We have experienced no significant      difficulties collecting amounts due from  reinsurers. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | For      additional information concerning reinsurance, see Item 1 – “Business – Reinsurance”      and Note 12 of the notes to the Company's consolidated      financial statements in Part II Item 8 – “Financial Statements and      Supplementary Data.” |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|  | • | 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. |
|--|---------|------------------------------------------|

|   | · | 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 orretention. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                              |   | 2009                          |   |   | 2010             |   |
|---------------------------------------------------|--------|-------------------------------|--------|--------|------------------|--------|
|                                              |   |                          |   |   | Ceded Under |   |   |   |   |   | Ceded Under |   |
|                                              |   |                          |   |   | Reinsurance      |   |   |   |   |   | Reinsurance |   |
| Property Losses Incurred                |   | Retained by Company |   |   | Treaties         |   |   | Retained by Company |   |   | Treaties |   |
|                                              |   |                          |   |   |             |   |   |   |   |   |   |   |
| Up      to $500,000                               |   |                          | 100    | %      |             |   | 0 | % |   |   | 100 | % |   |   | 0 | % |
| $500,000      in excess of $500,000               |   |                          | 52.5   | %      |             |   | 47.5 | % |   |   | 60.0 | % |   |   | 40.0 | % |
| $4 million      in excess of $1 million |   |                          | 0      | %      |             |   | 100 | % |   |   | 0 | % |   |   | 100 | % |
| $15      million in excess of $5 million          |   |                          | 0      | %      |             |   | 100 | % |   |   | 0 | % |   |   | 100 | % |

|   | § | $500,000      in excess of $500,000 layer provides unlimited reinstatements, no annual      aggregate limit; |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | § | $4      million in excess of $1 million layer provides three      reinstatements; |
|--------|--------|-----------------------------------------------------------------------------------|

|   | § | $5      million in excess of $5 million layer provides two reinstatements;      and |
|--------|--------|-------------------------------------------------------------------------------------|

|   | § | $10      million in excess of $10 million layer provides one      reinstatement. |
|--------|--------|----------------------------------------------------------------------------------|

----

|                                              |   | 2009                          |   |   | 2010             |   |
|---------------------------------------------------|--------|-------------------------------|--------|--------|------------------|--------|
|                                              |   |                          |   |   | Ceded Under |   |   |   |   |   | Ceded Under |   |
|                                              |   |                          |   |   | Reinsurance      |   |   |   |   |   | Reinsurance |   |
| Casualty Losses Incurred                |   | Retained by Company |   |   | Treaties         |   |   | Retained by Company |   |   | Treaties |   |
|                                              |   |                          |   |   |             |   |   |   |   |   |   |   |
| Up      to $500,000                               |   |                          | 100    | %      |             |   | 0 | % |   |   | 100 | % |   |   | 0 | % |
| $500,000      in excess of $500,000               |   |                          | 52.5   | %      |             |   | 47.5 | % |   |   | 60.0 | % |   |   | 40.0 | % |
| $4 million      in excess of $1 million |   |                          | 0      | %      |             |   | 100 | % |   |   | 0 | % |   |   | 100 | % |
| $5 million      in excess of $5 million      |   |                          | 0      | %      |             |   | 100 | % |   |   | 0 | % |   |   | 100 | % |

|   | § | $500,000      in excess of $500,000 layer provides unlimited reinstatements, no annual      aggregate limit; |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | § | $4      million in excess of $1 million layer provides two reinstatements;      and |
|--------|--------|-------------------------------------------------------------------------------------|

|   | § | $5      million in excess of $5 million layer provides one      reinstatement. |
|--------|--------|--------------------------------------------------------------------------------|

----

|                                           |   |                        |   |   |               |   |   |       |   |   | Accrue for Assumed |   |   |       |   |   |             |   |
|------------------------------------------------|--------|-----------------------------|--------|--------|--------------------|--------|--------|------------|--------|--------|------------------------------|--------|--------|------------|--------|--------|------------------|--------|
|                                           |   |                        |   |   |               |   |   |       |   |   | Commutation and         |   |   | Cumulative |   |   | Net              |   |
|                                           |   | Recorded at            |   |   | Experience in |   |   | Cumulative |   |   | Profit Sharing          |   |   | Accounting |   |   | Recorded in |   |
|                                           |   | December 31, 2008 |   |   | 2009               |   |   | Total      |   |   | in 2009                 |   |   | Impact     |   |   | 2009             |   |
|                                           |   |                        |   |   |               |   |   |       |   |   |                         |   |   |       |   |   |             |   |
| Stop      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 & Loss |   |   |               |   |   |           |   |
|----------------------------------------------|--------|-----------------------------|--------|--------|--------------------|--------|--------|----------------|--------|
|                                         |   | Expense                     |   |   |               |   |   |           |   |
|                                         |   | Recoverable                 |   |   | Percentage of |   |   |           |   |
|                                         |   | On Unpaid              |   |   | Total              |   |   | A.M. Best |   |
|                                         |   | Claims                      |   |   | Recoverable        |   |   | Rating         |   |
|                                         |   |                        |   |   |               |   |   |           |   |
| Hannover      Rueckversicherung AG           |   | $                           | 6,151  |   |               |   | 34     | %              |   |   | A |   |
| Swiss      Re America Group                  |   |                        | 3,623  |   |               |   | 20     | %              |   |   | A |   |
| Transatlantic      Reinsurance Company       |   |                        | 2,425  |   |               |   | 13     | %              |   |   | A |   |
| Partner      Reinsurance Co. of the U.S.     |   |                        | 1,619  |   |               |   | 9      | %              |   |   | A+ |   |
| Employers      Mutual Casualty Co.           |   |                        | 1,500  |   |               |   | 8      | %              |   |   | A- |   |
| Aspen      Insurance UK Limited              |   |                        | 448    |   |               |   | 2      | %              |   |   | A |   |
| General      Reinsurance Corporation         |   |                        | 410    |   |               |   | 2      | %              |   |   | A++ |   |
| Platinum      Underwriters Reinsurance, Inc. |   |                        | 401    |   |               |   | 2      | %              |   |   | A |   |
| All      Other                               |   |                        | 1,779  |   |               |   | 10     | %              |   | A-      or better |   |
|                                         |   |                        |   |   |               |   |   |           |   |   |   |   |
| Total                                        |   | $                           | 18,356 |   |               |   | 100    | %              |   |   |   |   |

----

|                                                         |   | For the Years Ended |    |
|--------------------------------------------------------------|--------|------------------------------------|---------|
|                                                         |   | December 31,                  |    |
|                                                         |   | 2009                               |    |   | 2008 |   |   | 2007 |   |
|                                                         |   | (in thousands)                |    |
| Balance      at January 1                                    |   | $                                  | 108,065 |   |   | $ | 95,956 |   |   | $ | 89,405 |   |
| Reinsurance      recoverable on unpaid losses and LAE        |   |                               | 22,625  |   |   |   | 18,727 |   |   |   | 20,089 |   |
| Net      liability at January 1                              |   |                               | 85,440  |   |   |   | 77,229 |   |   |   | 69,316 |   |
|                                                         |   |                               |    |   |   |   |   |   |   |   |   |   |
| Losses      and LAE incurred, net:                           |   |                               |    |   |   |   |   |   |   |   |   |   |
| Current      year                                            |   | $                                  | 51,199  |   |   | $ | 62,612 |   |   | $ | 54,421 |   |
| Prior      years                                             |   |                               | 1,555   |   |   |   | (5,222 | ) |   |   | (4,638 | ) |
| Total      incurred losses and LAE                           |   |                               | 52,754  |   |   |   | 57,390 |   |   |   | 49,783 |   |
|                                                         |   |                               |    |   |   |   |   |   |   |   |   |   |
| Less      losses and LAE paid, net:                          |   |                               |    |   |   |   |   |   |   |   |   |   |
| Current      year                                            |   | $                                  | 21,296  |   |   | $ | 26,578 |   |   | $ | 22,191 |   |
| Prior      years                                             |   |                               | 28,544  |   |   |   | 22,601 |   |   |   | 19,679 |   |
| Total      losses and LAE expenses paid                      |   |                               | 49,840  |   |   |   | 49,179 |   |   |   | 41,870 |   |
|                                                         |   |                               |    |   |   |   |   |   |   |   |   |   |
| Net      liability for unpaid losses and LAE, at December 31 |   | $                                  | 88,354  |   |   | $ | 85,440 |   |   | $ | 77,229 |   |
| Reinsurance      recoverable on unpaid losses and LAE        |   |                               | 18,356  |   |   |   | 22,625 |   |   |   | 18,727 |   |
| Reserve      for unpaid losses and LAE at December 31        |   | $                                  | 106,710 |   |   | $ | 108,065 |   |   | $ | 95,956 |   |

----

| Return      of 2008 losses ceded under stop loss contract                                   |   | $      | 4,292  |   |
|---------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Favorable      development in 2009 on December 31, 2008 unpaid losses and LAE      reserves |   |   | (2,737 | )      |
| Net      prior years reserve development in 2009 – unfavorable                        |   | $      | 1,555  |   |

----

| Return      of 2008 losses ceded under stop loss contract                                   |   | $      | (4,292 | )      |
|---------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Favorable      development in 2009 on December 31, 2008 unpaid losses and LAE      reserves |   |   | 2,737  |   |
| Net      prior years reserve development in 2009 – unfavorable                        |   | $      | (1,555 | )      |

|                                                                           |   | For      the Years Ended December 31, |   |
|--------------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                           |   | 1999                                  |   |   | 2000 |   |   | 2001 |   |   | 2002 |   |   | 2003 |   |   | 2004 |   |   | 2005 |   |   | 2006 |   |   | 2007 |   |   | 2008 |   |   | 2009 |   |
|                                                                           |   | (in      thousands)                   |   |   |
| Liability      for unpaid losses and LAE, net of      reinsurance recoverables |   | $                                     | 30,165 |   |   | $ | 29,476 |   |   | $ | 35,656 |   |   | $ | 42,731 |   |   | $ | 48,072 |   |   | $ | 55,804 |   |   | $ | 61,032 |   |   | $ | 69,316 |   |   | $ | 77,229 |   |   | $ | 85,440 |   |   | $ | 88,354 |   |
|                                                                           |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative      amount of liability paid through                               |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One      year later                                                            |   |                                  | 10,393 |   |   |   | 12,523 |   |   |   | 15,441 |   |   |   | 15,279 |   |   |   | 18,849 |   |   |   | 19,288 |   |   |   | 21,262 |   |   |   | 19,681 |   |   |   | 22,591 |   |   |   | 28,544 |   |   |   | — |   |
| Two      years later                                                           |   |                                  | 15,977 |   |   |   | 20,032 |   |   |   | 23,640 |   |   |   | 25,731 |   |   |   | 27,719 |   |   |   | 28,977 |   |   |   | 32,372 |   |   |   | 31,974 |   |   |   | 35,344 |   |   |   | — |   |   |   | — |   |
| Three      years later                                                         |   |                                  | 20,104 |   |   |   | 25,184 |   |   |   | 28,897 |   |   |   | 31,372 |   |   |   | 34,125 |   |   |   | 35,481 |   |   |   | 40,950 |   |   |   | 40,378 |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Four      years later                                                          |   |                                  | 23,386 |   |   |   | 28,118 |   |   |   | 32,311 |   |   |   | 35,104 |   |   |   | 37,135 |   |   |   | 41,365 |   |   |   | 45,128 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Five      years later                                                          |   |                                  | 24,935 |   |   |   | 30,318 |   |   |   | 33,755 |   |   |   | 36,561 |   |   |   | 39,446 |   |   |   | 43,494 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Six      years later                                                           |   |                                  | 26,699 |   |   |   | 31,333 |   |   |   | 34,786 |   |   |   | 37,978 |   |   |   | 40,937 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Seven      years later                                                         |   |                                  | 27,451 |   |   |   | 32,039 |   |   |   | 35,847 |   |   |   | 38,932 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Eight      years later                                                         |   |                                  | 28,000 |   |   |   | 33,002 |   |   |   | 36,408 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Nine      years later                                                          |   |                                  | 28,755 |   |   |   | 33,531 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Ten      years later                                                           |   |                                  | 29,281 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
|                                                                           |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| Liability      re-estimated as of                         |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |                                |   |   |   |    |   |   |   |    |   |   |   |    |   |
|-----------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|---------|--------|--------|-------------------------------------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|
| One      year later                                       |   |   | 28,506  |   |   |   | 34,545  |   |   |   | 38,657  |   |   |   | 44,764  |   |   |   | 49,658  |   |   |   | 54,729  |   |   |   | 61,017  |    |   |   | 64,679                              |   |   |   | 72,004  |   |   |   | 86,995  |   |   |   | — |   |
| Two      years later                                      |   |   | 31,763  |   |   |   | 34,864  |   |   |   | 40,138  |   |   |   | 44,591  |   |   |   | 48,718  |   |   |   | 54,948  |   |   |   | 61,081  |    |   |   | 63,847                              |   |   |   | 70,030  |   |   |   | — |   |   |   | — |   |
| Three      years later                                    |   |   | 30,869  |   |   |   | 35,865  |   |   |   | 40,527  |   |   |   | 44,424  |   |   |   | 49,954  |   |   |   | 54,510  |   |   |   | 59,884  |    |   |   | 62,422                              |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Four      years later                                     |   |   | 30,885  |   |   |   | 36,594  |   |   |   | 40,416  |   |   |   | 45,405  |   |   |   | 49,617  |   |   |   | 54,411  |   |   |   | 58,891  |    |   |   | —                             |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Five      years later                                     |   |   | 31,910  |   |   |   | 37,108  |   |   |   | 40,696  |   |   |   | 45,603  |   |   |   | 49,284  |   |   |   | 53,575  |   |   |   | — |    |   |   | —                             |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Six      years later                                      |   |   | 32,448  |   |   |   | 37,402  |   |   |   | 41,157  |   |   |   | 45,744  |   |   |   | 48,918  |   |   |   | — |   |   |   | — |    |   |   | —                             |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Seven      years later                                    |   |   | 33,127  |   |   |   | 38,193  |   |   |   | 41,513  |   |   |   | 45,308  |   |   |   | — |   |   |   | — |   |   |   | — |    |   |   | —                             |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Eight      years later                                    |   |   | 33,820  |   |   |   | 38,590  |   |   |   | 41,271  |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |    |   |   | —                             |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Nine      years later                                     |   |   | 34,273  |   |   |   | 38,315  |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |    |   |   | —                             |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Ten      years later                                      |   |   | 34,214  |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |    |   |   | —                             |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Cumulative      total redundancy (deficiency)             |   | $      | (4,049  | )      |   | $      | (8,839) |   |   | $      | (5,615  | )      |   | $      | (2,577  | )      |   | $      | (846    | )      |   | $      | 2,229   |   |   | $      | 2,141   |    |   | $      |      6,894 |   |   | $      | 7,199   |   |   | $      | (1,555) |   |   |   | — |   |
|                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |                                |   |   |   |    |   |   |   |    |   |   |   |    |   |
| Gross      liability — end of year                  |   | $      | 39,188  |   |   | $      | 37,056  |   |   | $      | 47,084  |   |   | $      | 53,462  |   |   | $      | 69,463  |   |   | $      | 73,287  |   |   | $      | 83,849  |    |   | $      | 89,405                              |   |   | $      | 95,956  |   |   | $      | 108,065 |   |   | $      | 106,710 |   |
|                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |                                |   |   |   |    |   |   |   |    |   |   |   |    |   |
| Reinsurance      recoverables                             |   |   | 9,023   |   |   |   | 7,580   |   |   |   | 11,428  |   |   |   | 10,731  |   |   |   | 21,391  |   |   |   | 17,483  |   |   |   | 22,817  |    |   |   | 20,089                              |   |   |   | 18,727  |   |   |   | 22,625  |   |   |   | 18,356  |   |
|                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |                                |   |   |   |    |   |   |   |    |   |   |   |    |   |
| Net      liability — end of year                    |   | $      | 30,165  |   |   | $      | 29,476  |   |   | $      | 35,656  |   |   | $      | 42,731  |   |   | $      | 48,072  |   |   | $      | 55,804  |   |   | $      | 61,032  |    |   | $      | 69,316                              |   |   | $      | 77,229  |   |   | $      | 85,440  |   |   | $      | 88,354  |   |
|                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |                                |   |   |   |    |   |   |   |    |   |   |   |    |   |
| Gross      re-estimated liability — latest          |   | $      | 55,017  |   |   | $      | 58,052  |   |   | $      | 62,316  |   |   | $      | 65,004  |   |   | $      | 67,864  |   |   | $      | 71,753  |   |   | $      | 85,218  |    |   | $      | 80,225                              |   |   | $      | 88,574  |   |   | $      | 102,391 |   |   |   |    |   |
|                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |                                |   |   |   |    |   |   |   |    |   |   |   |    |   |
| Re-estimated      reinsurance recoverables — latest |   |   | 20,803  |   |   |   | 19,737  |   |   |   | 21,045  |   |   |   | 19,696  |   |   |   | 18,946  |   |   |   | 18,178  |   |   |   | 26,327  |    |   |   | 17,803                              |   |   |   | 18,544  |   |   |   | 15,396  |   |   |   |    |   |
|                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |                                |   |   |   |    |   |   |   |    |   |   |   |    |   |
| Net      re-estimated liability — latest            |   | $      | 34,214  |   |   | $      | 38,315  |   |   | $      | 41,271  |   |   | $      | 45,308  |   |   | $      | 48,918  |   |   | $      | 53,375  |   |   | $      | 58,891  |    |   | $      | 62,422                              |   |   | $      | 70,030  |   |   | $      | 86,995  |   |   |   |    |   |
|                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |                                |   |   |   |    |   |   |   |    |   |   |   |    |   |
| Gross      cumulative redundancy (deficiency)             |   | $      | (15,829 | )      |   | $      | (20,996 | )      |   | $      | (15,232 | )      |   | $      | (11,542 | )      |   | $      | 1,599   |   |   | $      | 1,534   |   |   | $      | (1,369  |  ) |   | $      | 9,180                               |   |   | $      | 7,382   |   |   | $      | 5,674   |   |   |   |    |   |

----

|   | • | Commodities      and futures contracts |
|--------|---------|----------------------------------------|

|   | • | Options      (except covered call options) |
|--------|---------|--------------------------------------------|

|   | • | Non-investment      grade debt obligations at time ofpurchase |
|--------|---------|---------------------------------------------------------------|

|   | • | 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 |
|--------|---------|-----------------------------------------------------------------------------------------|

|   | • | International      debt obligations |
|--------|---------|-------------------------------------|

|   | • | Foreign      currency trading |
|--------|---------|-------------------------------|

|   | • | Limited      partnerships |
|--------|---------|---------------------------|

|   | • | Convertible      securities |
|--------|---------|-----------------------------|

|   | • | Venture-capital      investments |
|--------|---------|----------------------------------|

|   | • | Real      estate properties (except Real Estate Investment  Trusts) |
|--------|---------|---------------------------------------------------------------------|

|   | • | Securities      lending |
|--------|---------|-------------------------|

|   | • | Portfolio      leveraging, i.e.,      margin transactions |
|--------|---------|-----------------------------------------------------------|

|   | • | Short      selling |
|--------|---------|--------------------|

----

|                                                                            |   | At December 31,   |    |
|---------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                            |   | 2009                        |    |   | 2008 |   |
|                                                                            |   | Cost or Amortized |    |   | Estimated Fair |   |   | Cost or Amortized |   |   | Estimated Fair |   |
|                                                                            |   | Cost                        |    |   | Value |   |   | Cost |   |   | Value |   |
|                                                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agencies      not backed by the full faith and credit of the U.S.    government |   | $                           | 16,933  |   |   | $ | 17,441 |   |   | $ | 14,929 |   |   | $ | 16,089 |   |
|                                                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.      treasury securities                                                   |   |                        | 4,499   |   |   |   | 4,612 |   |   |   | 8,530 |   |   |   | 9,310 |   |
|                                                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State      and political subdivisions                                           |   |                        | 37,415  |   |   |   | 39,334 |   |   |   | 31,775 |   |   |   | 32,957 |   |
|                                                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Corporate      securities                                                       |   |                        | 71,470  |   |   |   | 73,691 |   |   |   | 39,930 |   |   |   | 38,253 |   |
|                                                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial      mortgage-backed securities                                      |   |                        | 3,806   |   |   |   | 3,775 |   |   |   | 4,600 |   |   |   | 3,933 |   |
|                                                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential      mortgage-backed securities                                     |   |                        | 27,607  |   |   |   | 28,302 |   |   |   | 20,774 |   |   |   | 21,372 |   |
| Total      fixed maturities                                                     |   | $                           | 161,730 |   |   | $ | 167,155 |   |   | $ | 120,538 |   |   | $ | 121,914 |   |

----

|                                                                            |   | Estimated       |    |   | Percent                |   |
|---------------------------------------------------------------------------------|--------|-----------------|---------|--------|------------------------|--------|
| Rating (1)                                                                 |   | Fair Value |    |   | of Total (2) |   |
|                                                                            |   |            |    |   |                   |   |
| Agencies      not backed by the full faith and credit of the U.S.    government |   | $               | 17,441  |   |                   |   | 10.4 | % |
| U.S.      treasury securities                                                   |   |            | 4,612   |   |                   |   | 2.8 | % |
| AAA                                                                             |   |            | 58,249  |   |                   |   | 34.9 | % |
| AA                                                                              |   |            | 34,572  |   |                   |   | 20.7 | % |
| A                                                                               |   |            | 42,538  |   |                   |   | 25.4 | % |
| BBB                                                                             |   |            | 9,743   |   |                   |   | 5.8 | % |
| Total                                                                           |   | $               | 167,155 |   |                   |   | 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      portfolio. |
|-----|----------------------------------------------------------------------------------------------------|

|                                             |   | Amortized Cost |    |   | Estimated Fair Value (1) |   |
|--------------------------------------------------|--------|---------------------|---------|--------|-----------------------------------------|--------|
|                                             |   |                |    |   |                                    |   |   |   |
| Less      than one year                          |   | $                   | 10,008  |   |                                    | $      | 10,203 |   |
| One      though five years                       |   |                | 73,532  |   |                                    |   | 76,405 |   |
| Five      through ten years                      |   |                | 40,196  |   |                                    |   | 41,719 |   |
| Greater      than ten years                      |   |                | 6,581   |   |                                    |   | 6,751 |   |
| Commercial      mortgaged-backed securities (2)  |   |                | 3,806   |   |                                    |   | 3,775 |   |
| Residential      mortgaged-backed securities (2) |   |                | 27,607  |   |                                    |   | 28,302 |   |
| Total      fixed maturities                      |   | $                   | 161,730 |   |                                    | $      | 167,155 |   |

| (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 securitizationstructures. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|    |   | Fair Value at     |   |   | Fair Value at     |   |
|---------|--------|-----------------------------|--------|--------|-----------------------------|--------|
| Insurer |   | December 31, 2009 |   |   | December 31, 2008 |   |
| AMBAC   |   | $                           | 3,321  |   |                        | $      | 3,259 |   |
| FGIC    |   |                        | 5,524  |   |                        |   | 2,772 |   |
| FSA     |   |                        | 9,494  |   |                        |   | 8,829 |   |
| MBIA    |   |                        | 4,356  |   |                        |   | 8,004 |   |
|    |   |                        |   |   |                        |   |   |   |
| Total   |   | $                           | 22,695 |   |                        | $      | 22,864 |   |

|   |   | At December 31, 2009 |   |   | At December 2008      |   |
|--------|--------|-------------------------------------|--------|--------|---------------------------------|--------|
| Rating |   | WithGuaranteeFair Value        |   |   | WithoutGuaranteeFair Value |   |   | WithGuaranteeFair Value |   |
|   |   |                                |   |   |                            |   |   |   |   |
| AAA    |   | $                                   | 9,476  |   |                            | $      | 1,097 |   |   | $ | 8,832 |   |
| AA     |   |                                | 11,021 |   |                            |   | 16,054 |   |   |   | 11,868 |   |
| A      |   |                                | 2,198  |   |                            |   | 5,544 |   |   |   | 2,164 |   |
|   |   |                                |   |   |                            |   |   |   |   |   |   |   |
| Total  |   | $                                   | 22,695 |   |                            | $      | 22,695 |   |   | $ | 22,864 |   |

|  | • | 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 ofpolicyholders; |
|--|---------|----------------------------------------------------------|

|  | • | requiring      certain methods of accounting; |
|--|---------|-----------------------------------------------|

|  | • | periodic      examinations of our operations andfinances; |
|--|---------|-----------------------------------------------------------|

|  | • | 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. |
|--|---------|----------------------------------------------------------------------------|

----

|  | • | audit      committees; |
|--|---------|------------------------|

|  | • | certification      of financial statements by the chief executive officer and the chief      financial officer; |
|--|---------|-----------------------------------------------------------------------------------------------------------------|

|  | • | the      forfeiture of bonuses or other incentive-based compensation and profits      from the sale of an issuer’s securities by directors and senior officers      in the twelve month period following initial publication of any financial      statements that later requirerestatement; |
|--|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | • | a      prohibition on insider trading during pension plan blackout      periods; |
|--|---------|----------------------------------------------------------------------------------|

|  | • | disclosure      of off-balance sheet transactions; |
|--|---------|----------------------------------------------------|

|  | • | a      prohibition on personal loans to directors and  officers; |
|--|---------|------------------------------------------------------------------|

|  | • | expedited      filing requirements for Form 4 statement of changes of beneficial      ownership of securities required to be filed by officers, directors and      10% shareholders; |
|--|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | • | disclosure      of whether or not a company has adopted a code of  ethics; |
|--|---------|----------------------------------------------------------------------------|

|  | • | “real      time” filing of periodic reports; |
|--|---------|----------------------------------------------------------|

|  | • | auditor      independence; and |
|--|---------|--------------------------------|

|  | • | various      increased criminal penalties for violations of securities      laws. |
|--|---------|-----------------------------------------------------------------------------------|

----

----

| Item      1A. |  RISK      FACTORS |
|---------------|-------------------------|

----

----

|  | • | determining      whether damages were caused by flooding versus  wind; |
|--|---------|------------------------------------------------------------------------|

|  | • | evaluating      general liability and pollutionexposures; |
|--|---------|-----------------------------------------------------------|

|  | • | the      impact of increased demand for products and services necessary to repair      or rebuild damagedproperties; |
|--|---------|----------------------------------------------------------------------------------------------------------------------|

|  | • | infrastructure      disruption; |
|--|---------|---------------------------------|

|  | • | fraud; |
|--|---------|--------|

|  | • | the      effect of mold damage; |
|--|---------|---------------------------------|

|  | • | business      interruption costs; and |
|--|---------|---------------------------------------|

|  | • | reinsurance      collectability. |
|--|---------|----------------------------------|

|  | • | 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 oflosses. |
|--|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | • | trends      in claim frequency andseverity; |
|--|---------|---------------------------------------------|

|  | • | information      regarding each claim forlosses; |
|--|---------|--------------------------------------------------|

|  | • | legislative      enactments, judicial decisions and legal developments regarding damages;      and |
|--|---------|----------------------------------------------------------------------------------------------------|

|  | • | trends      in general economic conditions, including  inflation. |
|--|---------|-------------------------------------------------------------------|

|  | • | 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. |
|--|---------|----------------------------------------------------------------------|

----

----

|  | • | approval      of policy forms and premium rates; |
|--|---------|--------------------------------------------------|

|  | • | standards      of solvency, including establishing requirements for minimum capital and      surplus, and for risk-basedcapital; |
|--|---------|----------------------------------------------------------------------------------------------------------------------------------|

|  | • | classifying      assets as admissible for purposes of determining solvency and compliance      with minimum capital and surplusrequirements; |
|--|---------|----------------------------------------------------------------------------------------------------------------------------------------------|

|  | • | 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 affiliatedcompanies; |
|--|---------|----------------------------------------------------------------|

|  | • | restrictions      on the size of risks insurable under a single  policy; |
|--|---------|--------------------------------------------------------------------------|

|  | • | requiring      deposits for the benefit ofpolicyholders; |
|--|---------|----------------------------------------------------------|

|  | • | requiring      certain methods of accounting; |
|--|---------|-----------------------------------------------|

|  | • | periodic      examinations of our operations andfinances; |
|--|---------|-----------------------------------------------------------|

|  | • | 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. |
|--|---------|----------------------------------------------------------------------------|

----

|  | • | 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 ofdirectors; |
|--|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | • | a      classified board of directors divided into three classes serving for      successive terms of three yearseach; |
|--|---------|-----------------------------------------------------------------------------------------------------------------------|

|  | • | 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 tocast; |
|--|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | • | 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 66 2/3%, or      in certain cases 80%, of all votes that shareholders are entitled to      cast. |
|--|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Period:                                   |   | Share Price Range |   |
|-------------------------------------------|--------|-----------------------------|--------|
|                                      |   | High                        |   |   | Low |   |
| October      17, 2009 - December 31, 2009 |   | $                           | 11.08  |   |   | $ | 10.00 |   |

----

----

| Period                              |   | Total Number ofShares Purchased (2) |    |   | Average PricePaid Per Share |   |   | Total Number of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs (1) |   |   | Maximum Numberof Shares that MayYet Be PurchasedUnder the Program      (1) |   |
|-------------------------------------|--------|---------------------------------------------------------|---------|--------|--------------------------------------------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------------------------------------------|--------|
| November      1 - November 30, 2009 |   |                                                    | 64,307  |   |                                       | $      | 10.20  |                                                                                                                                |   |   | 64,307                                                                                                             |   |   |   | 207,894 |   |
| December      1 - December 31, 2009 |   |                                                    | 153,454 |   |                                       | $      | 10.17  |                                                                                                                                |   |   | 153,454                                                                                                            |   |   |   | 54,440 |   |

----

|  | (1) |  On      October 27, 2009, our board of directors authorized the repurchase of      up to 5% of the issued and outstanding shares of our common stock. The      repurchases are authorized to be made from time to time in open market or      privately negotiated transactions as, in our management’s sole opinion,      market conditions warrant. We will have the right to repurchase issued and      outstanding shares of common stock until 5% of the shares, or 272,201, are      repurchased, unless our board of directors expands the program. No time      limit has been set for the completion of the share repurchase program. All      purchases were be made in accordance with the safe harbor set forth in      Exchange Act Rule 10-b-18. The repurchased shares will be held as treasury      shares and may be used in connection with a future stock incentive plan,      should such a plan be approved by our  shareholders. |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (2) | Represents      the total number of shares repurchased during the period of      217,761. |
|--|-----|-------------------------------------------------------------------------------------------|

----

| Item      6. | SELECTED      FINANCIAL AND OTHERDATA |
|--------------|---------------------------------------|

|                                                                   |   | At or for the years ended |    |
|------------------------------------------------------------------------|--------|----------------------------------------------------|---------|
|                                                                   |   | December 31,                                  |    |
|                                                                   |   | 2009 (1)                                      |    |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005      (5) |   |
|                                                                   |   | (Dollars in thousands)                   |
| Statement      of Operations Data:                                     |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Direct      premiums written                                           |   | $                                                  | 88,356  |   |   | $ | 94,985 |   |   | $ | 94,073 |   |   | $ | 84,544 |   |   | $ | 84,084 |   |
| Net      premiums written                                              |   | $                                                  | 73,646  |   |   | $ | 77,367 |   |   | $ | 74,119 |   |   | $ | 67,525 |   |   | $ | 62,057 |   |
| Net      premiums earned                                               |   | $                                                  | 75,358  |   |   | $  | 78,737 |   |   | $  | 70,970 |   |   | $  | 64,645 |   |   | $  | 64,723 |   |
| Net      investment income                                             |   |                                               | 5,648   |   |   |   | 5,335 |   |   |   | 5,324 |   |   |   | 4,677 |   |   |   | 4,444 |   |
| Other      net realized investment gains (losses)                      |   |                                               | 396     |   |   |   | (2,897 | ) |   |   | (82 | ) |   |   | 349 |   |   |   | 565 |   |
| Other-than-temporary      impairment losses                            |   |                                               | (197    | ) |   |   | (2,922 | ) |   |   | (620 | ) |   |   | — |   |   |   | (141 | ) |
| Other      income                                                      |   |                                               | 223     |   |   |   | 411 |   |   |   | 508 |   |   |   | 345 |   |   |   | 277 |   |
| Total      revenues                                                    |   | $                                                  | 81,428  |   |   | $ | 78,664 |   |   | $ | 76,100 |   |   | $ | 70,016 |   |   | $ | 69,868 |   |
|                                                                   |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Expenses                                                               |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Losses      and loss adjustment expense                                |   | $                                                  | 52,754  |   |   | $ | 57,390 |   |   | $ | 49,783 |   |   | $ | 43,766 |   |   | $ | 40,242 |   |
| Amortization      of deferred policy acquisition costs                 |   |                                               | 21,383  |   |   |   | 23,081 |   |   |   | 21,930 |   |   |   | 20,080 |   |   |   | 21,556 |   |
| Underwriting      and administrative expenses                          |   |                                               | 3,999   |   |   |   | 3,481 |   |   |   | 2,233 |   |   |   | 3,216 |   |   |   | 7,662 |   |
| Interest      expense                                                  |   |                                               | 22      |   |   |   | 184 |   |   |   | 125 |   |   |   | 222 |   |   |   | 195 |   |
| Other      expense, net                                                |   |                                               | 209     |   |   |   | 365 |   |   |   | 184 |   |   |   | 314 |   |   |   | 266 |   |
| Total      losses and expenses                                         |   | $                                                  | 78,367  |   |   | $ | 84,501 |   |   | $ | 74,255 |   |   | $ | 67,598 |   |   | $ | 69,921 |   |
|                                                                   |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) from continuing operations, before incometaxes |   | $                                                  | 3,061   |   |   | $ | (5,837 | ) |   | $ | 1,845 |   |   | $ | 2,418 |   |   | $ | (53 | ) |
| Income      tax expense (benefit)                                      |   |                                               | (346    | ) |   |   | (1,378 | ) |   |   | 396 |   |   |   | 506 |   |   |   | (295 | ) |
| Income      (loss) from continuing operations                     |   | $                                                  | 3,407   |   |   | $ | (4,459 | ) |   | $ | 1,449 |   |   | $ | 1,912 |   |   | $ | 242 |   |
| Income      (loss) from discontinued operations                   |   |                                               | (840    | ) |   |   | (2,920 | ) |   |   | (363 | ) |   |   | 168 |   |   |   | 47 |   |
| Net      income (loss)                                                 |   | $                                                  | 2,567   |   |   | $ | (7,379 | ) |   | $ | 1,086 |   |   | $ | 2,080 |   |   | $ | 289 |   |
|                                                                   |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      Sheet Data (at period end):                               |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      investments, cash and cash equivalents                      |   | $                                                  | 187,375 |   |   | $ | 133,873 |   |   | $ | 136,312 |   |   | $ | 126,655 |   |   | $ | 116,898 |   |
| Total      assets                                                      |   |                                               | 263,450 |   |   |   | 220,524 |   |   |   | 219,613 |   |   |   | 207,768 |   |   |   | 197,897 |   |
| Losses      and loss adjustment expense reserves                       |   |                                               | 106,710 |   |   |   | 108,065 |   |   |   | 95,956 |   |   |   | 89,405 |   |   |   | 83,849 |   |
| Unearned      premiums                                                 |   |                                               | 43,313  |   |   |   | 45,322 |   |   |   | 46,595 |   |   |   | 43,294 |   |   |   | 39,984 |   |
| Total      liabilities                                                 |   |                                               | 163,402 |   |   |   | 169,769 |   |   |   | 158,212 |   |   |   | 147,238 |   |   |   | 140,128 |   |
| Total      shareholders’ equity                                  |   |                                               | 100,048 |   |   |   | 50,755 |   |   |   | 61,401 |   |   |   | 60,530 |   |   |   | 57,769 |   |

----

|                                                     |   | At or for the years ended |   |
|----------------------------------------------------------|--------|----------------------------------------------------|--------|
|                                                     |   | December 31,                                  |   |
|                                                     |   | 2009                                               |   |   | 2008 |   |   | 2007 |   | 2006 |   | 2005(5) |   |
|                                                     |   | (Dollars in thousands)                   |   |
| U.S.      GAAP Ratios:                                   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss      and loss adjustment expense ratio (2)          |   |                                               | 70.0   | % |   |   | 72.9 | % |   |   | 70.1 | % |   |   | 67.7 | % |   |   | 62.2 | % |
| Underwriting      expense ratio (3)                      |   |                                               | 33.1   | % |   |   | 32.8 | % |   |   | 33.3 | % |   |   | 35.1 | % |   |   | 39.2 | % |
|                                                     |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Combined      ratio (4)                                  |   |                                               | 103.1  | % |   |   | 105.7 | % |   |   | 103.4 | % |   |   | 102.8 | % |   |   | 101.4 | % |
|                                                     |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return      on average equity, continuing operations (1) |   |                                               | 5.4    | % |   |   | (8.0 | )% |   |   | 2.4 | % |   |   | 3.2 | % |   |   | 0.4 | % |
| Return      on average equity (1)                        |   |                                               | 4.1    | % |   |   | (13.2 | )% |   |   | 1.8 | % |   |   | 3.5 | % |   |   | 0.5 | % |
|                                                     |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per      Share Data:                                     |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per share (6)                              |   | $                                                  | 0.19   |   |   |   | N/A |   |   |   | N/A |   |   |   | N/A |   |   |   | N/A |   |
| Net      book value per share (7)                        |   | $                                                  | 21.31  |   |   |   | N/A |   |   |   | N/A |   |   |   | N/A |   |   |   | N/A |   |
|                                                     |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Statutory      Data:                                     |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Statutory      net income (loss)                         |   | $                                                  | 3,422  |   |   |   | (4,718 | ) |   | $ | 878 |   |   | $ | 1,374 |   |   | $ | 3,171 |   |
| Statutory      surplus (1)                               |   |                                               | 72,491 |   |   |   | 42,569 |   |   |   | 50,795 |   |   |   | 50,524 |   |   |   | 47,216 |   |
| Ratio      of net premiums written to statutory surplus  |   |                                               | 101.6  | % |   |   | 181.7 | % |   |   | 145.9 | % |   |   | 133.6 | % |   |   | 131.4 | % |

| (1) | On      October 16, 2009 we closed on our initial public offering. In the      offering, after paying our offering expenses in 2008 and 2009 and funding      the loan to our ESOP, we received net proceeds of $45,172 which has      been reflected in cash and cash equivalents, total assets and      shareholders’ equity. We have weighted the return on average equity ratios      for 2009 to account for the days in 2009 we were a public company.      Statutory surplus and the ratio of net premiums to statutory surplus      include $25,000 that was contributed to Penn Millers Insurance Company at      the completion of the offering. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)  | Calculated      by dividing losses and loss adjustment expenses by net premiums      earned. |
|-----------|----------------------------------------------------------------------------------------------|

| (3)  | Calculated      by dividing amortization of deferred policy acquisition costs and net      underwriting and administrative expenses (attributable to insurance      operations) by net premiums earned. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)  | The      sum of the loss and loss adjustment expense ratio and the underwriting      expense ratio. A combined ratio greater than 100% means a company has an      underwriting loss. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |                                                                                                                                                                                  |
| (5)       | 2005      has been adjusted, as of January 1, 2005, to reflect the adoption of Staff      Accounting Bulletin (SAB) No. 108, Quantifying Financial Statement      Misstatements.      |

| (6) | Earnings      per share reflect only net income for the period we were a publicly-traded      company in 2009: October 17, 2009 through December 31, 2009. Net income      during this period was $929. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | Net      book value per share is calculated by dividing total shareholders’ equity      by the shares outstanding at the end of the period. Prior to October 16,      2009 there were no shares outstanding for Penn Millers Holding      Corporation. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Item 7.  | PENN      MILLERS HOLDING CORPORATION AND      SUBSIDIARY            |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

|   | · | Net      income of $2,567 |
|--------|--------|---------------------------|

|   | · | Net      earned premiums of $75,358; $73,641 excluding the impact of the reversal      of the stop loss contract |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

|  | · | Catastrophe      losses of $1,979 |
|--|--------|-----------------------------------|

|  | · | Unfavorable      prior year reserve development of $1,555; prior year reserve development      was $2,737 excluding the impact of the reversal of the stop loss      contract |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | GAAP      combined ratio of 103.1% or 99.7% before the impact of the stop loss on      2009 results |
|--------|--------|-----------------------------------------------------------------------------------------------------|

|   | · | Pretax      net investment income of $5,648 |
|--------|--------|---------------------------------------------|

|   | · | Net      realized investment gains of$199 |
|--------|--------|-------------------------------------------|

----

|   | · | Successful      initial public offering in October 2009 raised $45,172 of      capital |
|--------|--------|----------------------------------------------------------------------------------------|

|   | · | Total      fixed maturity investments of$167,155 |
|--------|--------|--------------------------------------------------|

|   | · | Total      assets of $263,450 |
|--------|--------|-------------------------------|

|   | · | Repurchased      217,761 shares of our common stock at a total cost of $2,216 under      our share repurchase program |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------|

|  | · | Shareholders'      equity of $100,048 |
|--|--------|---------------------------------------|

|  | · | Net      book value per common share of$21.31 |
|--|--------|-----------------------------------------------|

|   | · | On      April 22, 2009 Penn Millers Mutual adopted a plan of conversion to      convert Penn Millers Mutual from the mutual to the stock form of      organization, which was approved by our policyholders on October 15,      2009. Our public stock offering closed on October 16, 2009 and we issued      5,444,022 shares of Penn Millers Holding Corporation common stock at an      initial price of $10.00 per share. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our      Employee Stock Ownership Plan (ESOP) purchased 539,999 of the shares      in the offering, which was funded by a loan from Penn Millers Holding      Corporation. We implemented the ESOP in order to more closely align our      employees’ interests with those of our shareholders, and to promote an      atmosphere of “ownership” and accountability within our      organization. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | In      October 2009, our board of directors approved a Share Repurchase Program      which authorized the repurchase of up to 5% of our issued and outstanding      common stock. The share repurchases made in 2009 of 217,761 shares allowed      us to buy back shares at attractive prices, return value to our      shareholders, and provide liquidity for our shares in order to implement      our stock incentive plan. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | For      the year ended December 31, 2009, we saw a year of lower catastrophic      losses compared to 2008. |
|--|--------|--------------------------------------------------------------------------------------------------------------|

|  | · | The      lower losses, in conjunction with our decision to terminate relationships      with several under-performing producers in our commercial business segment      helped to improve our underwritingprofit. |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | The      net positive results on our investments for 2009 compared to 2008,      contributed to our $9,946 increase in net  income. |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------|

|   | · | As      described in more detail throughout this Management’s Discussion and      Analysis, favorable prior year development on the 2008 accident year      required us to reverse in 2009 the net favorable 2008 impact of ceding      premiums and losses under our aggregate stop-loss reinsurance contract.      Furthermore, lower 2009 incurred losses did not allow us to cede losses      under the contract for the 2009 accident year. Without the negative impact      of the reversal of the stop loss contract on our underwriting results      in 2009, the favorable trends in our results would have been even      greater. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | For      both our agribusiness and commercial business segments, we continue to      emphasize that we will not compromise profitability for top line      growth. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Competitive      pressures in the marketplace are exerting downward pressure on our prices,      which is currently affecting our writing of new and renewal      business. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Our      focus on underwriting discipline and rate adequacy in the midst of this      soft market has resulted in our premium revenue growth being relatively      modest and somewhat volatile. |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | 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. |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|  | • | 2,      3, 4, and 5-Year Averages (straight averages and loss-weighted      averages); |
|--|---------|----------------------------------------------------------------------------------------|

|  | • | 5-Year      Average Excluding Highest and LowestLDFs; |
|--|---------|-------------------------------------------------------|

|  | • | 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 historicaldevelopment). |
|--|---------|------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                  |   | As of        |    |   | As of        |   |
|-------------------------------------------------------|--------|-------------------|---------|--------|-------------------|--------|
|                                                  |   | December 31, |    |   | December 31, |   |
|                                                  |   | 2009              |    |   | 2008              |   |
| Case      reserves                                    |   | $                 | 55,258  |   |              | $      | 57,976 |   |
| IBNR      reserves                                    |   |              | 33,096  |   |              |   | 27,464 |   |
| Net      unpaid losses and LAE                        |   |              | 88,354  |   |              |   | 85,440 |   |
| Reinsurance      recoverable on unpaid losses and LAE |   |              | 18,356  |   |              |   | 22,625 |   |
| Reserves      for unpaid losses and LAE               |   | $                 | 106,710 |   |              | $      | 108,065 |   |

| Reserve Range for Unpaid Losses and LAE |   |
|-----------------------------------------------------------------------|--------|
| Low 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 settlingclaims; |
|--|---------|-----------------------------------------------------------------------------------------------------------------------------|

----

|  | • | 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. |
|--|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | • | The      rate of increase in labor costs, medical costs, material costs, and      commodity prices that underlie insuredrisks; |
|--|---------|--------------------------------------------------------------------------------------------------------------------------------|

|  | • | 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. |
|--|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| As of December 31, 2009 |   |               |   |   |               |   |   |     |   |   |                                                          |
|---------------------------------------------|--------|--------------------|--------|--------|--------------------|--------|--------|----------|--------|--------|---------------------------------------------------------------|
|                                        |   |               |   |   |               |   |   |     |   |   |                                                               |   |
|                                        |   |               |   |   |               |   |   | Total    |   |   | Actuarially Determined Range of Estimates |   |
|                                        |   | Case Reserves |   |   | IBNR Reserves |   |   | Reserves |   |   | Low                                                           |   |   | High |   |
| Commercial      auto liability              |   | $                  | 9,115  |   |               | $      | 5,386  |     |   | $      | 14,501                                                        |   |   | $ | 12,719 |   |   | $ | 14,681 |   |
| Workers’      compensation            |   |               | 13,675 |   |               |   | 7,262  |     |   |   | 20,937                                                        |   |   |   | 19,472 |   |   |   | 21,109 |   |
| Commercial      multi-peril                 |   |               | 14,262 |   |               |   | 6,778  |     |   |   | 21,040                                                        |   |   |   | 19,413 |   |   |   | 21,597 |   |
| Liability                                   |   |               | 9,209  |   |               |   | 7,851  |     |   |   | 17,060                                                        |   |   |   | 14,343 |   |   |   | 17,470 |   |
| Fire      & allied                      |   |               | 3,546  |   |               |   | 1,244  |     |   |   | 4,790                                                         |   |   |   | 3,927 |   |   |   | 4,920 |   |
| Assumed                                     |   |               | 4,264  |   |               |   | 4,008  |     |   |   | 8,272                                                         |   |   |   | 6,972 |   |   |   | 9,066 |   |
| Other                                       |   |               | 1,187  |   |               |   | 567    |     |   |   | 1,754                                                         |   |   |   | 1,308 |   |   |   | 2,243 |   |
| Total      net reserves                     |   |               | 55,258 |   |               |   | 33,096 |     |   |   | 88,354                                                        |   |   | $ | 78,154 |   |   | $ | 91,086 |   |
|                                        |   |               |   |   |               |   |   |     |   |   |                                                          |   |   |   |   |   |   |
| Reinsurance      recoverables               |   |               | 8,261  |   |               |   | 10,095 |     |   |   | 18,356                                                        |   |   |   |   |   |   |   |   |   |
| Gross      reserves                         |   | $                  | 63,519 |   |               | $      | 43,191 |     |   | $      | 106,710                                                       |   |   |   |   |   |   |   |   |   |

| As of December 31, 2008 |   |               |   |   |               |   |   |     |   |   |                                                          |   |
|---------------------------------------------|--------|--------------------|--------|--------|--------------------|--------|--------|----------|--------|--------|---------------------------------------------------------------|--------|
|                                        |   |               |   |   |               |   |   |     |   |   |                                                               |   |
|                                        |   |               |   |   |               |   |   | Total    |   |   | Actuarially Determined Range of Estimates |   |
|                                        |   | Case Reserves |   |   | IBNR Reserves |   |   | Reserves |   |   | Low                                                           |   |   | High |   |
| Commercial      auto liability              |   | $                  | 7,698  |   |               | $      | 4,214  |     |   | $      | 11,912                                                        |   |   | $ | 11,116 |   |   | $ | 12,404 |   |
| Workers’      compensation            |   |               | 11,108 |   |               |   | 4,489  |     |   |   | 15,597                                                        |   |   |   | 14,870 |   |   |   | 16,395 |   |
| Commercial      multi-peril                 |   |               | 16,696 |   |               |   | 6,381  |     |   |   | 23,077                                                        |   |   |   | 22,420 |   |   |   | 24,062 |   |
| Liability                                   |   |               | 9,840  |   |               |   | 7,689  |     |   |   | 17,529                                                        |   |   |   | 15,447 |   |   |   | 18,235 |   |
| Fire      & allied                      |   |               | 5,857  |   |               |   | 26     |     |   |   | 5,883                                                         |   |   |   | 5,837 |   |   |   | 5,883 |   |
| Assumed                                     |   |               | 5,027  |   |               |   | 4,517  |     |   |   | 9,544                                                         |   |   |   | 8,207 |   |   |   | 10,810 |   |
| Other                                       |   |               | 1,750  |   |               |   | 148    |     |   |   | 1,898                                                         |   |   |   | 1,524 |   |   |   | 2,369 |   |
| Total      net reserves                     |   |               | 57,976 |   |               |   | 27,464 |     |   |   | 85,440                                                        |   |   | $ | 79,421 |   |   | $ | 90,158 |   |
|                                        |   |               |   |   |               |   |   |     |   |   |                                                          |   |   |   |   |   |   |
| Reinsurance      recoverables               |   |               | 11,634 |   |               |   | 10,991 |     |   |   | 22,625                                                        |   |   |   |   |   |   |   |   |   |
| Gross      reserves                         |   | $                  | 69,610 |   |               | $      | 38,455 |     |   | $      | 108,065                                                       |   |   |   |   |   |   |   |   |   |

|                                        |   | 2003   |   |   | 2004   |   |   | 2005   |   |   | 2006   |   |   | 2007   |   |   | 2008   |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| As      originally estimated                |   | $      | 48,072 |   |   | $      | 55,804 |   |   | $      | 61,032 |   |   | $      | 69,316 |   |   | $      | 77,229 |   |   | $ | 85,440 |   |
| As      estimated at December 31, 2009 |   |   | 48,918 |   |   |   | 53,575 |   |   |   | 58,891 |   |   |   | 62,422 |   |   |   | 70,030 |   |   |   | 86,995 |   |
|                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      cumulative redundancy (deficiency) |   | $      | (846   | )      |   | $      | 2,229  |   |   | $      | 2,141  |   |   | $      | 6,894  |   |   | $      | 7,199 |   |   | $ | (1,555 | ) |
|                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| %      redundancy (deficiency)              |   |   | (1.8   | )%     |   |   | 4.0    | %      |   |   | 3.5    | %      |   |   | 9.9    | %      |   |   | 9.3 | % |   |   | (1.8 | )% |

----

| Reserve Range for Unpaid |   | Aggregate Loss and |   |   | Percentage Change  |   |
|-----------------------------------------|--------|------------------------------|--------|--------|-------------------------|--------|
| Losses and LAE                |   | LAE Reserve             |   |   | in Equity (1) |   |
| Low      End                            |   | $                            | 78,154 |   |                    |   | 6.7 | % |
| Recorded                                |   | $                            | 88,354 |   |                    |   | — |   |
| High      End                           |   | $                            | 91,086 |   |                    |   | (1.8 | )% |

----

|                                                                            |   | Less than 12 months |    |   | 12 months or longer |   |    | Total  |   |
|---------------------------------------------------------------------------------|--------|------------------------------------|---------|--------|------------------------------------|--------|---------|--------|--------|
|                                                                            |   | Fair                               |    |   | Unrealized                         |   |    | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
| Description of securities                                             |   | value                              |    |   | losses                             |   |    | value  |   |   | losses |   |   | value |   |   | losses |   |
|                                                                            |   |                               |    |   |                               |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December      31, 2009:                                                         |   |                               |    |   |                               |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agencies      not backed by the full faith and credit of the U.S.    government |   | $                                  | 5,965   |   |                               | $      | 30      |   |   | $ | — |   |   | $ | — |   |   | $ | 5,965 |   |   | $ | 30 |   |
| State      and political subdivisions                                           |   |                               | 5,021   |   |                               |   | 65      |   |   |   | 555 |   |   |   | 10 |   |   |   | 5,576 |   |   |   | 75 |   |
| Commercial      mortgage- backed securities                                     |   |                               | — |   |                               |   | — |   |   |   | 1,938 |   |   |   | 65 |   |   |   | 1,938 |   |   |   | 65 |   |
| Residential      mortgage-backed securities                                     |   |                               | 9,549   |   |                               |   | 149     |   |   |   | — |   |   |   | — |   |   |   | 9,549 |   |   |   | 149 |   |
| Corporate      securities                                                       |   |                               | 21,283  |   |                               |   | 179     |   |   |   | 3,471 |   |   |   | 63 |   |   |   | 24,754 |   |   |   | 242 |   |
|                                                                            |   |                               |    |   |                               |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      temporarily impaired securities                                      |   | $                                  | 41,818  |   |                               | $      | 423     |   |   | $ | 5,964 |   |   | $ | 138 |   |   | $ | 47,782 |   |   | $ | 561 |   |

----

|                                       |   | Less than 12 months |   |   | 12 months or longer |    |   | Total  |   |
|--------------------------------------------|--------|------------------------------------|--------|--------|------------------------------------|---------|--------|--------|--------|
|                                       |   | Fair                               |   |   | Unrealized                         |    |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
| Description of securities        |   | value                              |   |   | losses                             |    |   | value  |   |   | losses |   |   | value |   |   | losses |   |
|                                       |   |                               |   |   |                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December      31, 2008:                    |   |                               |   |   |                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State      and political subdivisions      |   | $                                  | 2,934  |   |                               | $       | 56     |   |   | $ | 515 |   |   | $ | 54 |   |   | $ | 3,449 |   |   | $ | 110 |   |
| Commercial      mortgage-backed securities |   |                               | 2,203  |   |                               |    | 297    |   |   |   | 1,645 |   |   |   | 373 |   |   |   | 3,848 |   |   |   | 670 |   |
| Corporate      securities                  |   |                               | 10,732 |   |                               |    | 1,008  |   |   |   | 9,907 |   |   |   | 1,083 |   |   |   | 20,639 |   |   |   | 2,091 |   |
| Total      temporarily impaired securities |   | $                                  | 15,869 |   |                               | $  | 1,361  |   |   | $  | 12,067 |   |   | $  | 1,510 |   |   | $  | 27,936 |   |   | $  | 2,871 |   |

----

|                                   |   | December 31, |   |
|----------------------------------------|--------|-------------------|--------|
|                                   |   | 2009              |   |   | 2008 |   |   | 2007 |   |
| Agribusiness      segment              |   |              |   |   |   |   |   |   |   |
| Deferred      policy acquisition costs |   | $                 | 6,386  |   |   | $ | 5,981 |   |   | $ | 6,429 |   |
| Unearned      premium reserves         |   | $                 | 28,727 |   |   | $ | 27,352 |   |   | $ | 27,552 |   |
|                                   |   |              |   |   |   |   |   |   |   |   |   |   |
| Commercial      business segment       |   |              |   |   |   |   |   |   |   |   |   |   |
| Deferred      policy acquisition costs |   | $                 | 3,665  |   |   | $ | 4,616 |   |   | $ | 4,579 |   |
| Unearned      premium reserves         |   | $                 | 14,577 |   |   | $ | 17,957 |   |   | $ | 19,021 |   |
|                                   |   |              |   |   |   |   |   |   |   |   |   |   |
| Other                                  |   |              |   |   |   |   |   |   |   |   |   |   |
| Deferred      policy acquisition costs |   | $                 | 2      |   |   | $ | 4 |   |   | $ | 6 |   |
| Unearned      premium reserves         |   | $                 | 9      |   |   | $ | 13 |   |   | $ | 22 |   |
|                                   |   |              |   |   |   |   |   |   |   |   |   |   |
| Total                                  |   |              |   |   |   |   |   |   |   |   |   |   |
| Deferred      policy acquisition costs |   | $                 | 10,053 |   |   | $ | 10,601 |   |   | $ | 11,014 |   |
| Unearned      premium reserves         |   | $                 | 43,313 |   |   | $ | 45,322 |   |   | $ | 46,595 |   |

----

----

|                                                                         |   | For the Years Ended |   |
|------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                         |   | December      31,                  |   |
|                                                                         |   | 2009                               |   |   | 2008 |   |   | 2007 |   |
| Revenues:                                                                    |   |                               |   |   |   |   |   |   |   |
| Premiums      earned:                                                        |   |                               |   |   |   |   |   |   |   |
| Agribusiness                                                                 |   | $                                  | 45,289 |   |   | $ | 45,298 |   |   | $ | 40,245 |   |
| Commercial      Business                                                     |   |                               | 28,961 |   |   |   | 31,805 |   |   |   | 29,260 |   |
| Other                                                                        |   |                               | 1,108  |   |   |   | 1,634 |   |   |   | 1,465 |   |
| Total      premiums earned                                                   |   |                               | 75,358 |   |   |   | 78,737 |   |   |   | 70,970 |   |
| Investment      income, net of investment expense                            |   |                               | 5,648  |   |   |   | 5,335 |   |   |   | 5,324 |   |
| Realized      investment gains (losses), net                                 |   |                               | 199    |   |   |   | (5,819 | ) |   |   | (702 | ) |
| Other      income                                                            |   |                               | 223    |   |   |   | 411 |   |   |   | 508 |   |
| Total      revenues                                                          |   | $                                  | 81,428 |   |   | $ | 78,664 |   |   | $ | 76,100 |   |
| Components      of net income (loss):                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
| Underwriting      (loss) income:                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
| Agribusiness                                                                 |   | $                                  | 1,985  |   |   | $ | 313 |   |   | $ | 441 |   |
| Commercial      Business                                                     |   |                               | (4,509 | ) |   |   | (5,046 | ) |   |   | (1,913 | ) |
| Other                                                                        |   |                               | 175    |   |   |   | 288 |   |   |   | (998 | ) |
| Total      underwriting losses                                               |   |                               | (2,349 | ) |   |   | (4,445 | ) |   |   | (2,470 | ) |
| Investment      income, net of investment expense                            |   |                               | 5,648  |   |   |   | 5,335 |   |   |   | 5,324 |   |
| Realized      investment gains, (losses), net                                |   |                               | 199    |   |   |   | (5,819 | ) |   |   | (702 | ) |
| Other      income                                                            |   |                               | 223    |   |   |   | 411 |   |   |   | 508 |   |
| Corporate      expense                                                       |   |                               | (429   | ) |   |   | (770 | ) |   |   | (506 | ) |
| Interest      expense                                                        |   |                               | (22    | ) |   |   | (184 | ) |   |   | (125 | ) |
| Other      expense, net                                                      |   |                               | (209   | ) |   |   | (365 | ) |   |   | (184 | ) |
| Income      (loss) from continuing operations, before incometaxes       |   |                               | 3,061  |   |   |   | (5,837 | ) |   |   | 1,845 |   |
| Income      tax (benefit) expense                                       |   |                               | (346   | ) |   |   | (1,378 | ) |   |   | 396 |   |
| Income      (loss) from continuing operations                           |   |                               | 3,407  |   |   |   | (4,459 | ) |   |   | 1,449 |   |
| Discontinued      operations:                                                |   |                               |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) from discontinued operations, before income    taxes |   |                               | 39     |   |   |   | (3,090 | ) |   |   | (489 | ) |
| Income      tax expense (benefit)                                            |   |                               | 879    |   |   |   | (170 | ) |   |   | (126 | ) |
| (Loss)      income from discontinued operations                         |   |                               | (840   | ) |   |   | (2,920 | ) |   |   | (363 | ) |
|                                                                         |   |                               |   |   |   |   |   |   |   |   |   |   |
| Net      income (loss)                                                       |   | $                                  | 2,567  |   |   | $ | (7,379 | ) |   | $ | 1,086 |   |
| GAAP      ratios:                                                            |   |                               |   |   |   |   |   |   |   |   |   |   |
|                                                                         |   |                               |   |   |   |   |   |   |   |   |   |   |
| Loss      and loss adjustment expense ratio                                  |   |                               | 70.0   | % |   |   | 72.9 | % |   |   | 70.1 | % |
| Underwriting      expense ratio                                              |   |                               | 33.1   | % |   |   | 32.8 | % |   |   | 33.3 | % |
| Combined      ratio                                                          |   |                               | 103.1  | % |   |   | 105.7 | % |   |   | 103.4 | % |

----

| Consolidated                          |   | 2009    |    |   | 2008   |   |    | 2007    |   |
|---------------------------------------|--------|---------|---------|--------|--------|--------|---------|---------|--------|
|                                  |   | Written |    |   | Earned |   |    | Written |   |   | Earned |   |   | Written |   |   | Earned |   |
| Direct                                |   | $       | 88,356  |   |   | $      | 90,331  |    |   | $ | 94,985 |   |   | $ | 96,239 |   |   | $ | 94,073 |   |   | $ | 90,796 |   |
| Assumed                               |   |    | 873     |   |   |   | 876     |    |   |   | 1,379 |   |   |   | 1,387 |   |   |   | 1,203 |   |   |   | 1,215 |   |
|                                  |   |    |    |   |   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ceded      – Stop loss contract |   |    | 1,717   |   |   |   | 1,717   |    |   |   | (3,322 | ) |   |   | (3,322 | ) |   |   | — |   |   |   | — |   |
| Ceded      – All other          |   |    | (17,300 | )      |   |   | (17,566 | )       |   |   | (15,675 | ) |   |   | (15,567 | ) |   |   | (21,157 | ) |   |   | (21,041 | ) |
| Net                                   |   | $       | 73,646  |   |   | $      | 75,358  |    |   | $ | 77,367 |   |   | $ | 78,737 |   |   | $ | 74,119 |   |   | $ | 70,970 |   |

|   | § | Consolidated      direct premiums earned declined $5,908 primarily from a decline in direct      premiums earned in our commercial business segment of $5,675. This decline      primarily resulted from our decision to withdraw from certain unprofitable      classes of business and terminate relationships with several      underperforming producers. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | § | According to our      stop loss contract with our reinsurers, if losses are ceded additional      ceded premiums are accrued at 20% of the ceded losses. In 2008, an      unusually high level of property losses, both catastrophe and      non-catastrophe related, resulted in losses and additional reinsurance      premiums being ceded to the reinsurers under the stop loss contract. As a      result of the loss recoverable under the stop loss contract, we recorded      $3,322 of ceded premium under the stop loss for  2008. |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | The      stop loss reinsurance contract contains a profit sharing provision such      that if the net profit to the reinsurers for 2008 and 2009 combined      exceeds approximately $1,605, any profit above that amount will be      returned to us provided that on or before January 1, 2015 we agree to a      commutation whereby the reinsurers are released from any and all past,      current and future liabilities under the stop loss contract. At December      31, 2009, profit to the reinsurers under the stop loss reinsurance      contract for 2008 and 2009 combined is estimated to be $2,004.      Accordingly, we have accrued a profit sharing refund of $399 at December      31, 2009. The accounting for this anticipated profit sharing and      commutation reverses the losses and additional premiums ceded recorded in      2008 and accrues the profit sharing as reduced ceded premiums in 2009. The      effect on ceded written and earned premiums related to the stop loss in      2009 is to have cumulative ceded premiums under the contract equal the      $1,605 maximum profit to the reinsurers under the commutation. For      additional information concerning the stop loss reinsurance contract,      see Item 1 - “Business –      Reinsurance.” |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | § | Increases      in ceded premiums written of $1,625 on our underlying reinsurance      program are due to decreased retentions and increased rates in 2009.      Excess of loss ceded premiums written and earned in our agribusiness      segment increased $1,774 in 2009 compared to  2008. |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | o | In      2009, we lowered our participation rate on our per-risk reinsurance      treaty: |
|--|---|------------------------------------------------------------------------------------------|

|  | · | Losses      between $500 and $1,000 are retained at 52.5% in 2009 versus our 75%      retention rate in 2008. |
|--|--------|---------------------------------------------------------------------------------------------------------------|

|  | · | Losses      between $1,000 million and $5,000 are retained at 0% in 2009 versus      our 25% retention rate in2008. |
|--|--------|--------------------------------------------------------------------------------------------------------------------------|

|  | § | Increases      in direct premiums written during 2007 and 2008 from growth which was      partially offset by: |
|--|--------|----------------------------------------------------------------------------------------------------------------|

|  | § | Ceded      premiums earned under the stop loss reinsurance contract for 2008 of      $3,322; |
|--|--------|----------------------------------------------------------------------------------------------|

|   | § | And offset by a decrease in all other ceded premiums      earned of approximately $5,474 in 2008 compared to 2007, primarily from a      change in our reinsurance program for 2008 whereby we retained more of our      losses above $500 and reduced our cededpremiums. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                |   | For the Years Ended |    |
|---------------------------------------------------------------------|--------|------------------------------------|---------|
|                                                                |   | December 31,                  |    |
|                                                                |   | 2009 (1)                           |    |   | 2008 |   |   | 2007 |   |
| Average      cash and invested assets                               |   | $                                  | 147,425 |   |   | $ | 135,093 |   |   | $ | 131,484 |   |
| Pre-tax      net investment income                                  |   |                               | 5,648   |   |   |   | 5,335 |   |   |   | 5,324 |   |
| Average      pre-tax return on average cash and invested assets (1) |   |                               | 3.8     | % |   |   | 3.9 | % |   |   | 4.0 | % |

| (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. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                               |   | For the Years Ended |   |
|------------------------------------|--------|------------------------------------|--------|
| Consolidated                       |   | December 31,                  |   |
|                               |   |                               |   |   |   |   |   |   |   |
|                               |   | 2009                               |   |   | 2008 |   |   | 2007 |   |
|                               |   |                               |   |   |   |   |   |   |   |
| Net      premiums earned           |   | $                                  | 75,358 |   |   | $ | 78,737 |   |   | $ | 70,970 |   |
|                               |   |                               |   |   |   |   |   |   |   |   |   |   |
| Incurred      losses and LAE:      |   |                               |   |   |   |   |   |   |   |   |   |   |
| Losses                             |   | $                                  | 49,220 |   |   | $ | 62,022 |   |   | $ | 52,435 |   |
| Catastrophe      losses            |   |                               | 1,979  |   |   |   | 4,882 |   |   |   | 1,986 |   |
| Stop      loss ceded               |   |                               | 4,292  |   |   |   | (4,292 | ) |   |   | - |   |
| Prior      year development (1)    |   |                               | (2,737 | ) |   |   | (5,222 | ) |   |   | (4,638 | ) |
| Total      incurred losses and LAE |   | $                                  | 52,754 |   |   | $ | 57,390 |   |   | $ | 49,783 |   |
|                               |   |                               |   |   |   |   |   |   |   |   |   |   |
| Loss      and LAE ratios:          |   |                               |   |   |   |   |   |   |   |   |   |   |
| Losses                             |   |                               | 65.3   | % |   |   | 78.8 | % |   |   | 73.8 | % |
| Catastrophe      losses            |   |                               | 2.6    | % |   |   | 6.2 | % |   |   | 2.8 | % |
| Stop      loss ceded               |   |                               | 5.7    | % |   |   | (5.5 | )% |   |   | 0.0 | % |
| Prior      year development (1)    |   |                               | (3.6   | )% |   |   | (6.6 | )% |   |   | (6.5 | )% |
| Total      Loss and LAE ratio      |   |                               | 70.0   | % |   |   | 72.9 | % |   |   | 70.1 | % |

|  | (1) | 2009      Prior year development excludes the impact of the stop loss      reversal. |
|--|-----|--------------------------------------------------------------------------------------|

|   | § | The      decrease in total losses and LAE in 2009 as compared to 2008 of $4,636 is      primarily due to a significantly lower level of large loss activity in      2009, particularly as it relates to property losses. In addition to      reduced severity, we observed some moderate declines in new claim      frequency in 2009. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | This      lower level of claim activity included a decline in catastrophe losses of      $2,903 in 2009 compared to 2008. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------|

|   | § | Favorable      loss development in the fire and allied (approximately $1,659) resulting      from favorable settlements on prior years’  claims. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Favorable      loss development in the commercial multi-peril (approximately $1,812)      lines attributable to lower level emergence of incurred losses, relative      to expectations, for the 2007 and 2008 accident  years. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | The      favorable development in these lines was partly offset by unfavorable      development of approximately $1,501 in our workers’ compensation line due      to a higher level of incurred loss emergence relative to expectations for      the 2008 and 2007 accident years. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Higher      catastrophe losses of $4,882 for 2008, compared to $1,986 for      2007; |
|--------|--------|--------------------------------------------------------------------------------------|

|   | § | Increases      in other non-catastrophe property losses and increased automobile and      liability losses; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | § | Our      higher reinsurance retention, which led to more retained      losses. |
|--------|--------|--------------------------------------------------------------------------------|

----

|   | § | Favorable      loss development in the fire and allied line of $2,229 resulting from      prior years’ claims settling for less than originally estimated. Many of      our policies have high property exposures for which reported claims often      require an extended amount of time to evaluate the claim due to the      complexity in determining the value of the building and contents      loss; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Favorable      development in our workers’ compensation line of $1,652 due to the      general observation of declines in claims severity on prior accident      years; and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Favorable      development of $1,124 in our commercial lines of business due to the      general observation of declines in claims severity on prior accident      years. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | In      2008, the retentions on our excess of loss reinsurance program were      significantly higher than they are in 2009. The lower amount paid for      reinsurance in 2008 allowed us to retain more earned premium, which led to      a lower underwriting expense ratio in2008. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | In      2009, 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, with partially      offsetting lower loss and LAEratios. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Total      underwriting and administrative expenses, including amortization of      deferred policy acquisition costs, was $25,382 for the year ended 2009 and      $26,562 for the year ended 2008. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Amortization      of deferred policy acquisition costs decreased $1,698 for 2009 as compared      to 2008, as a result of the previously described decrease in earned      premiums. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Underwriting      and administrative expenses increased $518 primarily from increased      compliance costs in preparing to become a public company and increased      employee incentive costs based on company  results. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Total      underwriting and administrative expenses, including amortization of      deferred policy acquisition costs, increased $2,399 in 2008; 9.9% higher      than in 2007. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | This      increase is the result of a $1,151 increase in amortization of deferred      policy acquisition costs resulting from a 6.0% increase in direct premiums      earned and an increase in underwriting and administrative expense of      $1,248 primarily from product development costs incurred in 2008      associated with the roll-out of our PennEdge product in early      2009. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Interest      expense was $22 for the year ended 2009, as compared to $184 for the year      ended 2008. The decrease of $162 for the period is primarily due to the      2009 reversal of interest expense on our aggregate stop loss reinsurance      contract. For additional information concerning the stop loss reinsurance      contract, see Item 1 -      “Business – Reinsurance.” |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Interest      expense for the year ended 2008 was $184 compared to $125 for the year      ended 2007. The increase was primarily due to accrued interest on funds      withheld related to the aggregate stop loss reinsurance contract, which we      entered into effective January 1,2008. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | § | Other      expense was $209 for the year ended 2009 and $365 for the year ended 2008.      The decrease of $156 for the period is due primarily to higher levels of      write-offs and aging of receivables in 2008 as compared to 2009, the      positive impact of which we attribute to our decision to withdraw from      certain unprofitable classes ofbusiness. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Other      expense increased $181 in 2008 as compared to 2007, primarily due to      increased write-offs and aging ofreceivables. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Realized      losses of $5,819 recognized in 2008, resulting from an      other-than-temporary impairment charge of $2,922 on our equity portfolio      and losses on sales of equity investments of  $2,827; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Lower      losses and LAE in 2009 from a significantly lower level of large losses,      particularly relating to property losses. In addition to reduced severity,      we observed some moderate declines in new claim frequency in 2009. There      was a decline in catastrophe losses in 2009 compared to    2008. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | The      favorable effects of these items were offset by the reversal of our stop      loss on ceded losses in 2009. The net cost of the stop loss contract in      2009 was $2,489, as compared to a net benefit of $884 in    2008. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | § | For      the year ended 2009, the income tax benefit for continuing operations was      $346, or an effective rate of (11.3)%. The 2009 provision for income taxes      includes a reversal of our deferred tax valuation reserve of $1,026 from      2008, as we have determined that it is more likely than not that we will      be able to realize the full benefit of our deferred tax assets related to      our capital losses. |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | For      the year ended 2008, the income tax benefit for continuing operations was      $1,378 of income tax benefit, or an effective rate of 23.6%, compared to      $396 of income tax expense, or an effective rate of 21.5% for the year      ended 2007. The 2008 provision for income taxes included expense      associated with a valuation reserve of $1,026 attributable to our capital      losses for which it was considered at that time to be more likely than not      that we would not realize a taxbenefit. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | For      the year ended 2009, the net loss from discontinued operations of $840      includes a provision for income taxes of $879, the majority of which      represents state and federal income tax expense from the sale of the net      assets of Eastern Insurance Group whose book basis exceeded their tax      basis. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | For      the year ended 2008, the net loss from discontinued operations includes a      goodwill impairment charge related to Eastern insurance Group of $2,600      after-tax. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | For      the year ended 2007, the net loss from discontinued operations of $363      included an after-tax charge of $438 for executive severance related to      the agency operations, and an after-tax goodwill impairment of $106 for      Penn Software. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Lower      realized investment losses in 2009 as compared to 2008 of      $6,018; |
|--------|--------|-----------------------------------------------------------------------------------|

|   | § | A      lower net loss from discontinued operations of  $2,080; |
|--------|--------|----------------------------------------------------------------|

|   | § | Lower      losses and LAE in 2009 of $4,636; |
|--------|--------|----------------------------------------------|

|   | § | Lower      amortization of deferred policy acquisition costs of    $1,698; |
|--------|--------|----------------------------------------------------------------------------|

----

|   | § | A      favorable tax benefit of $1,026 recorded in  2009; |
|--------|--------|-----------------------------------------------------------|

|   | § | The      favorable items listed above were offset by lower earned premium in 2009      of $3,379. |
|--------|--------|---------------------------------------------------------------------------------------------------|

|   | § | The      change in net realized investment gains (losses) of    $(5,117); |
|--------|--------|---------------------------------------------------------------------------|

|   | § | An      increase in our losses and loss adjustment expenses of    $7,607; |
|--------|--------|---------------------------------------------------------------------------|

|   | § | The      loss from discontinued operations of $2,920 in  2008; |
|--------|--------|----------------------------------------------------------------|

|   | § | The      amounts listed above were partially offset by increased earned premium in      2008 compared to 2007 of $7,767. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|                               |   | For the Years Ended December 31, |   |
|------------------------------------|--------|-----------------------------------------------------------|--------|
|                               |   | 2009                                                      |   |   | 2008 |   |   | 2007 |   |
|                               |   |                                                      |   |   |   |   |   |   |   |
| Direct      premiums written       |   | $                                                         | 58,675 |   |   | $ | 57,281 |   |   | $ | 55,965 |   |
| Net      premiums written          |   |                                                      | 46,787 |   |   |   | 45,110 |   |   |   | 41,402 |   |
|                               |   |                                                      |   |   |   |   |   |   |   |   |   |   |
| Revenues:                          |   |                                                      |   |   |   |   |   |   |   |   |   |   |
| Net      premiums earned           |   | $                                                         | 45,289 |   |   | $ | 45,298 |   |   | $ | 40,245 |   |
| Other      income                  |   |                                                      | 31     |   |   |   | 182 |   |   |   | 245 |   |
| Total revenues(1)                  |   | $                                                         | 45,320 |   |   |   | 45,480 |   |   |   | 40,490 |   |
|                               |   |                                                      |   |   |   |   |   |   |   |   |   |   |
| Operating      income (loss):      |   |                                                      |   |   |   |   |   |   |   |   |   |   |
| Underwriting      income           |   | $                                                         | 1,985  |   |   | $ | 313 |   |   | $ | 441 |   |
| Other      income                  |   |                                                      | 31     |   |   |   | 182 |   |   |   | 245 |   |
| Interest      & other expenses |   |                                                      | (35    | ) |   |   | (202 | ) |   |   | (77 | ) |
|                               |   |                                                      |   |   |   |   |   |   |   |   |   |   |
| Total      operating income        |   | $                                                         | 1,981  |   |   | $ | 293 |   |   | $ | 609 |   |
|                               |   |                                                      |   |   |   |   |   |   |   |   |   |   |
| Loss      and loss expense ratio   |   |                                                      | 65.5   | % |   |   | 68.7 | % |   |   | 67.9 | % |
| Underwriting      expense ratio    |   |                                                      | 30.1   | % |   |   | 30.6 | % |   |   | 31.0 | % |
| GAAP      combined ratio           |   |                                                      | 95.6   | % |   |   | 99.3 | % |   |   | 98.9 | % |

| (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. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Agribusiness                          |   | 2009    |    |   | 2008   |   |    | 2007    |   |
|---------------------------------------|--------|---------|---------|--------|--------|--------|---------|---------|--------|
|                                  |   | Written |    |   | Earned |   |    | Written |   |   | Earned |   |   | Written |   |   | Earned |   |
| Direct                                |   | $       | 58,675  |   |   | $      | 57,280  |    |   | $ | 57,281 |   |   | $ | 57,500 |   |   | $ | 55,965 |   |   | $ | 55,076 |   |
| Ceded      – Stop Loss Contract |   |    | 615     |   |   |   | 615     |    |   |   | (1,548 | ) |   |   | (1,548 | ) |   |   | — |   |   |   | — |   |
| Ceded      – All other          |   |    | (12,503 | )      |   |   | (12,606 | )       |   |   | (10,623 | ) |   |   | (10,654 | ) |   |   | (14,563 | ) |   |   | (14,831 | ) |
|                                  |   |    |    |   |   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                                   |   | $       | 46,787  |   |   | $      | 45,289  |    |   | $ | 45,110 |   |   | $ | 45,298 |   |   | $ | 41,402 |   |   | $ | 40,245 |   |

----

|                               |   | For the Years Ended |   |
|------------------------------------|--------|------------------------------------|--------|
| Agribusiness                       |   | December 31,                  |   |
|                               |   |                               |   |   |   |   |   |   |   |
|                               |   | 2009                               |   |   | 2008 |   |   | 2007 |   |
|                               |   |                               |   |   |   |   |   |   |   |
| Net      premiums earned           |   | $                                  | 45,289 |   |   | $ | 45,298 |   |   | $ | 40,245 |   |
|                               |   |                               |   |   |   |   |   |   |   |   |   |   |
| Incurred      losses and LAE:      |   |                               |   |   |   |   |   |   |   |   |   |   |
| Losses                             |   | $                                  | 29,843 |   |   | $ | 32,023 |   |   | $ | 29,968 |   |
| Catastrophe      losses            |   |                               | 1,758  |   |   |   | 4,485 |   |   |   | 1,609 |   |
| Stop      loss ceded               |   |                               | 568    |   |   |   | (568 | ) |   |   | - |   |
| Prior      year development (1)    |   |                               | (2,515 | ) |   |   | (4,803 | ) |   |   | (4,264 | ) |
| Total      incurred losses and LAE |   | $                                  | 29,654 |   |   | $ | 31,137 |   |   | $ | 27,313 |   |
|                               |   |                               |   |   |   |   |   |   |   |   |   |   |
| Loss      and LAE ratios:          |   |                               |   |   |   |   |   |   |   |   |   |   |
| Losses                             |   |                               | 65.9   | % |   |   | 70.7 | % |   |   | 74.5 | % |
| Catastrophe      losses            |   |                               | 3.9    | % |   |   | 9.9 | % |   |   | 4.0 | % |
| Stop      loss ceded               |   |                               | 1.3    | % |   |   | (1.4 | )% |   |   | 0.0 | % |
| Prior      year development (1)    |   |                               | (5.6   | )% |   |   | (10.6 | )% |   |   | (10.6 | )% |
| Total      Loss and LAE ratio      |   |                               | 65.5   | % |   |   | 68.7 | % |   |   | 67.9 | % |

|   | (1) | 2009      prior year development excludes the impact of the stop loss      reversal. |
|--------|-----|--------------------------------------------------------------------------------------|

|   | · | $2,727      of lower incurred catastrophe losses in 2009, which were partially offset      by a lower level of favorable prior year development in 2009 as compared      to 2008 of $2,856 (excluding the impact of the stop loss reversal on      ceded losses). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      reversal of the stop loss in the third quarter of 2009 resulted in $568 of      ceded incurred losses being reversed for the agribusiness segment,      compared to ceded losses incurred of $568 that were recognized in 2008.      For additional information concerning the stop loss reinsurance contract,      see Item 1 - “Business –      Reinsurance.” |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                          |   | For the Years Ended |   |
|-----------------------------------------------|--------|------------------------------------|--------|
| Agribusiness                                  |   | December 31,                  |   |
|                                          |   | 2009                               |   |   | 2008 |   |   | 2007 |   |
| Direct      Premiums Written:                 |   |                               |   |   |   |   |   |   |   |
| Property                                      |   | $                                  | 21,394 |   |   | $ | 20,831 |   |   | $ | 20,263 |   |
| Commercial      Auto                          |   |                               | 13,025 |   |   |   | 12,919 |   |   |   | 14,055 |   |
| Liability                                     |   |                               | 10,595 |   |   |   | 9,615 |   |   |   | 8,635 |   |
| Workers’      Compensation              |   |                               | 7,950  |   |   |   | 8,064 |   |   |   | 7,394 |   |
| Other                                         |   |                               | 5,711  |   |   |   | 5,852 |   |   |   | 5,618 |   |
| Total                                         |   | $                                  | 58,675 |   |   | $ | 57,281 |   |   | $ | 55,965 |   |
|                                          |   |                               |   |   |   |   |   |   |   |   |   |   |
| Net      Premiums Earned:                     |   |                               |   |   |   |   |   |   |   |   |   |   |
| Property                                      |   | $                                  | 16,546 |   |   | $ | 16,412 |   |   | $ | 13,772 |   |
| Commercial      Auto                          |   |                               | 11,632 |   |   |   | 12,119 |   |   |   | 11,859 |   |
| Liability                                     |   |                               | 9,196  |   |   |   | 8,795 |   |   |   | 7,540 |   |
| Workers’      Compensation              |   |                               | 7,238  |   |   |   | 7,310 |   |   |   | 6,394 |   |
| Other                                         |   |                               | 677    |   |   |   | 662 |   |   |   | 680 |   |
| Total                                         |   | $                                  | 45,289 |   |   | $ | 45,298 |   |   | $ | 40,245 |   |
|                                          |   |                               |   |   |   |   |   |   |   |   |   |   |
| Loss      and Loss Adjustment Expense Ratios: |   |                               |   |   |   |   |   |   |   |   |   |   |
| Property                                      |   |                               | 70.8   | % |   |   | 86.1 | % |   |   | 84.9 | % |
| Commercial      Auto                          |   |                               | 72.8   | % |   |   | 41.9 | % |   |   | 48.5 | % |
| Liability                                     |   |                               | 52.3   | % |   |   | 90.1 | % |   |   | 102.6 | % |
| Workers’      Compensation              |   |                               | 63.3   | % |   |   | 51.4 | % |   |   | 54.2 | % |
| Other                                         |   |                               | 11.2   | % |   |   | 37.7 | % |   |   | (196.2 | )% |
| Total                                         |   |                               | 65.5   | % |   |   | 68.7 | % |   |   | 67.9 | % |

----

|                                        |   | For the Years Ended |   |
|---------------------------------------------|--------|------------------------------------|--------|
|                                        |   | December 31,                  |   |
|                                        |   | 2009                               |   |   | 2008 |   |   | 2007 |   |
|                                        |   |                               |   |   |   |   |   |   |   |
| Direct      premiums written                |   | $                                  | 29,449 |   |   | $ | 37,458 |   |   | $ | 37,860 |   |
| Net      premiums written                   |   |                               | 25,754 |   |   |   | 30,632 |   |   |   | 31,266 |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
| Revenues:                                   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Net      premiums earned                    |   | $                                  | 28,961 |   |   | $ | 31,805 |   |   | $ | 29,260 |   |
| Other      income                           |   |                               | 189    |   |   |   | 229 |   |   |   | 263 |   |
| Total      revenues (1)                     |   | $                                  | 29,150 |   |   | $ | 32,034 |   |   | $ | 29,523 |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
| Operating      income (loss):               |   |                               |   |   |   |   |   |   |   |   |   |   |
| Underwriting      (loss)                    |   | $                                  | (4,509 | ) |   | $ | (5,046 | ) |   | $ | (1,913 | ) |
| Other      income                           |   |                               | 189    |   |   |   | 229 |   |   |   | 263 |   |
| Interest      & other expenses          |   |                               | (118   | ) |   |   | (247 | ) |   |   | (113 | ) |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
| Operating      (loss)                       |   | $                                  | (4,438 | ) |   | $ | (5,064 | ) |   | $ | (1,763 | ) |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
| Loss      and loss adjustment expense ratio |   |                               | 78.4   | % |   |   | 80.1 | % |   |   | 70.3 | % |
| Underwriting      expense ratio             |   |                               | 37.2   | % |   |   | 35.8 | % |   |   | 36.2 | % |
| GAAP      Combined ratio                    |   |                               | 115.6  | % |   |   | 115.9 | % |   |   | 106.5 | % |

| (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. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Commercial Business              |   | 2009    |   |   | 2008   |   |   | 2007    |   |
|---------------------------------------|--------|---------|--------|--------|--------|--------|--------|---------|--------|
|                                  |   | Written |   |   | Earned |   |   | Written |   |   | Earned |   |   | Written |   |   | Earned |   |
| Direct                                |   | $       | 29,449 |   |   | $      | 32,819 |    |   | $ | 37,458 |   |   | $ | 38,494 |   |   | $ | 37,860 |   |   | $ | 35,471 |   |
| Ceded      – Stop Loss Contract |   |    | 1,102  |   |   |   | 1,102  |    |   |   | (1,774 | ) |   |   | (1,774 | ) |   |   | — |   |   |   | — |   |
| Ceded      – All other          |   |    | (4,797 | )      |   |   | (4,960 | )       |   |   | (5,053 | ) |   |   | (4,915 | ) |   |   | (6,594 | ) |   |   | (6,211 | ) |
|                                  |   |    |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                                   |   | $       | 25,754 |   |   | $      | 28,961 |    |   | $ | 30,632 |   |   | $ | 31,805 |   |   | $ | 31,266 |   |   | $ | 29,260 |   |

|   | § | The      commercial insurance marketplace has been very competitive during the last      three years, putting pressure on pricing. Our focus on underwriting      discipline and rate adequacy in the midst of this soft market has made      growth challenging at times; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | We      have elected to withdraw from certain unprofitable classes of business and      terminate relationships with several underperforming      producers; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | These      unfavorable items were partially offset by the reversal of the stop loss      reinsurance contract that reduced ceded premiums for 2009 by $1,102. In      2008, there were ceded premiums of $1,774 recognized, as the commercial      business segment ceded losses under the stop loss. For additional      information concerning the stop loss reinsurance contract, see Item 1 “Business –      Reinsurance.” |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                               |   | For the Years Ended |   |
|------------------------------------|--------|------------------------------------|--------|
| Commercial Business           |   | December 31,                  |   |
|                               |   |                               |   |   |   |   |   |   |   |
|                               |   | 2009                               |   |   | 2008 |   |   | 2007 |   |
|                               |   |                               |   |   |   |   |   |   |   |
| Net      premiums earned           |   | $                                  | 28,961 |   |   | $ | 31,805 |   |   | $ | 29,260 |   |
|                               |   |                               |   |   |   |   |   |   |   |   |   |   |
| Incurred      losses and LAE:      |   |                               |   |   |   |   |   |   |   |   |   |   |
| Losses                             |   | $                                  | 18,427 |   |   | $ | 28,924 |   |   | $ | 21,023 |   |
| Catastrophe      losses            |   |                               | 221    |   |   |   | 397 |   |   |   | 377 |   |
| Stop      loss ceded               |   |                               | 3,724  |   |   |   | (3,724 | ) |   |   | - |   |
| Prior      year development (1)    |   |                               | 323    |   |   |   | (117 | ) |   |   | (830 | ) |
| Total      incurred losses and LAE |   | $                                  | 22,695 |   |   | $ | 25,480 |   |   | $ | 20,570 |   |
|                               |   |                               |   |   |   |   |   |   |   |   |   |   |
| Loss      and LAE ratios:          |   |                               |   |   |   |   |   |   |   |   |   |   |
| Losses                             |   |                               | 63.6   | % |   |   | 90.9 | % |   |   | 71.8 | % |
| Catastrophe      losses            |   |                               | 0.8    | % |   |   | 1.2 | % |   |   | 1.3 | % |
| Stop      loss ceded               |   |                               | 12.9   | % |   |   | (11.7 | )% |   |   | 0.0 | % |
| Prior      year development (1)    |   |                               | 1.1    | % |   |   | (0.4 | )% |   |   | (2.8 | )% |
| Total      Loss and LAE ratio      |   |                               | 78.4   | % |   |   | 80.1 | % |   |   | 70.3 | % |

|   | (1) | 2009      prior year development excludes the impact of the stop loss      reversal. |
|--------|-----|--------------------------------------------------------------------------------------|

|   | § | Slightly      lower catastrophic losses were offset by the reversal of the stop loss in      the third quarter of 2009 that resulted in $3,724 of ceded incurred losses      being reversed for the commercial business segment, compared to ceded      losses incurred of $3,724 that were recognized in 2008. For additional      information concerning the stop loss reinsurance contract, see the Item 1 - “Business –      Reinsurance.” |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Excluding      the impact of this stop loss variance of $7,448, total incurred losses and      LAE declined by $10,233 during 2009 compared to  2008. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | This      decrease is primarily attributable to the strategic decision to terminate      relationships with unprofitable producers and to stop writing unprofitable      classes of business, and overall lower severity of large losses in 2009      compared to 2008. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | This decrease      is partly offset by a $440 increase in prior year development (excluding      the impact of the stop loss reversal).We have experienced a modest level      of unfavorable development of $323 in this segment in 2009 compared to      favorable prior year development of $117 experienced in    2008. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | The      increase in losses and LAE is due to increases in non-catastrophe property      losses, increased automobile and workers compensation    losses; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Increase      in the reinsurance retention for 2008;and |
|--------|--------|---------------------------------------------------------|

|   | § | Favorable      prior year losses and loss expense development of approximately $117 in      2008, compared to approximately $830 of favorable development in      2007. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                     |   | For the Years Ended |   |
|----------------------------------------------------------|--------|------------------------------------|--------|
| Commercial Business                                 |   | December 31,                  |   |
|                                                     |   | 2009                               |   |   | 2008 |   |   | 2007 |   |
| Direct      Premiums Written:                            |   |                               |   |   |   |   |   |   |   |
| Property      & Liability                            |   | $                                  | 16,453 |   |   | $ | 21,056 |   |   | $ | 22,474 |   |
| Workers’      Compensation                         |   |                               | 5,465  |   |   |   | 8,031 |   |   |   | 7,716 |   |
| Commercial      Auto                                     |   |                               | 4,560  |   |   |   | 5,068 |   |   |   | 4,914 |   |
| Other                                                    |   |                               | 2,971  |   |   |   | 3,303 |   |   |   | 2,756 |   |
| Total                                                    |   | $                                  | 29,449 |   |   | $ | 37,458 |   |   | $ | 37,860 |   |
|                                                     |   |                               |   |   |   |   |   |   |   |   |   |   |
| Net      Premiums Earned:                                |   |                               |   |   |   |   |   |   |   |   |   |   |
| Property      & Liability                            |   | $                                  | 17,731 |   |   | $ | 19,428 |   |   | $ | 18,301 |   |
| Workers’      Compensation                         |   |                               | 6,235  |   |   |   | 7,451 |   |   |   | 6,524 |   |
| Commercial      Auto                                     |   |                               | 4,746  |   |   |   | 4,659 |   |   |   | 4,194 |   |
| Other                                                    |   |                               | 249    |   |   |   | 267 |   |   |   | 241 |   |
| Total                                                    |   | $                                  | 28,961 |   |   | $ | 31,805 |   |   | $ | 29,260 |   |
|                                                     |   |                               |   |   |   |   |   |   |   |   |   |   |
| Loss      and Loss Adjustment Expense  Ratios: |   |                               |   |   |   |   |   |   |   |   |   |   |
| Property      & Liability                            |   |                               | 63.7   | % |   |   | 99.0 | % |   |   | 87.0 | % |
| Workers’      Compensation                         |   |                               | 136.7  | % |   |   | 54.5 | % |   |   | 37.1 | % |
| Commercial      Auto                                     |   |                               | 61.3   | % |   |   | 45.9 | % |   |   | 54.9 | % |
| Other                                                    |   |                               | (10.3  | )% |   |   | 17.2 | % |   |   | (35.3 | )% |
| Total                                                    |   |                               | 78.4   | % |   |   | 80.1 | % |   |   | 70.3 | % |

----

|                                        |   | For the Years Ended |   |
|---------------------------------------------|--------|------------------------------------|--------|
| Other                                       |   | December 31,                  |   |
|                                        |   | 2009                               |   |   | 2008 |   |   | 2007 |   |
|                                        |   |                               |   |   |   |   |   |   |   |
| Assumed      premiums written               |   | $                                  | 1,105  |   |   | $ | 1,625 |   |   | $ | 1,451 |   |
| Net      premiums written                   |   |                               | 1,105  |   |   |   | 1,625 |   |   |   | 1,451 |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
| Revenues:                                   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Net      premiums earned                    |   | $                                  | 1,108  |   |   | $ | 1,634 |   |   | $ | 1,465 |   |
| Total      revenues                         |   | $                                  | 1,108  |   |   | $ | 1,634 |   |   | $ | 1,465 |   |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
| Underwriting      income/(loss)             |   | $                                  | 175    |   |   | $ | 288 |   |   | $ | (998 | ) |
| Operating      income/(loss)                |   | $                                  | 175    |   |   | $ | 288 |   |   | $ | (998 | ) |
|                                        |   |                               |   |   |   |   |   |   |   |   |   |   |
| Loss      and loss adjustment expense ratio |   |                               | 36.6   | % |   |   | 47.3 | % |   |   | 129.7 | % |
| Underwriting      expense ratio             |   |                               | 47.7   | % |   |   | 35.1 | % |   |   | 38.4 | % |
| GAAP      Combined ratio                    |   |                               | 84.3   | % |   |   | 82.4 | % |   |   | 168.1 | % |

|                                              |   | For the Years Ended |   |
|---------------------------------------------------|--------|------------------------------------|--------|
|                                              |   | December 31,                  |   |
|                                              |   | 2009                               |   |   | 2008 |   |   | 2007 |   |
|                                              |   |                               |   |   |   |   |   |   |   |
| Mandatory      Assumed Reinsurance                |   | $                                  | 203    |   |   | $ | 239 |   |   | $ | 95 |   |
| Personal      Lines — runoff                |   |                               | 177    |   |   |   | 335 |   |   |   | (94 | ) |
| Voluntary      Assumed Reinsurance — runoff |   |                               | (205   | ) |   |   | (286 | ) |   |   | (999 | ) |
| Total      operating income (loss)                |   | $                                  | 175    |   |   | $ | 288 |   |   | $ | (998 | ) |

----

|                                                           |   | For the Years Ended |    |
|----------------------------------------------------------------|--------|------------------------------------|---------|
|                                                           |   | December 31,                  |    |
|                                                           |   | 2009                               |    |   | 2008 |   |   | 2007 |   |
| Cash      flows provided by operating activities               |   | $                                  | 6,280   |   |   | $ | 7,383 |   |   | $ | 11,017 |   |
| Cash      flows used in investing activities                   |   |                               | (39,087 | ) |   |   | (5,702 | ) |   |   | (13,373 | ) |
| Cash      flows provided by (used in) financing activities     |   |                               | 41,068  |   |   |   | 144 |   |   |   | (562 | ) |
| Net      increase (decrease) in cash and cash equivalents |   | $                                  | 8,261   |   |   | $ | 1,825 |   |   | $ | (2,918 | ) |

----

----

|                                                               |   | Payments due by period |    |
|--------------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                               |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Contractual                                                        |   |                                  |    |   | Less than |   |   |   |   |   |   |   |   | More than |   |
| Obligations                                                        |   | Total                                 |    |   | 1 year |   |   | 1-3 years |   |   | 3-5 years |   |   | 5 years |   |
| Estimated      gross losses & loss adjustment expense payments |   | $                                     | 106,710 |   |   | $ | 36,281 |   |   | $ | 49,087 |   |   | $ | 12,805 |   |   | $ | 8,537 |   |
| Defined      benefit plan obligations                              |   |                                  | 9,059   |   |   |   | 242 |   |   |   | 1,339 |   |   |   | 705 |   |   |   | 6,773 |   |
| Operating      lease obligations                                   |   |                                  | 225     |   |   |   | 98 |   |   |   | 127 |   |   |   | — |   |   |   | — |   |
| Accrued      severance costs                                       |   |                                  | 363     |   |   |   | 246 |   |   |   | 42 |   |   |   | 40 |   |   |   | 35 |   |
| Total                                                              |   | $                                     | 116,357 |   |   | $ | 36,867 |   |   | $ | 50,595 |   |   | $ | 13,550 |   |   | $ | 15,345 |   |

----

----

| Hypothetical Change in |   | Estimated Change   |    |   |                                                                                    |   |
|----------------------------------|--------|-------------------------|---------|--------|-----------------------------------------------------------------------------------------|--------|
| Interest Rates              |   | in Fair Value |    |   |       Fair Value       |   |
|                             |   |                    |    |   |                                                                                    |   |
| 200      basis point increase    |   | $                       | (12,063 | )      |                                                                                    | $      | 155,092 |   |
| 100      basis point increase    |   |                    | (6,039  | )      |                                                                                    |   | 161,116 |   |
| No      change                   |   |                    | — |   |                                                                                    |   | 167,155 |   |
| 100      basis point decrease    |   |                    | 5,897   |   |                                                                                    |   | 173,052 |   |
| 200      basis point decrease    |   |                    | 11,748  |   |                                                                                    |   | 178,903 |   |

|                                                                                                                 | Page   |
|----------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                 |   |
| Consolidated Financial      Statements                                                                               |   |
|                                                                                                                 |   |
| Report      of Independent Registered Public Accounting Firm                                                         | F-1    |
|                                                                                                                 |   |
| Consolidated      Balance Sheets as of December 31, 2009 and 2008                                                    | F-2    |
|                                                                                                                 |   |
| Consolidated      Statements of Operations for the Years Ended December 31, 2009, 2008 and      2007                 | F-3    |
|                                                                                                                 |   |
| Consolidated      Statements of Shareholders’ Equity for the Years Ended December 31, 2009,      2008 and 2007 | F-4    |
|                                                                                                                 |   |
| Consolidated      Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and      2007                 | F-5    |
|                                                                                                                 |   |
| Notes      to the Consolidated Financial Statements                                                                  | F-6    |
|                                                                                                                 |   |
| Financial Statement    Schedules                                                                                     |   |
|                                                                                                                 |   |
| Schedule      II – Condensed Financial Information of Parent Company                                           | F-42   |
|                                                                                                                 |   |
| Schedule      III – Supplementary Insurance Information                                                        | F-45   |
|                                                                                                                 |   |
| Schedule      IV – Reinsurance                                                                                 | F-47   |
|                                                                                                                 |   |
| Schedule      V – Allowance for Uncollectible Premiums and Other    Receivables                                | F-48   |
|                                                                                                                 |   |
| Schedule      VI – Supplementary Information                                                                   | F-49   |

----

----

|                                                                                                                       |   | December 31, |    |          | December 31, |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|---------------|-------------------|--------|
|                                                                                                                       |   | 2009              |    |          | 2008              |   |
| Assets                                                                                                                     |   |              |    |          |              |   |
| Investments:                                                                                                               |   |              |    |          |              |   |
| Fixed      maturities:                                                                                                     |   |              |    |          |              |   |
| Available      for sale, at fair value (amortized cost  $161,730 in 2009 and      $120,538 in 2008)              |   | $                 | 167,155 |          |              |   | 121,914 |   |
| Cash      and cash equivalents                                                                                             |   |              | 20,220  |          |              |   | 11,959 |   |
| Premiums      and fees receivable                                                                                          |   |              | 29,526  |          |              |   | 31,080 |   |
| Reinsurance      receivables and recoverables                                                                              |   |              | 19,502  |          |              |   | 20,637 |   |
| Deferred      policy acquisition costs                                                                                     |   |              | 10,053  |          |              |   | 10,601 |   |
| Prepaid      reinsurance premiums                                                                                          |   |              | 4,076   |          |              |   | 4,342 |   |
| Accrued      investment income                                                                                             |   |              | 1,810   |          |              |   | 1,431 |   |
| Property      and equipment, net of accumulated depreciation                                                               |   |              | 3,769   |          |              |   | 4,231 |   |
| Income      taxes receivable                                                                                               |   |              | — |          |              |   | 1,508 |   |
| Deferred      income taxes                                                                                                 |   |              | 3,518   |          |              |   | 4,728 |   |
| Other                                                                                                                      |   |              | 3,821   |          |              |   | 3,864 |   |
| Deferred      offering costs                                                                                               |   |              | — |          |              |   | 1,015 |   |
| Assets      held for sale                                                                                                  |   |              | — |          |              |   | 3,214 |   |
| Total      assets                                                                                                          |   | $                 | 263,450 |          |              |   | 220,524 |   |
| Liabilities      and Shareholders' Equity                                                                                  |   |              |    |          |              |   |   |   |
| Liabilities:                                                                                                               |   |              |    |          |              |   |   |   |
| Losses      and loss adjustment expense reserves                                                                           |   | $                 | 106,710 |          |              |   | 108,065 |   |
| Unearned      premiums                                                                                                     |   |              | 43,313  |          |              |   | 45,322 |   |
| Accounts      payable and accrued expenses                                                                                 |   |              | 12,762  |          |              |   | 13,353 |   |
| Income      taxes payable                                                                                                  |   |              | 617     |          |              |   | — |   |
| Borrowings      under line of credit                                                                                       |   |              | — |          |              |   | 950 |   |
| Long-term      debt                                                                                                        |   |              | — |          |              |   | 1,432 |   |
| Liabilities      held for sale                                                                                             |   |              | — |          |              |   | 647 |   |
| Total      liabilities                                                                                                     |   |              | 163,402 |          |              |   | 169,769 |   |
| Shareholders'      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 2009, 5,444,022;      outstanding 2009, 4,695,262 shares |   |              | 54      |          |              |   | — |   |
| Additional      paid-in capital                                                                                            |   |              | 50,520  |          |              |   | — |   |
| Accumulated      other comprehensive income (loss)                                                                         |   |              | 2,519   |          |              |   | (1,159 | )        |
| Retained      earnings                                                                                                     |   |              | 54,481  |          |              |   | 51,914 |   |
| Unearned      ESOP, 530,999 shares                                                                                         |   |              | (5,310  | )        |              |   | — |   |
| Treasury      stock, at cost, 217,761 shares                                                                               |   |              | (2,216  | )        |              |   | — |   |
| Total      shareholders' equity                                                                                            |   |              | 100,048 |          |              |   | 50,755 |   |
| Total      liabilities and shareholders' equity                                                                            |   | $                 | 263,450 |          |              |   | 220,524 |   |

----

|                                                                 |   | 2009   |    |          | 2008   |   |    | 2007          |   |
|----------------------------------------------------------------------|--------|--------|---------|---------------|--------|--------|---------|---------------|--------|
| Revenues:                                                            |   |   |    |          |   |   |
| Premiums      earned                                                 |   | $      | 75,358  |          |   |   | 78,737  |          |   |   | 70,970 |   |
| Investment      income, net of investment expense                    |   |   | 5,648   |          |   |   | 5,335   |          |   |   | 5,324 |   |
| Realized      investment gains (losses), net:                        |   |   |    |          |   |   |    |          |   |   |   |   |
| Total      other-than-temporary impairment losses                    |   |   | (197    | )        |   |   | (2,922  | )        |   |   | (620 | )        |
| Portion      of loss recognized in other comprehensive income   |   |   | — |          |   |   | — |          |   |   | — |   |
| Other      realized investment gains (losses), net                   |   |   | 396     |          |   |   | (2,897  | )        |   |   | (82 | )        |
| Total      realized investment gains (losses), net                   |   |   | 199     |          |   |   | (5,819  | )        |   |   | (702 | )        |
| Other      income                                                    |   |   | 223     |          |   |   | 411     |          |   |   | 508 |   |
| Total      revenues                                                  |   |   | 81,428  |          |   |   | 78,664  |          |   |   | 76,100 |   |
| Losses      and expenses:                                            |   |   |    |          |   |   |    |          |   |   |   |   |
| Losses      and loss adjustment expenses                             |   |   | 52,754  |          |   |   | 57,390  |          |   |   | 49,783 |   |
| Amortization      of deferred policy acquisition costs               |   |   | 21,383  |          |   |   | 23,081  |          |   |   | 21,930 |   |
| Underwriting      and administrative expenses                        |   |   | 3,999   |          |   |   | 3,481   |          |   |   | 2,233 |   |
| Interest      expense                                                |   |   | 22      |          |   |   | 184     |          |   |   | 125 |   |
| Other      expense, net                                              |   |   | 209     |          |   |   | 365     |          |   |   | 184 |   |
| Total      losses and expenses                                       |   |   | 78,367  |          |   |   | 84,501  |          |   |   | 74,255 |   |
| Income      (loss) from continuing operations, before income taxes   |   |   | 3,061   |          |   |   | (5,837  | )        |   |   | 1,845 |   |
| Income      tax (benefit) expense                                    |   |   | (346    | )        |   |   | (1,378  | )        |   |   | 396 |   |
| Income      (loss) from continuing operations                        |   |   | 3,407   |          |   |   | (4,459  | )        |   |   | 1,449 |   |
| Discontinued      operations:                                        |   |   |    |          |   |   |    |          |   |   |   |   |
| Income      (loss) from discontinued operations, before income taxes |   |   | 39      |          |   |   | (3,090  | )        |   |   | (489 | )        |
| Income      tax expense (benefit)                                    |   |   | 879     |          |   |   | (170    | )        |   |   | (126 | )        |
| Loss      from discontinued operations                               |   |   | (840    | )        |   |   | (2,920  | )        |   |   | (363 | )        |
| Net      income (loss)                                               |   | $      | 2,567   |          |   |   | (7,379  | )        |   |   | 1,086 |   |

|                                                                                |   | For the periodOctober 17throughDecember 31, 2009 |   |
|-------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|
| Earnings per share (see note      3):                                               |   |                                                                      |   |
| Net      income after conversion and public offering                                |   | $                                                                         | 929    |   |
| Basic      and diluted earnings per share after conversion and public      offering |   | $                                                                         | 0.19   |   |

----

PENN MILLERS HOLDING CORPORATION ANDSUBSIDIARY

|                                                                                                                        |   |              |      |   |    |   |    |          |   |   | Accumulated        |   |   |     |   |          |     |   |   |          |   |   |    |          |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-----------|--------|---------|--------|---------|---------------|--------|--------|--------------------|--------|--------|----------|--------|---------------|----------|--------|--------|---------------|--------|--------|---------|---------------|
|                                                                                                                        |   |              |      |   |    |   |    | Additional    |   |   | Other              |   |   |     |   |          | Unearned |   |   |          |   |   |    |          |
|                                                                                                                        |   | Common Stock |      |   | Paid-In |   |    | Comprehensive |   |   | Retained           |   |   | ESOP     |   |          | Treasury |   |   |          |   |
|                                                                                                                        |   | Shares            |      |   | Amount  |   |    | Capital       |   |   | Income (Loss) |   |   | Earnings |   |          | Shares   |   |   | Stock         |   |   | Total   |          |
| Balance      at December 31, 2006                                                                                           |   |              | —   |   |    | $      | — |          |   |   | —            |   |   |     | 2,323  |          |     |   | 58,207 |          |   |   | — |          |   |   | — |   |   |   | 60,530 |   |
|                                                                                                                        |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   |   |   |
| Net      income                                                                                                             |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   | 1,086  |          |   |   |    |          |   |   |   |   |   |   | 1,086 |   |
| Other      comprehensive income, net of taxes:                                                                              |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   |   |   |
| Unrealized      investment holding gain arising during period, net of related income tax      expense of $179               |   |              |      |   |    |   |    |          |   |   |               |   |   |     | 348    |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   | 348 |   |
| Reclassification      adjustment for realized losses included in net income, net of related      income tax benefit of $222 |   |              |      |   |    |   |    |          |   |   |               |   |   |     | 431    |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   | 431 |   |
| Net      unrealized investment gain                                                                                         |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   | 779 |   |
| Comprehensive      income                                                                                                   |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   | 1,865 |   |
| Adjustment      to initially adopt SFAS No. 158,  net of related income taxes of      $512                        |   |              |      |   |    |   |    |          |   |   |               |   |   |     | (994   | )        |     |   |   |          |   |   |    |          |   |   |   |   |   |   | (994 | )        |
| Balance      at December 31, 2007                                                                                           |   |              | —   |   |    |   | — |          |   |   | —            |   |   |     | 2,108  |          |     |   | 59,293 |          |   |   | — |          |   |   | — |   |   |   | 61,401 |   |
|                                                                                                                        |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   |   |   |
| Net      loss                                                                                                               |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   | (7,379 | )        |   |   |    |          |   |   |   |   |   |   | (7,379 | )        |
| Other      comprehensive loss, net of taxes:                                                                                |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   |   |   |
| Unrealized      investment holding loss arising during period, net of related income tax      benefit of $3,097             |   |              |      |   |    |   |    |          |   |   |               |   |   |     | (6,012 | )        |     |   |   |          |   |   |    |          |   |   |   |   |   |   | (6,012 | )        |
| Reclassification      adjustment for realized losses included in net loss, net of related income      tax benefit of $1,965 |   |              |      |   |    |   |    |          |   |   |               |   |   |     | 3,813  |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   | 3,813 |   |
| Net      unrealized investment loss                                                                                         |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   | (2,199 | )        |
| Defined      benefit pension plan, net of related  income tax benefit of      $551                                |   |              |      |   |    |   |    |          |   |   |               |   |   |     | (1,068 | )        |     |   |   |          |   |   |    |          |   |   |   |   |   |   | (1,068 | )        |
| Comprehensive      loss                                                                                                     |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   | (10,646 | )        |
| Balance      at December 31, 2008                                                                                           |   |              | —   |   |    |   | — |          |   |   | —            |   |   |     | (1,159 | )        |     |   | 51,914 |          |   |   | — |          |   |   | — |   |   |   | 50,755 |   |
|                                                                                                                        |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   |   |   |
| Net      income                                                                                                             |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   | 2,567  |          |   |   |    |          |   |   |   |   |   |   | 2,567 |   |
| Other      comprehensive income, net of taxes:                                                                              |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   |   |   |
| Unrealized      investment holding gain arising during period, net of related income tax      expense of $1,440             |   |              |      |   |    |   |    |          |   |   |               |   |   |     | 2,796  |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   | 2,796 |   |
| Reclassification      adjustment for realized gains included in net income, net of related      income tax expense of $61   |   |              |      |   |    |   |    |          |   |   |               |   |   |     | (119   | )        |     |   |   |          |   |   |    |          |   |   |   |   |   |   | (119 | )        |
| Net      unrealized investment gain                                                                                         |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   | 2,677 |   |
| Defined      benefit pension plan, net of related  income tax benefit of      $48                                 |   |              |      |   |    |   |    |          |   |   |               |   |   |     | (94    | )        |     |   |   |          |   |   |    |          |   |   |   |   |   |   | (94 | )        |
| Curtailment      benefit, net of related  tax expense of $564                                                     |   |              |      |   |    |   |    |          |   |   |               |   |   |     | 1,095  |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   | 1,095 |   |
| Comprehensive      income                                                                                                   |   |              |      |   |    |   |    |          |   |   |               |   |   |     |   |          |     |   |   |          |   |   |    |          |   |   |   |   |   |   | 6,245 |   |
| Net      proceeds from issuance of common stock                                                                             |   |              | 5,444,022 |   |    |   | 54      |          |   |   | 50,518             |   |   |     |   |          |     |   |   |          |   |   | (5,400  | )        |   |   |   |   |   |   | 45,172 |   |
| ESOP      shares released                                                                                                   |   |              |      |   |    |   |    |          |   |   | 2                  |   |   |     |   |          |     |   |   |          |   |   | 90      |          |   |   |   |   |   |   | 92 |   |
| Treasury      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 | )        |   |   | 100,048 |   |

----

PENN MILLERS HOLDING CORPORATION ANDSUBSIDIARY

|                                                                                               |   | 2009   |    |          | 2008   |   |    | 2007          |   |
|----------------------------------------------------------------------------------------------------|--------|--------|---------|---------------|--------|--------|---------|---------------|--------|
| Cash      flows from operating activities:                                                         |   |   |    |          |   |   |
| Net      income (loss)                                                                             |   | $      | 2,567   |          |   |   | (7,379  | )        |   |   | 1,086 |   |
| Loss      from discontinued operations                                                             |   |   | 840     |          |   |   | 2,920   |          |   |   | 363 |   |
| Adjustments      to reconcile net income (loss) to net cash provided by operating      activities: |   |   |    |          |   |   |    |          |   |   |   |   |
| Change      in receivables, unearned premiums, and  prepaid      reinsurance             |   |   | 1,366   |          |   |   | (4,787  | )        |   |   | 4,470 |   |
| Change      in losses and loss adjustment expense reserves                                         |   |   | (1,355  | )        |   |   | 12,109  |          |   |   | 6,551 |   |
| Change      in accounts payable and accrued expenses                                               |   |   | 926     |          |   |   | (1,737  | )        |   |   | 56 |   |
| Deferred      income taxes                                                                         |   |   | (685    | )        |   |   | (1,068  | )        |   |   | (208 | )        |
| Change      in deferred acquisition costs                                                          |   |   | 548     |          |   |   | 413     |          |   |   | (633 | )        |
| Amortization      and depreciation                                                                 |   |   | 668     |          |   |   | 710     |          |   |   | 783 |   |
| ESOP      share allocation                                                                         |   |   | 92      |          |   |   | — |          |   |   | — |   |
| Realized      investment (gains) losses, net                                                       |   |   | (199    | )        |   |   | 5,819   |          |   |   | 702 |   |
| Other,      net                                                                                    |   |   | 1,512   |          |   |   | 383     |          |   |   | (2,153 | )        |
| Cash      provided by operating activities –  continuing      operations           |   |   | 6,280   |          |   |   | 7,383   |          |   |   | 11,017 |   |
| Cash      (used in) provided by operating activities – discontinued      operations          |   |   | — |          |   |   | (20     | )        |   |   | 515 |   |
| Net      cash provided by operating activities                                                     |   |   | 6,280   |          |   |   | 7,363   |          |   |   | 11,532 |   |
| Cash      flows from investing activities:                                                         |   |   |    |          |   |   |    |          |   |   |   |   |
| Available-for-sale      investments:                                                               |   |   |    |          |   |   |    |          |   |   |   |   |
| Purchases                                                                                          |   |   | (69,637 | )        |   |   | (50,075 | )        |   |   | (27,852 | )        |
| Sales                                                                                              |   |   | 21,328  |          |   |   | 32,927  |          |   |   | 7,048 |   |
| Maturities                                                                                         |   |   | 6,800   |          |   |   | 11,970  |          |   |   | 8,350 |   |
| Proceeds      on sale of net assets of subsidiaries                                                |   |   | 2,628   |          |   |   | — |          |   |   | — |   |
| Purchases      of property and equipment, net                                                      |   |   | (206    | )        |   |   | (524    | )        |   |   | (919 | )        |
| Cash      used in investing activities – continuing operations                               |   |   | (39,087 | )        |   |   | (5,702  | )        |   |   | (13,373 | )        |
| Cash      provided by (used in) investing activities – discontinued      operations          |   |   | 285     |          |   |   | (48     | )        |   |   | (261 | )        |
| Net      cash used in investing activities                                                         |   |   | (38,802 | )        |   |   | (5,750  | )        |   |   | (13,634 | )        |
| Cash      flows from financing activities:                                                         |   |   |    |          |   |   |    |          |   |   |   |   |
| Net      proceeds from issuance of common stock                                                    |   |   | 49,040  |          |   |   | — |          |   |   | — |   |
| Purchase      of treasury stock                                                                    |   |   | (2,216  | )        |   |   | — |          |   |   | — |   |
| Initial      public offering costs paid                                                            |   |   | (3,374  | )        |   |   | (493    | )        |   |   | — |   |
| Net      borrowings on line of credit                                                              |   |   | (950    | )        |   |   | 950     |          |   |   | (250 | )        |
| Repayment      of long-term debt                                                                   |   |   | (1,432  | )        |   |   | (313    | )        |   |   | (312 | )        |
| Cash      provided by (used in) financing activities – continuing      operations       |   |   | 41,068  |          |   |   | 144     |          |   |   | (562 | )        |
| Cash      used in financing activities – discontinued operations                             |   |   | (285    | )        |   |   | (260    | )        |   |   | (290 | )        |
| Net      cash provided by (used in) financing activities                                           |   |   | 40,783  |          |   |   | (116    | )        |   |   | (852 | )        |
| Net      increase (decrease) in cash                                                               |   |   | 8,261   |          |   |   | 1,497   |          |   |   | (2,954 | )        |
| Cash      and cash equivalents at beginning of period                                              |   |   | 11,959  |          |   |   | 10,462  |          |   |   | 13,416 |   |
| Cash      and cash equivalents at end of period                                                    |   |   | 20,220  |          |   |   | 11,959  |          |   |   | 10,462 |   |
| Less      cash of discontinued operations at end of period                                         |   |   | — |          |   |   | — |          |   |   | 328 |   |
| Cash      and cash equivalents of continuing operations at end of    period                        |   | $      | 20,220  |          |   |   | 11,959  |          |   |   | 10,134 |   |

----

| (1) | Description      of Business |
|-----|------------------------------|

----

| (2) | Summary      of Significant Accounting Policies |
|-----|-------------------------------------------------|

|   | (a) | Basis      of Presentation |
|--------|-----|----------------------------|

|   | (b) | Use      of Estimates |
|--------|-----|-----------------------|

|   | (c) | Concentration      of Risk |
|--------|-----|----------------------------|

----

|   | (d) | Investments |
|--------|-----|-------------|

|   | (e) | Cash      and Cash Equivalents |
|--------|-----|--------------------------------|

----

|   | (f) | Reinsurance      Accounting and Reporting |
|--------|-----|-------------------------------------------|

|   | (g) | Deferred      Policy Acquisition Costs |
|--------|-----|----------------------------------------|

|   | (h) | Property      and Equipment |
|--------|-----|-----------------------------|

|   | (i) | Income      Taxes |
|--------|-----|-------------------|

----

|   | (j) | Deferred      Offering Costs |
|--------|-----|------------------------------|

|   | (k) | Goodwill |
|--------|-----|----------|

----

|   | (l) | Discontinued      Operations and Assets Held-for-Sale |
|--------|-----|-------------------------------------------------------|

|   | (m) | Losses      and Loss Adjustment Expenses |
|--------|-----|------------------------------------------|

----

|   | (n) | Employee      Benefit Plans |
|--------|-----|-----------------------------|

----

|   | (p) | Employee      Stock Ownership Plan |
|--------|-----|------------------------------------|

|   | (r) | Premium      Revenue |
|--------|-----|----------------------|

|   | (o) | Derivative      Instruments |
|--------|-----|-----------------------------|

|   | (q) | Earnings      per Share |
|--------|-----|-------------------------|

|   | (s) | Adoption      of New Accounting Standards |
|--------|-----|-------------------------------------------|

----

----

| (3) | Earnings      per Share |
|-----|-------------------------|

| (4) | Fair      Value Measurements |
|-----|------------------------------|

----

|                                                                            |   | Level 1 |    |   | Level 2 |   |    | Level 3 |   |   | Total   |   |
|---------------------------------------------------------------------------------|--------|---------|---------|--------|---------|--------|---------|---------|--------|--------|---------|--------|
| December      31, 2009:                                                         |   |    |    |   |    |   |    |    |   |   |    |   |
| Fixed      maturities, available for sale                                       |   |    |    |   |    |   |    |    |   |   |    |   |   |   |   |   |
| U.S.      treasuries                                                            |   | $       | 4,612   |   |    |   | — |    |   |   | — |   |   |   | 4,612 |   |
| Agencies      not backed by the full faith and credit of the U.S.    government |   |    | — |   |    |   | 17,441  |    |   |   | — |   |   |   | 17,441 |   |
| State      and political subdivisions                                           |   |    | — |   |    |   | 39,334  |    |   |   | — |   |   |   | 39,334 |   |
| Commercial      mortgage-backed securities                                      |   |    | — |   |    |   | 3,775   |    |   |   | — |   |   |   | 3,775 |   |
| Residential      mortgage-backed securities                                     |   |    | — |   |    |   | 28,302  |    |   |   | — |   |   |   | 28,302 |   |
| Corporate      securities                                                       |   |    | — |   |    |   | 73,691  |    |   |   | — |   |   |   | 73,691 |   |
| Total      assets                                                               |   | $       | 4,612   |   |    |   | 162,543 |    |   |   | — |   |   |   | 167,155 |   |

|                                                                            |   | Level 1 |    |   | Level 2 |   |    | Level 3 |   |   | Total   |   |
|---------------------------------------------------------------------------------|--------|---------|---------|--------|---------|--------|---------|---------|--------|--------|---------|--------|
| December      31, 2008:                                                         |   |    |    |   |    |   |    |    |   |   |    |   |
| Fixed      maturities, available for sale                                       |   |    |    |   |    |   |    |    |   |   |    |   |   |   |   |   |
| U.S.      treasuries                                                            |   | $       | 9,310   |   |    |   | — |    |   |   | — |   |   |   | 9,310 |   |
| Agencies      not backed by the full faith and credit of the U.S.    government |   |    | — |   |    |   | 16,089  |    |   |   | — |   |   |   | 16,089 |   |
| State      and political subdivisions                                           |   |    | — |   |    |   | 32,957  |    |   |   | — |   |   |   | 32,957 |   |
| Commercial      mortgage-backed securities                                      |   |    | — |   |    |   | 3,932   |    |   |   | — |   |   |   | 3,932 |   |
| Residential      mortgage-backed securities                                     |   |    | — |   |    |   | 21,373  |    |   |   | — |   |   |   | 21,373 |   |
| Corporate      securities                                                       |   |    | — |   |    |   | 38,253  |    |   |   | — |   |   |   | 38,253 |   |
| Total      assets                                                               |   | $       | 9,310   |   |    |   | 112,604 |    |   |   | — |   |   |   | 121,914 |   |
|                                                                            |   |    |    |   |    |   |    |    |   |   |    |   |   |   |   |   |
| Accounts      payable and accrued expenses                                      |   | $       | — |   |    |   | 66      |    |   |   | — |   |   |   | 66 |   |
| Total      liabilities                                                          |   | $       | — |   |    |   | 66      |    |   |   | — |   |   |   | 66 |   |

----

----

| (5) | Investments |
|-----|-------------|

|                                                                            |   |      |    |   | Gross      |   |   | Gross      |   |   |       |   |
|---------------------------------------------------------------------------------|--------|-----------|---------|--------|------------|--------|--------|------------|--------|--------|------------|--------|
|                                                                            |   | Amortized |    |   | unrealized |   |   | unrealized |   |   | Estimated  |   |
|                                                                            |   | cost      |    |   | gains      |   |   | losses     |   |   | fair value |   |
| December      31, 2009:                                                         |   |      |    |   |       |   |   |       |   |   |       |   |
| U.S.      Treasuries                                                            |   | $         | 4,499   |   |       |   | 113    |       |   |   | —    |   |   |   | 4,612 |   |
| Agencies      not backed by the full faith and credit of the U.S.    government |   |      | 16,933  |   |       |   | 538    |       |   |   | 30         |   |   |   | 17,441 |   |
| State      and political subdivisions                                           |   |      | 37,415  |   |       |   | 1,994  |       |   |   | 75         |   |   |   | 39,334 |   |
| Commercial      mortgage-backed securities                                      |   |      | 3,806   |   |       |   | 34     |       |   |   | 65         |   |   |   | 3,775 |   |
| Residential      mortgage-backed securities                                     |   |      | 27,607  |   |       |   | 844    |       |   |   | 149        |   |   |   | 28,302 |   |
| Corporate      securities                                                       |   |      | 71,470  |   |       |   | 2,463  |       |   |   | 242        |   |   |   | 73,691 |   |
| Total      fixed maturities                                                     |   | $         | 161,730 |   |       |   | 5,986  |       |   |   | 561        |   |   |   | 167,155 |   |
| December      31, 2008:                                                         |   |      |    |   |       |   |   |       |   |   |       |   |   |   |   |   |
| U.S.      Treasuries                                                            |   | $         | 8,530   |   |       |   | 780    |       |   |   | —    |   |   |   | 9,310 |   |
| Agencies      not backed by the full faith and credit of the U.S.    government |   |      | 14,929  |   |       |   | 1,160  |       |   |   | —    |   |   |   | 16,089 |   |
| State      and political subdivisions                                           |   |      | 31,775  |   |       |   | 1,292  |       |   |   | 110        |   |   |   | 32,957 |   |
| Commercial      mortgage-backed securities                                      |   |      | 4,600   |   |       |   | 3      |       |   |   | 670        |   |   |   | 3,933 |   |
| Residential      mortgage-backed securities                                     |   |      | 20,774  |   |       |   | 598    |       |   |   | —    |   |   |   | 21,372 |   |
| Corporate      securities                                                       |   |      | 39,930  |   |       |   | 414    |       |   |   | 2,091      |   |   |   | 38,253 |   |
| Total      fixed maturities                                                     |   | $         | 120,538 |   |       |   | 4,247  |       |   |   | 2,871      |   |   |   | 121,914 |   |

|                                        |   | Amortized |    |   | Estimated  |   |
|---------------------------------------------|--------|-----------|---------|--------|------------|--------|
|                                        |   | cost      |    |   | fair value |   |
| Due      in one year or less                |   | $         | 10,008  |   |       |   | 10,203 |   |
| Due      after one year through five years  |   |      | 73,532  |   |       |   | 76,405 |   |
| Due      after five years through ten years |   |      | 40,196  |   |       |   | 41,719 |   |
| Due      after ten years                    |   |      | 6,581   |   |       |   | 6,751 |   |
|                                        |   |      | 130,317 |   |       |   | 135,078 |   |
| Commercial      mortgage-backed securities  |   |      | 3,806   |   |       |   | 3,775 |   |
| Residential      mortgage-backed securities |   |      | 27,607  |   |       |   | 28,302 |   |
| Total      fixed maturities                 |   | $         | 161,730 |   |       |   | 167,155 |   |

----

|                                              |   | 2009   |    |   | 2008   |   |   | 2007   |   |
|---------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|
| Interest      on fixed maturities                 |   | $      | 6,187   |   |   |   | 5,425  |   |   |   | 5,157 |   |
| Dividends      on equity securities               |   |   | — |   |   |   | 215    |   |   |   | 251 |   |
| Interest      on cash and cash equivalents        |   |   | 19      |   |   |   | 209    |   |   |   | 456 |   |
| Total      investment income                      |   |   | 6,206   |   |   |   | 5,849  |   |   |   | 5,864 |   |
| Investment      expense                           |   |   | (558    | )      |   |   | (514   | )      |   |   | (540 | ) |
| Investment      income, net of investment expense |   | $      | 5,648   |   |   |   | 5,335  |   |   |   | 5,324 |   |

----

|                                                                                          |   | 2009   |    |          | 2008   |   |    | 2007          |   |
|-----------------------------------------------------------------------------------------------|--------|--------|---------|---------------|--------|--------|---------|---------------|--------|
| Fixed      maturity securities:                                                               |   |   |    |          |   |   |    |          |   |
| Available      for sale:                                                                      |   |   |    |          |   |   |    |          |   |
| Gross      gains                                                                              |   | $      | 555     |          |   |   | 80      |          |   |   | — |   |
| Gross      losses                                                                             |   |   | (178    | )        |   |   | (109    | )        |   |   | (77 | )        |
| Other-than-temporary      impairment losses                                                   |   |   | (197    | )        |   |   | — |          |   |   | — |   |
| Equity      securities:                                                                       |   |   |    |          |   |   |    |          |   |   |   |   |
| Gross      gains                                                                              |   |   | — |          |   |   | 2,211   |          |   |   | 524 |   |
| Gross      losses                                                                             |   |   | — |          |   |   | (5,038  | )        |   |   | (480 | )        |
| Other-than-temporary      impairment losses                                                   |   |   | — |          |   |   | (2,922  | )        |   |   | (620 | )        |
| Realized      investment gains (losses), net                                                  |   |   | 180     |          |   |   | (5,778  | )        |   |   | (653 | )        |
| Change      in value of interest rate swap                                                    |   |   | 19      |          |   |   | (41     | )        |   |   | (49 | )        |
| Realized      investment gains (losses) after change in value of interest rate swap,      net |   | $      | 199     |          |   |   | (5,819  | )        |   |   | (702 | )        |
| Change      in difference between fair value and cost of investments:                         |   |   |    |          |   |   |    |          |   |   |   |   |
| Fixed      maturity securities for continuing operations                                      |   | $      | 4,049   |          |   |   | (420    | )        |   |   | 1,519 |   |
| Equity      securities for continuing operations                                              |   |   | — |          |   |   | (2,884  | )        |   |   | (337 | )        |
| Total      for continuing operations                                                          |   |   | 4,049   |          |   |   | (3,304  | )        |   |   | 1,182 |   |
| Equity      securities for discontinued operations                                            |   |   | 7       |          |   |   | (28     | )        |   |   | (2 | )        |
| Total      including discontinued operations                                                  |   | $      | 4,056   |          |   |   | (3,332  | )        |   |   | 1,180 |   |

----

|                                                                            |   | Less than 12 months |    |   | 12 months or longer |   |    | Total           |   |
|---------------------------------------------------------------------------------|--------|------------------------------------|---------|--------|------------------------------------|--------|---------|-----------------|--------|
|                                                                       |   |                               |    |   | Unrealized                         |   |    |            |   |   | Unrealized |   |   |   |   |   | Unrealized |   |
| Description of securities                                             |   | Fair value                    |    |   | losses                             |   |    | Fair value |   |   | losses |   |   | Fair value |   |   | losses |   |
| 2009:                                                                           |   |                               |    |   |                               |   |    |            |   |   |   |   |   |   |   |   |   |   |
| Agencies      not backed by the full faith and credit of the U.S.    government |   | $                                  | 5,965   |   |                               |   | 30      |            |   |   | — |   |   |   | — |   |   |   | 5,965 |   |   |   | 30 |   |
| State      and political subdivisions                                           |   |                               | 5,021   |   |                               |   | 65      |            |   |   | 555 |   |   |   | 10 |   |   |   | 5,576 |   |   |   | 75 |   |
| Commercial      mortgage-backed securities                                      |   |                               | — |   |                               |   | — |            |   |   | 1,938 |   |   |   | 65 |   |   |   | 1,938 |   |   |   | 65 |   |
| Residential      mortgage-backed securities                                     |   |                               | 9,549   |   |                               |   | 149     |            |   |   | — |   |   |   | — |   |   |   | 9,549 |   |   |   | 149 |   |
| Corporate      securities                                                       |   |                               | 21,283  |   |                               |   | 179     |            |   |   | 3,471 |   |   |   | 63 |   |   |   | 24,754 |   |   |   | 242 |   |
| Total      temporarily impaired securities                                      |   | $                                  | 41,818  |   |                               |   | 423     |            |   |   | 5,964 |   |   |   | 138 |   |   |   | 47,782 |   |   |   | 561 |   |
| 2008:                                                                           |   |                               |    |   |                               |   |    |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State      and political subdivisions                                           |   | $                                  | 2,934   |   |                               |   | 56      |            |   |   | 515 |   |   |   | 54 |   |   |   | 3,449 |   |   |   | 110 |   |
| Commercial      mortgage-backed securities                                      |   |                               | 2,203   |   |                               |   | 297     |            |   |   | 1,645 |   |   |   | 373 |   |   |   | 3,848 |   |   |   | 670 |   |
| Corporate      securities                                                       |   |                               | 10,732  |   |                               |   | 1,008   |            |   |   | 9,907 |   |   |   | 1,083 |   |   |   | 20,639 |   |   |   | 2,091 |   |
| Total      temporarily impaired securities                                      |   | $                                  | 15,869  |   |                               |   | 1,361   |            |   |   | 12,067 |   |   |   | 1,510 |   |   |   | 27,936 |   |   |   | 2,871 |   |

----

| (6) | Comprehensive      Income (Loss) |
|-----|----------------------------------|

|                                                                                            |   | 2009   |   |          | 2008   |   |    | 2007          |   |
|-------------------------------------------------------------------------------------------------|--------|--------|--------|---------------|--------|--------|---------|---------------|--------|
| Net      income (loss)                                                                          |   | $      | 2,567  |          |   |   | (7,379  | )        |   |   | 1,086 |   |
| Other      comprehensive income (loss):                                                         |   |   |   |          |   |   |    |          |   |   |   |   |
| Unrealized      gains (losses) on securities:                                                   |   |   |   |          |   |   |    |          |   |   |   |   |
| Unrealized      investment holding gains (losses) arising during period                         |   |   | 2,796  |          |   |   | (6,012  | )        |   |   | 348 |   |
| Less:                                                                                           |   |   |   |          |   |   |    |          |   |   |   |   |
| Reclassification      adjustment for realized (gains) losses included in net income      (loss) |   |   | (119   | )        |   |   | 3,813   |          |   |   | 431 |   |
| Net      unrealized investment gains (losses)                                                   |   |   | 2,677  |          |   |   | (2,199  | )        |   |   | 779 |   |
| Change      in defined benefit pension plans                                                    |   |   | (94    | )        |   |   | (1,068  | )        |   |   | — |   |
| Curtailment      benefit                                                                        |   |   | 1,095  |          |   |   | — |          |   |   | — |   |
| Other      comprehensive income (loss)                                                          |   |   | 3,678  |          |   |   | (3,267  | )        |   |   | 779 |   |
| Comprehensive      income (loss)                                                                |   | $      | 6,245  |          |   |   | (10,646 | )        |   |   | 1,865 |   |

|                                                          |   | 2009   |    |   | 2008   |   |
|---------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                                          |   |   |    |   |   |   |
| Unrealized      investment gains for continuing operations    |   | $      | 3,580   |   |   |   | 908 |   |
| Unrealized      investment losses for discontinued operations |   |   | — |   |   |   | (5 | ) |
| Defined      benefit pension plan – net actuarial loss  |   |   | (1,061  | )      |   |   | (2,062 | ) |
| Accumulated      other comprehensive income (loss)            |   | $      | 2,519   |   |   |   | (1,159 | ) |

----

| (7) | Deferred      Policy Acquisition Costs |
|-----|----------------------------------------|

|                                    |   | 2009   |    |   | 2008   |   |    | 2007   |   |
|-----------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
| Balance,      January 1                 |   | $      | 10,601  |   |   |   | 11,014  |   |   |   | 10,381 |   |
| Policy      acquisition costs deferred  |   |   | 20,835  |   |   |   | 22,668  |   |   |   | 22,563 |   |
| Amortization      charged to operations |   |   | (21,383 | )      |   |   | (23,081 | )      |   |   | (21,930 | ) |
| Balance,      December 31               |   | $      | 10,053  |   |   |   | 10,601  |   |   |   | 11,014 |   |

| (8) | Property      and Equipment |
|-----|-----------------------------|

| 2010  |   | $      | 98  |   |
|-------|--------|--------|-----|--------|
| 2011  |   |   | 70  |   |
| 2012  |   |   | 40  |   |
| 2013  |   |   | 17  |   |
| Total |   | $      | 225 |   |

| (9) | Borrowings |
|-----|------------|

----

|                                      |   | 2009 |    |   | 2008   |   |
|-------------------------------------------|--------|------|---------|--------|--------|--------|
| Term      loan agreement – due 2010 |   | $    | — |   |   |   | 1,432  |   |
| Long-term      debt                       |   | $    | — |   |   |   | 1,432  |   |

| (10) | Employee      Benefit Plans |
|------|-----------------------------|

----

|   | (a) | Obligations      and Funded Status atDecember 31 |
|--------|-----|-------------------------------------------------------|

|                                                |   | 2009   |   |          | 2008   |   |
|-----------------------------------------------------|--------|--------|--------|---------------|--------|--------|
| Change      in benefit obligation:                  |   |   |   |          |   |   |
| Benefit      obligation at beginning of year        |   | $      | 9,773  |          |   |   | 9,768 |   |
| Service      cost                                   |   |   | 465    |          |   |   | 664 |   |
| Interest      cost                                  |   |   | 571    |          |   |   | 573 |   |
| Benefit      payments                               |   |   | (732   | )        |   |   | (1,408 | )        |
| Administrative      expenses                        |   |   | (76    | )        |   |   | (41 | )        |
| Actuarial      loss                                 |   |   | 717    |          |   |   | 340 |   |
| Curtailment                                         |   |   | (1,659 | )        |   |   | (123 | )        |
| Benefit      obligation at end of year              |   |   | 9,059  |          |   |   | 9,773 |   |
| Change      in plan assets:                         |   |   |   |          |   |   |   |   |
| Fair      value of plan assets at beginning of year |   |   | 4,941  |          |   |   | 6,239 |   |
| Employer      contributions                         |   |   | 371    |          |   |   | 1,402 |   |
| Benefit      payments                               |   |   | (732   | )        |   |   | (1,408 | )        |
| Administrative      expenses                        |   |   | (76    | )        |   |   | (41 | )        |
| Actual      return on plan assets                   |   |   | 764    |          |   |   | (1,251 | )        |
| Fair      value of plan assets at end of year       |   |   | 5,268  |          |   |   | 4,941 |   |
| Funded      status (net liability recognized)       |   | $      | (3,791 | )             |   |   | (4,832 | )        |

|                                      |   | 2009   |   |          | 2008   |   |
|-------------------------------------------|--------|--------|--------|---------------|--------|--------|
| Unrecognized      prior service cost      |   | $      | (487   | )             |   |   | (527 | )        |
| Unrecognized      net loss                |   |   | (1,122 | )        |   |   | (2,598 | )        |
| Accumulated      other comprehensive loss |   | $      | (1,609 | )             |   |   | (3,125 | )        |

----

|   | (b) | Components      of Net Periodic Benefit Cost |
|--------|-----|----------------------------------------------|

|                                                                |   | 2009   |    |          | 2008   |   |   | 2007          |   |
|---------------------------------------------------------------------|--------|--------|---------|---------------|--------|--------|--------|---------------|--------|
| Service      cost                                                   |   | $      | 465     |          |   |   | 664    |          |   |   | 656 |   |
| Interest      cost                                                  |   |   | 571     |          |   |   | 573    |          |   |   | 582 |   |
| Expected      return on plan assets                                 |   |   | (358    | )        |   |   | (462   | )        |   |   | (489 | )        |
| Amortization      of prior service costs                            |   |   | 41      |          |   |   | 62     |          |   |   | 62 |   |
| Amortization      of net loss                                       |   |   | 128     |          |   |   | 27     |          |   |   | 7 |   |
| Net      periodic pension expense                                   |   |   | 847     |          |   |   | 864    |          |   |   | 818 |   |
| Curtailment      loss                                               |   |   | — |          |   |   | 222    |          |   |   | — |   |
| Net      periodic pension expense and additional amounts recognized |   | $      | 847     |          |   |   | 1,086  |          |   |   | 818 |   |

|   | (c) | Assumptions |
|--------|-----|-------------|

|                               |   | Pension plan |    |   | SERP   |   |
|------------------------------------|--------|-------------------|---------|--------|--------|--------|
|                               |   | 2009              |    |   | 2008   |   |   | 2009 |   |   | 2008 |   |
| Discount      rate                 |   |              | 5.84    | %      |   |   | 6.16 | % |   |   | 5.67 | % |   |   | 6.56 | % |
| Rate      of compensation increase |   |              | — |   |   |   | 4.00 |   |   |   | 5.00 |   |   |   | 5.00 |   |

|                                          |   | Pension plan |   |   | SERP   |   |
|-----------------------------------------------|--------|-------------------|--------|--------|--------|--------|
|                                          |   | 2009              |   |   | 2008   |   |   | 2009 |   |   | 2008 |   |
| Discount      rate                            |   |              | 6.16   | %      |   |   | 6.40 | % |   |   | 6.56 | % |   |   | 6.40 | % |
| Expected      long-term return on plan assets |   |              | 7.50   |   |   |   | 7.50 |   |   |   | N/A |   |   |   | N/A |   |
| Rate      of compensation increase            |   |              | 4.00   |   |   |   | 4.00 |   |   |   | 5.00 |   |   |   | 5.00 |   |

----

|   | (d) | Plan      Assets |
|--------|-----|------------------|

----

|                                           |   | Level 1 |   |   | Level 2 |   |    | Level 3 |   |   | Total   |   |
|------------------------------------------------|--------|---------|--------|--------|---------|--------|---------|---------|--------|--------|---------|--------|
|                                           |   |    |   |   |    |   |    |    |   |   |    |   |
| Equity      securities:                        |   |    |   |   |    |   |    |    |   |   |    |   |
| Vanguard      Developed Markets Index Fund (a) |   | $       | 472    |   |    |   | — |    |   |   | — |   |   |   | 472 |   |
| Vanguard      Small Cap Index Fund (b)         |   |    | 503    |   |    |   | — |    |   |   | — |   |   |   | 503 |   |
| Vanguard      500 Index Fund (c)               |   |    | 2,314  |   |    |   | — |    |   |   | — |   |   |   | 2,314 |   |
| Debt      securities:                          |   |    |   |   |    |   |    |    |   |   |    |   |   |   |   |   |
| Vanguard      Bond Index Fund (d)              |   |    | 1,955  |   |    |   | — |    |   |   | — |   |   |   | 1,955 |   |
| Cash      and cash equivalents                 |   |    | 24     |   |    |   | — |    |   |   | — |   |   |   | 24 |   |
|                                           |   |    |   |   |    |   |    |    |   |   |    |   |   |   |   |   |
| Total      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 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 and provides high current income with high credit      quality. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | Cash      Flows |
|--------|-----|-----------------|

| 2010                   |   | $      | 242   |   |
|------------------------|--------|--------|-------|--------|
| 2011                   |   |   | 272   |   |
| 2012                   |   |   | 679   |   |
| 2013                   |   |   | 388   |   |
| 2014                   |   |   | 298   |   |
| 2015      – 2019 |   |   | 8,760 |   |

----

----

|                                 |   |   |    |
|--------------------------------------|--------|--------|---------|
| Suspense      shares                 |   |   | 539,999 |   |
| Allocated      shares                |   |   | — |   |
| Shares      committed to be released |   |   | 9,000   |   |
| Average      price per share         |   | $      | 10.20   |   |
| Stock      compensation expense      |   | $      | 92      |   |

| (11) | Federal      Income Tax |
|------|-------------------------|

|                             |   | 2009   |   |   | 2008   |   |   | 2007   |   |
|----------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Current      expense (benefit):  |   |   |   |   |   |   |   |   |   |
| Federal                          |   | $      | 339    |   |   |   | (310   | )      |   |   | 604 |   |
| Deferred      benefit:           |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                          |   |   | (685   | )      |   |   | (1,068 | )      |   |   | (208 | ) |
| Total      tax (benefit) expense |   | $      | (346   | )      |   |   | (1,378 | )      |   |   | 396 |   |

----

|                                                            |   | 2009   |    |   | 2008   |   |   | 2007   |   |
|-----------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|
| Expected      tax at 34%                                        |   | $      | 1,041   |   |   |   | (1,985 | )      |   |   | 627 |   |
| State      income tax benefit                                   |   |   | (80     | )      |   |   | (35    | )      |   |   | (193 | ) |
| Nontaxable      investment income                               |   |   | (385    | )      |   |   | (397   | )      |   |   | (378 | ) |
| Accrual      adjustment                                         |   |   | — |   |   |   | (58    | )      |   |   | 96 |   |
| Change      in valuation reserve for capital loss carryforwards |   |   | (1,026  | )      |   |   | 1,026  |   |   |   | — |   |
| Change      in valuation reserve for state NOL carryforwards    |   |   | 80      |   |   |   | 35     |   |   |   | 193 |   |
| Other      items, net                                           |   |   | 24      |   |   |   | 36     |   |   |   | 51 |   |
| Total      tax (benefit) expense                                |   | $      | (346    | )      |   |   | (1,378 | )      |   |   | 396 |   |

|                                                 |   | 2009   |   |          | 2008   |   |
|------------------------------------------------------|--------|--------|--------|---------------|--------|--------|
| Deferred      tax assets:                            |   |   |   |          |   |   |
| Discounting      of unpaid losses                    |   | $      | 3,391  |          |   |   | 3,261 |   |
| Unearned      premium reserve                        |   |   | 2,669  |          |   |   | 2,787 |   |
| Capital      losses carried forward                  |   |   | 1,191  |          |   |   | 1,936 |   |
| Accrued      retirement benefit                      |   |   | 1,112  |          |   |   | 1,462 |   |
| Guaranty      fund liability                         |   |   | 510    |          |   |   | 456 |   |
| Compensation      related accruals                   |   |   | 471    |          |   |   | 92 |   |
| State      net operating losses                      |   |   | 629    |          |   |   | 571 |   |
| Other      items                                     |   |   | 233    |          |   |   | 545 |   |
| Gross      deferred tax assets                       |   |   | 10,206 |          |   |   | 11,110 |   |
| Valuation      reserve                               |   |   | (629   | )        |   |   | (1,597 | )        |
| Net      deferred tax assets after valuation reserve |   |   | 9,577  |          |   |   | 9,513 |   |
| Deferred      tax liabilities:                       |   |   |   |          |   |   |   |   |
| Deferred      policy acquisition costs               |   |   | 3,418  |          |   |   | 3,604 |   |
| Unrealized      investment gains, net                |   |   | 1,845  |          |   |   | 466 |   |
| Depreciation      and amortization                   |   |   | 279    |          |   |   | 195 |   |
| Accrued      premium tax credits                     |   |   | 206    |          |   |   | 191 |   |
| Prepaid      expenses                                |   |   | 125    |          |   |   | 115 |   |
| Other      items                                     |   |   | 186    |          |   |   | 214 |   |
| Gross      deferred tax liabilities                  |   |   | 6,059  |          |   |   | 4,785 |   |
| Net      deferred tax asset                          |   | $      | 3,518  |          |   |   | 4,728 |   |

----

| (12) | Reinsurance |
|------|-------------|

----

|   | (a) | Premiums |
|--------|-----|----------|

|    |   | 2009    |    |   | 2008   |   |    | 2007    |   |
|---------|--------|---------|---------|--------|--------|--------|---------|---------|--------|
|    |   | Written |    |   | Earned |   |    | Written |   |   | Earned |   |   | Written |   |   | Earned |   |
| Direct  |   | $       | 88,356  |   |   |   | 90,331  |    |   |   | 94,985 |   |   |   | 96,239 |   |   |   | 94,073 |   |   |   | 90,796 |   |
| Assumed |   |    | 873     |   |   |   | 876     |    |   |   | 1,379 |   |   |   | 1,387 |   |   |   | 1,203 |   |   |   | 1,215 |   |
| Ceded   |   |    | (15,583 | )      |   |   | (15,849 | )       |   |   | (18,997 | ) |   |   | (18,889 | ) |   |   | (21,157 | ) |   |   | (21,041 | ) |
| Net     |   | $       | 73,646  |   |   |   | 75,358  |    |   |   | 77,367 |   |   |   | 78,737 |   |   |   | 74,119 |   |   |   | 70,970 |   |

|   | (b) | Losses      and Loss Adjustment Expenses |
|--------|-----|------------------------------------------|

|    |   | 2009   |   |   | 2008   |   |    | 2007   |   |
|---------|--------|--------|--------|--------|--------|--------|---------|--------|--------|
| Direct  |   | $      | 58,665 |   |   |   | 70,442  |   |   |   | 59,245 |   |
| Assumed |   |   | 462    |   |   |   | 1,003   |   |   |   | 1,845 |   |
| Ceded   |   |   | (6,373 | )      |   |   | (14,055 | )      |   |   | (11,307 | ) |
| Net     |   | $      | 52,754 |   |   |   | 57,390  |   |   |   | 49,783 |   |

|   | (c) | Unearned      Premiums |
|--------|-----|------------------------|

|                             |   | 2009   |   |   | 2008   |   |   | 2007   |   |
|----------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Direct                           |   | $      | 43,304 |   |   |   | 45,310 |   |   |   | 46,576 |   |
| Assumed                          |   |   | 9      |   |   |   | 12     |   |   |   | 19 |   |
| Prepaid      reinsurance (ceded) |   |   | (4,076 | )      |   |   | (4,342 | )      |   |   | (4,234 | ) |
| Net                              |   | $      | 39,237 |   |   |   | 40,980 |   |   |   | 42,361 |   |

|   | (d) | Loss      and Loss Adjustment ExpenseReserves |
|--------|-----|-----------------------------------------------|

|    |   | 2009   |    |   | 2008   |   |    | 2007   |   |
|---------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
| Direct  |   | $      | 97,889  |   |   |   | 98,366  |   |   |   | 85,614 |   |
| Assumed |   |   | 8,821   |   |   |   | 9,699   |   |   |   | 10,342 |   |
| Gross   |   | $      | 106,710 |   |   |   | 108,065 |   |   |   | 95,956 |   |

----

| (13) | Liability      for Losses and Loss AdjustmentExpenses |
|------|-------------------------------------------------------|

|                               |   | 2009   |    |   | 2008   |   |    | 2007   |   |
|------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
| Balance      at January 1          |   | $      | 108,065 |   |   |   | 95,956  |   |   |   | 89,405 |   |
| Less      reinsurance recoverables |   |   | 22,625  |   |   |   | 18,727  |   |   |   | 20,089 |   |
| Net      liability at January 1    |   |   | 85,440  |   |   |   | 77,229  |   |   |   | 69,316 |   |
| Incurred      related to:          |   |   |    |   |   |   |    |   |   |   |   |   |
| Current      year                  |   |   | 51,199  |   |   |   | 62,612  |   |   |   | 54,421 |   |
| Prior      years                   |   |   | 1,555   |   |   |   | (5,222  | )      |   |   | (4,638 | ) |
| Total      incurred                |   |   | 52,754  |   |   |   | 57,390  |   |   |   | 49,783 |   |
| Paid      related to:              |   |   |    |   |   |   |    |   |   |   |   |   |
| Current      year                  |   |   | 21,296  |   |   |   | 26,578  |   |   |   | 22,191 |   |
| Prior      years                   |   |   | 28,544  |   |   |   | 22,601  |   |   |   | 19,679 |   |
| Total      paid                    |   |   | 49,840  |   |   |   | 49,179  |   |   |   | 41,870 |   |
| Net      liability at period-end   |   |   | 88,354  |   |   |   | 85,440  |   |   |   | 77,229 |   |
| Add      reinsurance recoverables  |   |   | 18,356  |   |   |   | 22,625  |   |   |   | 18,727 |   |
| Balance      at period-end         |   | $      | 106,710 |   |   |   | 108,065 |   |   |   | 95,956 |   |

----

| (14) | Commitments      and Contingencies |
|------|------------------------------------|

| (15) | Guaranty      Fund and Other Insurance-RelatedAssessments |
|------|-----------------------------------------------------------|

| (16) | Segment      Information |
|------|--------------------------|

----

|                                                                              |   | 2009   |   |          | 2008   |   |   | 2007          |   |
|-----------------------------------------------------------------------------------|--------|--------|--------|---------------|--------|--------|--------|---------------|--------|
| Revenues:                                                                         |   |   |   |          |   |   |   |          |   |
| Premiums      earned:                                                             |   |   |   |          |   |   |   |          |   |
| Agribusiness                                                                      |   | $      | 45,289 |          |   |   | 45,298 |          |   |   | 40,245 |   |
| Commercial      business                                                          |   |   | 28,961 |          |   |   | 31,805 |          |   |   | 29,260 |   |
| Other                                                                             |   |   | 1,108  |          |   |   | 1,634  |          |   |   | 1,465 |   |
| Total      premiums earned                                                        |   |   | 75,358 |          |   |   | 78,737 |          |   |   | 70,970 |   |
| Investment      income, net of investment expense                            |   |   | 5,648  |          |   |   | 5,335  |          |   |   | 5,324 |   |
| Realized      investment gains (losses), net                                      |   |   | 199    |          |   |   | (5,819 | )        |   |   | (702 | )        |
| Other      income                                                                 |   |   | 223    |          |   |   | 411    |          |   |   | 508 |   |
| Total      revenues                                                               |   | $      | 81,428 |          |   |   | 78,664 |          |   |   | 76,100 |   |
| Components      of net income (loss):                                             |   |   |   |          |   |   |   |          |   |   |   |   |
| Underwriting      (loss) income:                                                  |   |   |   |          |   |   |   |          |   |   |   |   |
| Agribusiness                                                                      |   | $      | 1,985  |          |   |   | 313    |          |   |   | 441 |   |
| Commercial      business                                                          |   |   | (4,509 | )        |   |   | (5,046 | )        |   |   | (1,913 | )        |
| Other                                                                             |   |   | 175    |          |   |   | 288    |          |   |   | (998 | )        |
| Total      underwriting losses                                                    |   |   | (2,349 | )        |   |   | (4,445 | )        |   |   | (2,470 | )        |
| Investment      income, net of investment expense                            |   |   | 5,648  |          |   |   | 5,335  |          |   |   | 5,324 |   |
| Realized      investment gains (losses), net                                      |   |   | 199    |          |   |   | (5,819 | )        |   |   | (702 | )        |
| Other      income                                                                 |   |   | 223    |          |   |   | 411    |          |   |   | 508 |   |
| Corporate      expense                                                            |   |   | (429   | )        |   |   | (770   | )        |   |   | (506 | )        |
| Interest      expense                                                             |   |   | (22    | )        |   |   | (184   | )        |   |   | (125 | )        |
| Other      expense, net                                                           |   |   | (209   | )        |   |   | (365   | )        |   |   | (184 | )        |
| Income      (loss) from continuing operations, before income      taxes |   |   | 3,061  |          |   |   | (5,837 | )        |   |   | 1,845 |   |
| Income      tax (benefit) expense                                                 |   |   | (346   | )        |   |   | (1,378 | )        |   |   | 396 |   |
| Income      (loss) from continuing operations                                |   | $      | 3,407  |          |   |   | (4,459 | )        |   |   | 1,449 |   |

----

|                                                                         |   | 2009   |   |          | 2008   |   |   | 2007          |   |
|------------------------------------------------------------------------------|--------|--------|--------|---------------|--------|--------|--------|---------------|--------|
| Discontinued      operations:                                                |   |   |   |          |   |   |   |          |   |
| Income      (loss) from discontinued operations, before income    taxes |   | $      | 39     |          |   |   | (3,090 | )        |   |   | (489 | )        |
| Income      tax expense (benefit)                                            |   |   | 879    |          |   |   | (170   | )        |   |   | (126 | )        |
| Loss      from discontinued operations                                  |   |   | (840   | )        |   |   | (2,920 | )        |   |   | (363 | )        |
| Net  income      (loss)                                            |   | $      | 2,567  |          |   |   | (7,379 | )        |   |   | 1,086 |   |

|                           |   | 2009   |   |   | 2008   |   |   | 2007   |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Net      premiums earned:      |   |   |   |   |   |   |   |   |   |
| Agribusiness                   |   |   |   |   |   |   |   |   |   |
| Property                       |   | $      | 16,546 |   |   |   | 16,412 |   |   |   | 13,772 |   |
| Commercial      auto           |   |   | 11,632 |   |   |   | 12,119 |   |   |   | 11,859 |   |
| Liability                      |   |   | 9,196  |   |   |   | 8,795  |   |   |   | 7,540 |   |
| Workers'      compensation     |   |   | 7,238  |   |   |   | 7,310  |   |   |   | 6,394 |   |
| Other                          |   |   | 677    |   |   |   | 662    |   |   |   | 680 |   |
| Agribusiness      subtotal     |   |   | 45,289 |   |   |   | 45,298 |   |   |   | 40,245 |   |
| Commercial      lines          |   |   |   |   |   |   |   |   |   |   |   |   |
| Property      & liability  |   |   | 17,731 |   |   |   | 19,428 |   |   |   | 18,301 |   |
| Workers'      compensation     |   |   | 6,235  |   |   |   | 7,451  |   |   |   | 6,524 |   |
| Commercial      auto           |   |   | 4,746  |   |   |   | 4,659  |   |   |   | 4,194 |   |
| Other                          |   |   | 249    |   |   |   | 267    |   |   |   | 241 |   |
| Commercial      lines subtotal |   |   | 28,961 |   |   |   | 31,805 |   |   |   | 29,260 |   |
| Other                          |   |   | 1,108  |   |   |   | 1,634  |   |   |   | 1,465 |   |
| Total      net premiums earned |   | $      | 75,358 |   |   |   | 78,737 |   |   |   | 70,970 |   |

----

| (17) | Reconciliation      of Statutory Filings to Amounts ReportedHerein |
|------|--------------------------------------------------------------------|

|                                                       |   | 2009   |    |          | 2008   |   |   | 2007          |   |
|------------------------------------------------------------|--------|--------|---------|---------------|--------|--------|--------|---------------|--------|
| Net      income (loss):                                    |   |   |    |          |   |   |   |          |   |
| Statutory      net income (loss)                           |   | $      | 3,422   |          |   |   | (4,718 | )        |   |   | 878 |   |
| Deferred      policy acquisition costs                     |   |   | (548    | )        |   |   | (413   | )        |   |   | 633 |   |
| Deferred      federal income taxes                         |   |   | 685     |          |   |   | 1,068  |          |   |   | 208 |   |
| Other,      including noninsurance amounts                 |   |   | (152    | )        |   |   | (396   | )        |   |   | (270 | )        |
| Discontinued      operations                               |   |   | (840    | )        |   |   | (2,920 | )        |   |   | (363 | )        |
| GAAP      net income (loss)                                |   | $      | 2,567   |          |   |   | (7,379 | )        |   |   | 1,086 |   |
| Surplus:                                                   |   |   |    |          |   |   |   |          |   |   |   |   |
| Statutory      capital and surplus                         |   | $      | 72,491  |          |   |   | 42,569 |          |   |   | 50,795 |   |
| Equity      of noninsurance entities                       |   |   | 15,065  |          |   |   | (2,827 | )        |   |   | 379 |   |
| Deferred      policy acquisition costs                     |   |   | 10,053  |          |   |   | 10,601 |          |   |   | 11,014 |   |
| Deferred      federal income taxes                         |   |   | (3,760  | )        |   |   | (4,111 | )        |   |   | (3,700 | )        |
| Nonadmitted      assets                                    |   |   | 2,150   |          |   |   | 3,342  |          |   |   | 1,598 |   |
| Unrealized      gains on fixed maturities, net of tax |   |   | 3,581   |          |   |   | 908    |          |   |   | 1,185 |   |
| Other      items, net                                      |   |   | 468     |          |   |   | 273    |          |   |   | 130 |   |
| GAAP      shareholders' equity                             |   | $      | 100,048 |          |   |   | 50,755 |          |   |   | 61,401 |   |

| (18) | Discontinued      Operations |
|------|------------------------------|

----

|                                                                         |   | 2009   |    |   | 2008   |   |   | 2007   |   |
|------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|
| Net      revenue                                                             |   | $      | — |   |   |   | 720    |   |   |   | 1,458 |   |
| Income      (loss) from discontinued operations, before income    taxes |   | $      | 50      |   |   |   | (53    | )      |   |   | (196 | ) |
| Income      tax expense (benefit)                                            |   |   | 17      |   |   |   | (18    | )      |   |   | (59 | ) |
| Income      (loss) from discontinued operations                         |   | $      | 33      |   |   |   | (35    | )      |   |   | (137 | ) |

|                                                             |   | 2009   |    |   | 2008   |   |   | 2007   |   |
|------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|
| Net      revenue                                                 |   | $      | — |   |   |   | 3,437  |   |   |   | 4,130 |   |
| Loss      from discontinued operations, before income taxes |   | $      | (11     | )      |   |   | (3,037 | )      |   |   | (293 | ) |
| Income      tax expense (benefit)                                |   |   | 862     |   |   |   | (152   | )      |   |   | (67 | ) |
| Loss      from discontinued operations                      |   | $      | (873    | )      |   |   | (2,885 | )      |   |   | (226 | ) |

----

|                                       |   | 2008   |    |
|--------------------------------------------|--------|--------|---------|
| Assets:                                    |   |   |    |
| Cash                                       |   | $      | — |   |
| Receivables                                |   |   | 420     |   |
| Goodwill                                   |   |   | 2,147   |   |
| Intangible      assets                     |   |   | 464     |   |
| Other      assets                          |   |   | 183     |   |
| Total      assets                          |   | $      | 3,214   |   |
| Liabilities:                               |   |   |    |   |
| Accounts      payable and accrued expenses |   | $      | 362     |   |
| Acquisition      payables                  |   |   | 285     |   |
| Total      liabilities                     |   | $      | 647     |   |

|                                                                         |   | 2009   |    |   | 2008   |   |   | 2007          |   |
|------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|---------------|--------|
| Net      revenue                                                             |   | $      | — |   |   |   | 4,157  |          |   |   | 5,588 |   |
| Income      (loss) from discontinued operations, before income    taxes |   | $      | 39      |   |   |   | (3,090 | )        |   |   | (489 | )        |
| Income      tax expense (benefit)                                            |   |   | 879     |   |   |   | (170   | )        |   |   | (126 | )        |
| Loss      from discontinued operations                                       |   | $      | (840    | )      |   |   | (2,920 | )        |   |   | (363 | )        |

----

| (19) | Shareholders’      Equity |
|------|---------------------------------|

|   | (a) | On      October 16, 2009, Penn Millers Mutual completed its conversion to stock      form.  The Corporation sold a total of 5,444,022 shares in a      subscription and community offering at $10.00 per share, through which the      Corporation received proceeds of $45,172, net of conversion and offering      costs of $3,867.  On July 28, 2009, the board of directors      approved the implementation of an ESOP.  The ESOP acquired      539,999 shares at $10.00 per share. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | In      April 2009 the board of directors approved the authorization of 1,000,000      shares of no par preferred stock of the Corporation upon conversion. The      authorized but unissued preferred shares may be issued in one or more      series and the share of each series shall have such rights as fixed by the      board of directors. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | The      activity of the Corporation’s common stock was as  follows: |
|--------|-----|----------------------------------------------------------------------------|

|                                     |   | 2009                    |      |
|------------------------------------------|--------|-------------------------|-----------|
|                                     |   | (number      of shares) |      |
| Common      stock issued                 |   |                    |      |
| Balance,      beginning October 16, 2009 |   |                    | —   |   |
| Issuance      of shares                  |   |                    | 5,444,022 |   |
| Balance,      end of year                |   |                    | 5,444,022 |   |
| Treasury      stock                      |   |                    |      |   |
| Balance,      beginning October 16, 2009 |   |                    | —   |   |
| Repurchase      of shares                |   |                    | 217,761   |   |
| Balance,      end of year                |   |                    | 217,761   |   |

|   | (d) | As      of December 31, 2009, 54,440 shares remained under the share repurchase      authorization that was approved by the board of directors in October      2009.  The authorization has no expiration  date. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (20) | Quarterly      Financial Data (unaudited) |
|------|-------------------------------------------|

|                                                               |   | First      Quarter                                    |   |   | Second      Quarter |   |   | Third      Quarter |   |   | Fourth      Quarter |   |
|--------------------------------------------------------------------|--------|-------------------------------------------------------|--------|--------|---------------------|--------|--------|--------------------|--------|--------|---------------------|--------|
|                                                               |   | 2009                                                  |   |   | 2008                |   |   | 2009               |   |   | 2008                |   |   | 2009 |   |   | 2008 |   |   | 2009 |   |   | 2008 |   |
|                                                               |   | (Unaudited,      in thousands, except per share data) |   |
|                                                               |   |                                                  |   |
| Total      revenues                                                |   | $                                                     | 19,465 |   |                |   | 23,249 |               |   |   | 20,208              |   |   |   | 20,940 |   |   |   | 22,302 |   |   |   | 18,271 |   |   |   | 19,453 |   |   |   | 16,204 |   |
| Total      losses and expenses                                     |   |                                                  | 18,575 |   |                |   | 19,880 |               |   |   | 20,359              |   |   |   | 22,303 |   |   |   | 21,453 |   |   |   | 20,168 |   |   |   | 17,980 |   |   |   | 22,150 |   |
| Income      (loss) from continuing operations, before income taxes |   |                                                  | 890    |   |                |   | 3,369  |               |   |   | (151                | )      |   |   | (1,363 | ) |   |   | 849 |   |   |   | (1,897 | ) |   |   | 1,473 |   |   |   | (5,946 | ) |
| Income      tax expense (benefit)                                  |   |                                                  | 205    |   |                |   | 985    |               |   |   | (98                 | )      |   |   | (491 | ) |   |   | (569 | ) |   |   | (354 | ) |   |   | 116 |   |   |   | (1,518 | ) |
| Income      (loss) from continuing operations (1)                  |   |                                                  | 685    |   |                |   | 2,384  |               |   |   | (53                 | )      |   |   | (872 | ) |   |   | 1,418 |   |   |   | (1,543 | ) |   |   | 1,357 |   |   |   | (4,428 | ) |
|                                                               |   |                                                  |   |   |                |   |   |               |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income per share (2)      (3)                             |   |                                                  |   |   |                |   |   |               |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                              |   |                                                  | N/A    |   |                |   | N/A    |               |   |   | N/A                 |   |   |   | N/A |   |   |   | N/A |   |   |   | N/A |   |   |   | 0.19 |   |   |   | N/A |   |

|  | (1) | During      the preparation of the second quarter 2009 financial statements, the      Company discovered an error in the accrual of ceded premium for the 2009      accident year under the aggregate stop loss contract in effect for 2008      and 2009.  Pursuant to SAB No. 108, Quantifying Financial      Statement Misstatements, it was determined the misstatements were      not material.  An adjustment of ($166) to net income is      reflected in the first quarter financial information  above. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Earnings      per share data reflects only the net income for the period from October      17, 2009 through December 31, 2009, the period subsequent to the      conversion and sale of stock.  Net income during this period was      $929. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Earnings      per share for the periods prior to October 17, 2009 are not      applicable. |
|--------|-----|--------------------------------------------------------------------------------------------|

----

|                                                                                                                       |   | 2009   |    |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|
| Assets                                                                                                                     |   |   |    |
| Investments      in common stock of subsidiary (equity method)                                                             |   | $      | 83,316  |   |
| Investments:                                                                                                               |   |   |    |   |
| Fixed      maturities investments:                                                                                         |   |   |    |   |
| Available      for sale, at fair value (amortized cost  $5,060 in      2009)                                     |   |   | 5,022   |   |
| Cash      and cash equivalents                                                                                             |   |   | 13,199  |   |
| Accrued      investment income                                                                                             |   |   | 35      |   |
| Receivables      from affiliates                                                                                           |   |   | 1,887   |   |
| Deferred      income taxes                                                                                                 |   |   | 1,261   |   |
| Other                                                                                                                      |   |   | 327     |   |
| Total      assets                                                                                                          |   | $      | 105,047 |   |
| Liabilities      and Shareholders' Equity                                                                                  |   |   |    |   |
| Liabilities:                                                                                                               |   |   |    |   |
| Accounts      payable and accrued expenses                                                                                 |   | $      | 4,443   |   |
| Income      taxes payable                                                                                                  |   |   | 556     |   |
| Total      liabilities                                                                                                     |   |   | 4,999   |   |
| Shareholders'      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 2009, 5,444,022;      outstanding 2009, 4,695,262 shares |   |   | 54      |   |
| Additional      paid-in capital                                                                                            |   |   | 50,520  |   |
| Accumulated      other comprehensive income                                                                                |   |   | 2,519   |   |
| Retained      earnings                                                                                                     |   |   | 54,481  |   |
| Unearned      ESOP, 530,999 shares                                                                                         |   |   | (5,310  | ) |
| Treasury      stock, at cost, 217,761 shares                                                                               |   |   | (2,216  | ) |
| Total      shareholders' equity                                                                                            |   |   | 100,048 |   |
| Total      liabilities and shareholders' equity                                                                            |   | $      | 105,047 |   |

----

|                                              |   | 2009   |   |
|---------------------------------------------------|--------|--------|--------|
| Revenues:                                         |   |   |   |
| Investment      income, net of investment expense |   | $      | 13     |   |
| Total      revenues                               |   |   | 13     |   |
| Losses      and expenses:                         |   |   |   |   |
| Administrative      expenses                      |   |   | 333    |   |
| Interest      expense                             |   |   | 7      |   |
| Total      losses and expenses                    |   |   | 340    |   |
| Operating      loss                               |   |   | (327   | ) |
| Income      tax benefit                           |   |   | (110   | ) |
| Loss      before equity in income of subsidiaries |   |   | (217   | ) |
| Equity      in income of subsidiaries             |   |   | 2,784  |   |
| Net      income                                   |   | $      | 2,567  |   |

----

|                                                                                        |   | 2009   |    |
|---------------------------------------------------------------------------------------------|--------|--------|---------|
| Cash      flows from operating activities:                                                  |   |   |    |
| Net      income                                                                             |   | $      | 2,567   |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities: |   |   |    |   |
| Equity      in undistributed income of subsidiaries                                         |   |   | (2,784  | ) |
| Deferred      income taxes                                                                  |   |   | 36      |   |
| ESOP      share allocation                                                                  |   |   | 92      |   |
| Other,      net                                                                             |   |   | (65     | ) |
| Net      cash used in operating activities                                                  |   |   | (154    | ) |
| Cash      flows from investing activities:                                                  |   |   |    |   |
| Investments      in subsidiaries                                                            |   |   | (24,540 | ) |
| Available-for-sale      investments:                                                        |   |   |    |   |
| Purchases                                                                                   |   |   | (5,069  | ) |
| Net      cash used in investing activities                                                  |   |   | (29,609 | ) |
| Cash      flows from financing activities:                                                  |   |   |    |   |
| Net      proceeds from issuance of common stock                                             |   |   | 49,040  |   |
| Purchase      of treasury stock                                                             |   |   | (2,216  | ) |
| Initial      public offering costs paid                                                     |   |   | (2,062  | ) |
| Net      borrowings on line of credit                                                       |   |   | (1,800  | ) |
| Net      cash provided by financing activities                                              |   |   | 42,962  |   |
|                                                                                        |   |   |    |   |
| Net      increase in cash                                                                   |   |   | 13,199  |   |
| Cash      and cash equivalents at beginning of period                                       |   |   | — |   |
| Cash      and cash equivalents at end of period                                             |   | $      | 13,199  |   |

----

|                     |   |                             |   |   | Future Policy  |   |    |     |   |   |              |   |   |             |    |
|--------------------------|--------|----------------------------------|--------|--------|---------------------|--------|---------|----------|--------|--------|-------------------|--------|--------|------------------|---------|
|                |   | Deferred                         |   |   | Benefits,           |   |    |     |   |   | Other Policy |   |   |             |    |
|                |   | Policy                           |   |   | Losses, Claims |   |    |     |   |   | Claims            |   |   |             |    |
|                |   | Acquisition                      |   |   | and Loss       |   |    | Unearned |   |   | and Benefits |   |   | Net premium |    |
|                |   | Costs                            |   |   | Expenses            |   |    | Premiums |   |   | Payable           |   |   | Earned           |    |
|                |   | (Dollars in thousands) |   |
| December      31, 2009   |   |                             |   |   |                |   |    |     |   |   |              |   |   |             |    |
| Agribusiness             |   | $                                | 6,386  |   |                |   | 49,555  |     |   |   | 28,727            |   |   |             | — |   |   |   | 45,289 |   |
| Commercial      business |   |                             | 3,665  |   |                |   | 48,167  |     |   |   | 14,577            |   |   |             | — |   |   |   | 28,961 |   |
| Other                    |   |                             | 2      |   |                |   | 8,988   |     |   |   | 9                 |   |   |             | — |   |   |   | 1,108 |   |
| Total                    |   | $                                | 10,053 |   |                |   | 106,710 |     |   |   | 43,313            |   |   |             | — |   |   |   | 75,358 |   |
| December      31, 2008   |   |                             |   |   |                |   |    |     |   |   |              |   |   |             |    |   |   |   |   |   |
| Agribusiness             |   | $                                | 5,981  |   |                |   | 47,212  |     |   |   | 27,352            |   |   |             | — |   |   |   | 45,298 |   |
| Commercial      business |   |                             | 4,616  |   |                |   | 50,680  |     |   |   | 17,957            |   |   |             | — |   |   |   | 31,805 |   |
| Other                    |   |                             | 4      |   |                |   | 10,173  |     |   |   | 13                |   |   |             | — |   |   |   | 1,634 |   |
| Total                    |   | $                                | 10,601 |   |                |   | 108,065 |     |   |   | 45,322            |   |   |             | — |   |   |   | 78,737 |   |
| December      31, 2007   |   |                             |   |   |                |   |    |     |   |   |              |   |   |             |    |   |   |   |   |   |
| Agribusiness             |   | $                                | 6,429  |   |                |   | 42,881  |     |   |   | 27,552            |   |   |             | — |   |   |   | 40,245 |   |
| Commercial      business |   |                             | 4,579  |   |                |   | 41,805  |     |   |   | 19,021            |   |   |             | — |   |   |   | 29,260 |   |
| Other                    |   |                             | 6      |   |                |   | 11,270  |     |   |   | 22                |   |   |             | — |   |   |   | 1,465 |   |
| Total                    |   | $                                | 11,014 |   |                |   | 95,956  |     |   |   | 46,595            |   |   |             | — |   |   |   | 70,970 |   |

----

|                        |   |                             |         |   | Benefits,           |   |   |         |   |   |      |   |   |    |   |
|-----------------------------|--------|----------------------------------|--------------|--------|---------------------|--------|--------|--------------|--------|--------|-----------|--------|--------|---------|--------|
|                   |   | Net                              |         |   | Claims, Losses |   |   |         |   |   | Other     |   |   |    |   |
|                   |   | Investment                       |         |   | and Settlement |   |   | Amortization |   |   | Operating |   |   | Premium |   |
|                   |   | Income                           |         |   | Expenses            |   |   | of DPAC |   |   | Expenses  |   |   | Written |   |
|                   |   | (Dollars in thousands) |         |
| December 31, 2009 |   |                             |         |   |                |   |   |         |   |   |      |   |   |    |   |
| Agribusiness                |   | $                                |         |   |                |   | 29,654 |         |   |   | 12,741    |   |   |    |   |   |   |   | 46,787 |   |
| Commercial      business    |   |                             |         |   |                |   | 22,695 |         |   |   | 8,368     |   |   |    |   |   |   |   | 25,754 |   |
| Other                       |   |                             |         |   |                |   | 405    |         |   |   | 274       |   |   |    |   |   |   |   | 1,105 |   |
| Total                       |   | $                                | 5,648        |   |                |   | 52,754 |         |   |   | 21,383    |   |   |    | 3,999  |   |   |   | 73,646 |   |
| December      31, 2008      |   |                             |         |   |                |   |   |         |   |   |      |   |   |    |   |   |   |   |   |   |
| Agribusiness                |   | $                                |    |   |                |   | 31,137 |         |   |   | 13,024    |   |   |    |   |   |   |   | 45,110 |   |
| Commercial      business    |   |                             |         |   |                |   | 25,480 |         |   |   | 9,628     |   |   |    |   |   |   |   | 30,632 |   |
| Other                       |   |                             |         |   |                |   | 773    |         |   |   | 429       |   |   |    |   |   |   |   | 1,625 |   |
| Total                       |   | $                                | 5,335        |   |                |   | 57,390 |         |   |   | 23,081    |   |   |    | 3,481  |   |   |   | 77,367 |   |
| December      31, 2007      |   |                             |         |   |                |   |   |         |   |   |      |   |   |    |   |   |   |   |   |   |
| Agribusiness                |   | $                                |         |   |                |   | 27,313 |         |   |   | 12,436    |   |   |    |   |   |   |   | 41,402 |   |
| Commercial      business    |   |                             |         |   |                |   | 20,570 |         |   |   | 9,042     |   |   |    |   |   |   |   | 31,266 |   |
| Other                       |   |                             |         |   |                |   | 1,900  |         |   |   | 452       |   |   |    |   |   |   |   | 1,451 |   |
| Total                       |   | $                                | 5,324        |   |                |   | 49,783 |         |   |   | 21,930    |   |   |    | 2,233  |   |   |   | 74,119 |   |

----

|                  |   |                             |   |   |          |   |   |              |   |   |   |   |   | Percentage      |   |
|-----------------------|--------|----------------------------------|--------|--------|---------------|--------|--------|-------------------|--------|--------|--------|--------|--------|-----------------|--------|
|                  |   |                             |   |   | Ceded to |   |   | Assumed from |   |   |   |   |   | of Amount  |   |
|             |   | Gross                            |   |   | Other         |   |   | Other             |   |   | Net    |   |   | Assumed to |   |
|             |   | Amount                           |   |   | Companies     |   |   | Companies         |   |   | Amount |   |   | Net             |   |
|             |   | (Dollars in thousands) |   |
| Premiums      earned: |   |                             |   |   |          |   |   |              |   |   |   |   |   |            |   |
| 2009                  |   | $                                | 90,331 |   |          |   | 15,849 |              |   |   | 876    |   |   |            | 75,358 |   |   |   | 1.16 | % |
| 2008                  |   |                             | 96,239 |   |          |   | 18,889 |              |   |   | 1,387  |   |   |            | 78,737 |   |   |   | 1.76 |   |
| 2007                  |   |                             | 90,796 |   |          |   | 21,041 |              |   |   | 1,215  |   |   |            | 70,970 |   |   |   | 1.71 |   |

----

|                   |   | 2009                             |   |   | 2008   |   |   | 2007   |   |
|------------------------|--------|----------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                   |   | (Dollars in thousands) |   |
| Beginning balance |   | $                                | 364    |   |   |   | 295    |   |   |   | 250 |   |
| Additions              |   |                             | 203    |   |   |   | 335    |   |   |   | 202 |   |
| Deletions              |   |                             | (287   | )      |   |   | (266   | )      |   |   | (157 | ) |
| Ending      balance    |   | $                                | 280    |   |   |   | 364    |   |   |   | 295 |   |

----

|         |   | Deferred                         |   |   | Reserve for |   |    | Discount on          |   |   |     |   |   |            |   |   |                |   |
|--------------|--------|----------------------------------|--------|--------|------------------|--------|---------|---------------------------|--------|--------|----------|--------|--------|-----------------|--------|--------|---------------------|--------|
|    |   | Policy                           |   |   | Losses and  |   |    | Reserve for          |   |   |     |   |   |            |   |   |                |   |
|    |   | Acquisition                      |   |   | Loss Adj.   |   |    | Losses and Loss |   |   | Unearned |   |   | Net Earned |   |   | Net Investment |   |
|    |   | Costs                            |   |   | Expenses         |   |    | Adj. Expenses        |   |   | Premium  |   |   | Premiums        |   |   | Income              |   |
|    |   | (Dollars in thousands) |   |
| 2009         |   | $                                | 10,053 |   |             |   | 106,710 |                      |   |   | —  |   |   |            | 43,313 |   |                |   | 75,358 |   |   |   | 5,648 |   |
| 2008         |   |                             | 10,601 |   |             |   | 108,065 |                      |   |   | —  |   |   |            | 45,322 |   |                |   | 78,737 |   |   |   | 5,335 |   |
| 2007         |   |                             | 11,014 |   |             |   | 95,956  |                      |   |   | —  |   |   |            | 46,595 |   |                |   | 70,970 |   |   |   | 5,324 |   |

|         |   |                                   |   |   |            |   |   |         |   |   | Paid Losses and |   |   |     |   |
|--------------|--------|----------------------------------------|--------|--------|-----------------|--------|--------|--------------|--------|--------|---------------------------|--------|--------|----------|--------|
|    |   | Losses and LAE Incurred |   |   | Amortization    |   |   | Adjustment   |   |   | Net Written          |   |
|    |   | Current Year                      |   |   | Prior Year |   |   | of DPAC |   |   | Expenses                  |   |   | Premiums |   |
| 2009         |   | $                                      | 51,199 |   |            |   | 1,555  |         |   |   | 21,383                    |   |   |     | 49,840 |   |   |   | 73,646 |   |
| 2008         |   |                                   | 62,612 |   |            |   | (5,222 | )            |   |   | 23,081                    |   |   |     | 49,179 |   |   |   | 77,367 |   |
| 2007         |   |                                   | 54,421 |   |            |   | (4,638 | )            |   |   | 21,930                    |   |   |     | 41,870 |   |   |   | 74,119 |   |

----

----

|   | 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).                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 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   | Separation      and General Release Agreement between Eastern Insurance Group, Penn      Millers Mutual Holding Company, its affiliates and William H. Spencer, Jr.      is incorporated by reference herein to Exhibit No. 10.9 to the Company’s      Form S-1 Registration Statement, (Commission File No.      333-156936).                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
|   | 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,      2010*                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
|   | 10.9   | Property      & Casualty Excess of Loss Reinsurance Contract Effective January      1, 2010*                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
|   | 10.10  | Casualty      Excess of Loss Reinsurance Contract Effective January 1,    2010*                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
|   | 10.11  | Umbrella      Quota Share Reinsurance Contract Effective January 1,  2010*                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
|   | 10.12  | Property      Excess of Loss Reinsurance Contract Effective January 1,    2010*                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
|   | 10.13  | 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).                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
|   | 10.14  | 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).                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
|   | 10.15  | 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).                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
|   | 10.16  | 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-1Registration Statement, (Commission File No.      333-156936).                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
|   | 10.17  | 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).                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
|   | 10.18  | 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). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
|   | 21.1   | Subsidiaries      of Penn Millers Holding Corporation.*                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
|   | 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 of2002.*                                                                                                                                                                                                                                                    |

----

|                | PENN      MILLERS HOLDING CORPORATION |                                                |
|---------------------|---------------------------------------|-----------------------------------------------------|
|                |                                  |                                                |   |
| March      31, 2010 | By:                                   | /s/ Douglas A. Gaudet                          |   |
|                |                                  | Douglas      A. Gaudet, President and          |   |
|                |                                  | Chief      Executive Officer                   |   |
|                |                                  |                                                |   |
| March      31, 2010 | By:                                   | /s/ Michael O. Banks                                |   |
|                |                                  | Michael      O. Banks, Executive Vice President and |   |
|                |                                  | Chief      Financial Officer                        |   |

----

| Signature                                 |   | Capacity                                   |   | Date                |
|-------------------------------------------|--------|--------------------------------------------|--------|---------------------|
|                                      |   |                                       |   |                |
| /s/      Douglas A. Gaudet                |   | Director                                   |   | March      31, 2010 |
|   Douglas      A. Gaudet        |   | President      and Chief Executive Officer |   |                |
|                                      |   | (Principal      Executive Officer)         |   |                |
|                                      |   |                                       |   |                |
| /s/      J. Harvey Sproul, Jr.            |   | Director      and Chairman                 |   | March      31, 2010 |
|   J.      Harvey Sproul, Jr.    |   |                                       |   |                |
|                                      |   |                                       |   |                |
| /s/      F. Kenneth Ackerman, Jr.         |   | Director      and Vice Chairman            |   | March      31, 2010 |
|   F.      Kenneth Ackerman, Jr. |   |                                       |   |                |
|                                      |   |                                       |   |                |
| /s/      Heather M. Acker                 |   | Director                                   |   | March      31, 2010 |
|   Heather      M. Acker         |   |                                       |   |                |
|                                      |   |                                       |   |                |
| /s/      Dorrance R. Belin, Esq.          |   | Director                                   |   | March      31, 2010 |
|   Dorrance      R. Belin, Esq.  |   |                                       |   |                |
|                                      |   |                                       |   |                |
| /s/      John L. Churnetski               |   | Director                                   |   | March      31, 2010 |
|   John      L. Churnetski       |   |                                       |   |                |

----

| /s/      John M. Coleman                |   | Director |   | March      31, 2010 |
|-----------------------------------------|--------|----------|--------|---------------------|
|   John      M. Coleman        |   |     |   |                |
|                                    |   |     |   |                |
| /s/      Kim E. Michelstein             |   | Director |   | March      31, 2010 |
|   Kim      E. Michelstein     |   |     |   |                |
|                                    |   |     |   |                |
| /s/      Robert A. Nearing, Jr.         |   | Director |   | March      31, 2010 |
|   Robert      A. Nearing, Jr. |   |     |   |                |
|                                    |   |     |   |                |
| /s/      Donald A. Pizer                |   | Director |   | March      31, 2010 |
|   Donald      A. Pizer        |   |     |   |                |
|                                    |   |     |   |                |
| /s/      James M. Revie                 |   | Director |   | March      31, 2010 |
|   James      M. Revie         |   |     |   |                |

----