# Exhibit 99.2



KMG America Corporation (KMA)



Quarterly Financial Supplement



Third Quarter 2006





This
report is for information purposes only. It should be read in conjunction with other documents filed by KMG America with the
Securities and Exchange Commission, including the most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and
earnings press releases furnished on Form 8-K. The interim financial statements and related data included herein are unaudited.
This report is dated November 6, 2006. Information contained in this report may not be accurate after such date. KMG America does
not undertake a duty to update this information after such date.





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KMG America CorporationQuarterly Financial SupplementThird Quarter 2006Table of Contents:
        
        
        
        
        Page(s)KMG America background
        
        
        
        
        1KMG America analyst coverage
        
        
        
        
        2Disclaimers
        
        
        
        
        3Statements of operations:n  Total company results  quarterly
        
        
        
        
        4n  Total company results  year-to-date
        
        
        
        
        5n  Kanawha legacy results  quarterly
        
        
        
        
        6n  Kanawha legacy results  year-to-date
        
        
        
        
        7n  New large case activity results  quarterly
        
        
        
        
        8n  New large case activity results  year-to-date
        
        
        
        
        9Calculations of diluted shares outstanding
        
        
        
        
        10Share-based compensation detail
        
        
        
        
        11Normalization of statements of operations:n  Summary of earnings results  quarter
        
        
        
        
        12n  Summary of earnings results  year-to-date
        
        
        
        
        13n  Details of normalizing adjustments
        
        
        
        
        14n  Development of GAAP equity allocations for ROE calculations
        
        
        
        15Balance sheet
        
        
        
        
        16Segment results:n  Segment results  quarterly
        
        
        
        
        17-19n  Segment results  year-to-date
        
        
        
        
        20-22Sales Results:n  Sales results  quarterly
        
        
        
        
        23n  Sales results  year-to-date
        
        
        
        
        24List of footnotes
        
        
        
        
        25APPENDIX:n  Description of segment pro forma rationale
        
        
        
        
        26n  Segment pro forma results  quarterly
        
        
        
        
        27-29n  Reconciliation of pro forma results
        
        
        
        
        30-31


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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





KMG America Background



KMG America was formed in January, 2004 for the
purpose of acquiring Kanawha Insurance Company (Kanawha) as an administrative and product platform for the creation of
a national group and worksite marketing insurance company focusing on employers with 200 to 5,000 employees. Products offered
include group life, accidental death, short and long term disability, stop loss and other group insurance products purchased and
paid for by employers for their employees, and voluntary life, disability, accident, critical illness and supplemental
health insurance products purchased and paid for by employees through payroll deduction under employer sponsorship. This broad
array of products is marketed nationally through a single channel of employee sales representatives to employers and their
employees through employee benefits brokers, consultants and enrollment firms.



The operations of KMG America commenced with the
acquisition of Kanawha, which was funded by an initial public offering completed in December, 2004, in which 21.7 million shares
were sold at $9.50 per share. The offering raised approximately $190 million after offering expenses were deducted. The $145
million purchase of Kanawha was financed with $130 million of cash and a $15 million subordinated 5 year note accruing interest at
5% per annum. Excess capital from the IPO has funded certain start-up costs, and will support future growth.



During the first two years of operations the financial
performance of KMG America has been separated into two primary components: Kanawha legacy activity and
new large case activity. This has been done to segregate the strength of, and trends in, the Kanawha business
activity that existed prior to the acquisition (Kanawha legacy activity) from the financial performance related to
transforming KMG America into a new public company with a new marketing focus (the financial results included in the new
large case activity includes all public company costs, the cost of the new management team, and all incremental sales and
underwriting costs and product revenues associated with sales generated by the new national sales organization).



For SEC reporting purposes KMG America is composed of
five reporting segments:

1.
        Worksite Insurance Business(includes both the new large case activity and the Kanawha legacy worksite business that prior to the acquisition by KMG America sold voluntary payroll-deduct products to smaller employers through specialized independent and career agents in the Southeast, primarily the Carolinas);


2.
        Senior Market Insurance Business(includes long term care product sales sold primarily through a specialized independent sales force managed by a company-owned agency based in Fort Myers, FL). The agency was sold in 2005, new sales of long term care policies were effectively discontinued, and the profitable book of long term care policies in-force is now effectively managed as a closed block);


3.
        Acquired Business(includes various closed blocks of group and individual life and health policies Kanawha acquired from other insurance companies from the late 1980s through the late 1990s);


4.
        Third Party AdministrationBusiness(includes revenues and costs associated with the unaffiliated clients of Kanawha Healthcare Solutions, an affiliated third party administrator focused primarily on employer self-funded medical plans);


5.
        Corporate and Other(includes unallocated expenses and investment income relating to both the new large case activity and the Kanawha legacy activity).




The executive office of KMG America is located in Minnetonka, Minnesota at 12600 Whitewater Drive, Suite 150, 55343. Kanawha Insurance Company is located in Lancaster, SC at 210 South White Street, 29720. KMG America is domiciled in Virginia, and Kanawha Insurance Company is domiciled in South Carolina. The stock of KMG America is publicly traded on the New York Stock Exchange under the symbol KMA.



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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





|                                               |  |                                             |                        |              |  |  | 
|---------------------------------------------- |  | ------------------------------------------- | ---------------------- | ------------ |  |  | 
|KMG America (KMA) Analyst Coverage Information |  |                                             |                        |             
|                                               |  |                                             |                        |              |  |  | 
|                                               |  |                                             |                        |              |  |  | 
|                                               |  |                                             |                        |              |  |  | 
|                                               |  |                                             |                        |              |  |  | 
|FIRM                                           |  | ANALYST                                     |                        | PHONE NUMBER |  |  | 
|                                               |  |                                             |                        |              |  |  | 
|Credit Suisse                                  |  | Thomas Gallagher                            | 212-538-2010           |              |  | 
|                                               |  | Craig Siegenthaler                          | 212-325-3104           |              |  | 
|                                               |  |                                             |                        |              |  |  | 
|Friedman Billings Ramsey                       |  | Stewart Johnson                             |                        | 212-381-9219 |  |  | 
|                                               |  |                                             |                        |              |  |  | 
|Piper Jaffray                                  |  | Michael Grasher                             |                        | 312-920-2142 |  |  | 
|                                               |  |                                             |                        |              |  |  | 
|SunTrust Robinson Humphrey                     |  | David Lewis                                 |                        | 404-926-5097 |  |  | 
|                                               |  |                                             |                        |              |  |  | 
|                                               |  |                                             |                        |              |  |  | 
|Investor inquiries may be directed to:         |  |                                             |                        |              |  | 
|                                               |  |                                             |                        |              |  |  | 
|Scott H. DeLong, Chief Financial Officer       |  | Tim Daniels, Director, Management Reporting |                       
|Email:  scott.delong@kmgamerica.com            |  | Email:  tim.daniels@kmgamerica.com          |                        |             
|Voice:  952-930-4804                           |  |                                             | Voice:  952-930-4807   |              |  | 
|Fax:     952-930-4802                          |  |                                             | Fax:      952-930-4802 |              |  | 

Note: This list is provided for informational purposes only. KMA does not
endorse the analyses, conclusions, or recommendations contained in any report issued by these or any other
analysts.

Statistical data will be available immediately after the release of earnings
for each quarter through KMAs company website http://www.kmgamerica.com. The statistical supplement can be accessed through
the Investor Relations tab, Financial Reports tab, and can be located under the Quarterly &
Other Reports section.



2

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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





DISCLAIMERS



NON-GAAP FINANCIAL MEASURES:



Operating Income  To supplement the
financial statements presented on a GAAP basis, the Company reported operating income, which is a non-GAAP measure. Operating
income is defined as net income excluding realized investment gains/losses (except for realized investment gains/losses that are
directly offset by executive deferred compensation expense), net of income taxes. Management believes this non-GAAP measure
provides investors, potential investors, securities analysts and others with useful additional information to evaluate the
performance of the business, because it excludes items that management believes are not indicative of the operating results of the
business. In addition, this non-GAAP measure is used by management to evaluate the operating performance of the Company. The
presentation of this additional information is not meant to be considered in isolation or as a substitute for net income
determined in accordance with GAAP.



A reconciliation of the non-GAAP financial measures
contained in this statistical supplement to the most comparable GAAP measures appears in the attached tables.



Normalized Earnings  To supplement the
financial statements presented on a GAAP basis, the Company reported normalized earnings, which is a non-GAAP measure.
The purpose of deriving normalized earnings measures is to identify and remove unusual or temporary items in each
quarter to help analysts and investors focus on recurring earnings trends. We have placed this derivation for the current and all
prior quarters on pages 12-14 in this statistical supplement. While this exercise requires managements subjective judgment,
the details are identified and described so the investors and analysts can form their own opinions.



FORWARD LOOKING INFORMATION:



This statistical supplement contains certain
forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause the
Companys actual results to differ materially from those expressed in the forward-looking statements including, but not
limited to: implementation of its business strategy; hiring and retaining key employees; predicting and managing claims and other
costs; fluctuations in its investment portfolio; financial strength ratings of its insurance subsidiary; government regulations,
policies and investigations affecting the insurance industry; competitive insurance products and pricing; reinsurance costs;
fluctuations in demand for insurance products; possible recessionary trends in the U.S. economy; and other risks that are detailed
from time to time in reports filed by the Company with the Securities and Exchange Commission. The Company assumes no obligation
to publicly update or revise any forward-looking statements.



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Third Quarter 2006





# Consolidated Statements of Income (unaudited)
(in thousands, except share data and percentages)

|                                                         | TOTAL COMPANYQuarter Ended
|-------------------------------------------------------- | --------------------------
|
|Insurance premiums, net of reinsurance                   |                           
|Net investment income                                    |                           
|Commission and fee income                                |                           
|Other income                                             |                           
|                                                         |                           
|Total revenues                                           |                           
|                                                        
|Policyholder benefits                                    |                           
|Insurance commissions, net of deferrals                  |                           
|                                                        
|Expenses, taxes, fees and depreciation, net of deferrals |                           
|Amortization of DAC and VOBA (2)                         |                           
|                                                         |                           
|Total benefits and expenses                              |                           
|                                                        
|Operating income before income taxes                     |                           
|(Provision) for income taxes                             |                           
|                                                         |                           
|Operating income                                         |                           
|                                                         |                           
|                                                        
|Items excluded from operating income:                    |                           
|Realized investment gains (losses)                       |                           
|Deferred compensation expense adjustment                 |                           
|                                                         |                           
|Total items excluded from operating income, before tax   |                           
|Income taxes, not applicable to operating income         |                           
|Cumulative effect of accounting change, net of tax       |                           
|                                                         |                           
|Total items excluded from operating income, after tax    |                           
|                                                         |                           
|Net income                                               |                           
|                                                         |                           
|Earnings per share  fully diluted:                      |                           
| net income                                             |                           
| operating income                                       |                           
|                                                        
|Annual return on average equity (operating income basis) |                           
|                                                        
|Weighted-average shares outstanding  diluted:           |                           
|                                                        
|Effective tax rate                                       |                           
|                                                        
|Benefit ratio (3)                                        |                           
|                                                        
|Expense ratio (4)                                        |                           
|                                                        
|Average portfolio yield (5)                              |                           
|                                                        
|Average invested assets                                  |                           
|Average cash/equivalents & short terms (5)               |                           
|                                                         |                           
|Total average cash and invested assets                   |                           
|                                                         |                           

Refer to page 25 for footnote descriptions



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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





# Consolidated Statements of Income (unaudited)
(in thousands, except share data and percentages)

|                                                         | TOTAL COMPANYYear-to-Date
|-------------------------------------------------------- | -------------------------
|
|Insurance premiums, net of reinsurance                   |                          
|Net investment income                                    |                          
|Commission and fee income                                |                          
|Other income                                             |                          
|                                                         |                          
|Total revenues                                           |                          
|                                                        
|Policyholder benefits                                    |                          
|Insurance commissions, net of deferrals                  |                          
|Expenses, taxes, fees and depreciation, net of deferrals |                          
|Amortization of DAC and VOBA (2)                         |                          
|                                                         |                          
|Total benefits and expenses                              |                          
|                                                        
|Operating income before income taxes                     |                          
|(Provision) for income taxes                             |                          
|                                                         |                          
|Operating income                                         |                          
|                                                         |                          
|Items excluded from operating income:                    |                          
|Realized investment gains (losses)                       |                          
|Deferred compensation expense adjustment                 |                          
|                                                         |                          
|Total items excluded from operating income, before tax   |                          
|Income taxes, not applicable to operating income         |                          
|Cumulative effect of accounting change, net of tax       |                          
|                                                         |                          
|Total items excluded from operating income, after tax    |                          
|                                                         |                          
|Net income                                               |                          
|                                                         |                          
|Earnings per share  fully diluted:                      |                          
| net income                                             |                          
| operating income                                       |                          
|                                                        
|Annual return on average equity (operating income basis) |                          
|                                                        
|Weighted-average shares outstanding  diluted:           |                          
|                                                        
|Effective tax rate                                       |                          
|                                                        
|Benefit ratio (3)                                        |                          
|                                                        
|Expense ratio (4)                                        |                          
|                                                        
|Average portfolio yield (5)                              |                          
|                                                        
|Average invested assets                                  |                          
|Average cash/equivalents & short terms (5)               |                          
|                                                         |                          
|Total average cash and invested assets                   |                          
|                                                         |                          

Refer to page 25 for footnote descriptions



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Quarterly Financial Supplement

Third Quarter 2006





# Consolidated Statements of Income (unaudited)
(in thousands, except share data and percentages)

|                                                         | KANAWHA LEGACY ACTIVITYQuarter Ended
|-------------------------------------------------------- | ------------------------------------
|
|Insurance premiums, net of reinsurance                   |                                     
|Net investment income                                    |                                     
|Commission and fee income                                |                                     
|Other income                                             |                                     
|                                                         |                                     
|Total revenues                                           |                                     
|                                                        
|Policyholder benefits                                    |                                     
|Insurance commissions, net of deferrals                  |                                     
|                                                        
|Expenses, taxes, fees and depreciation, net of deferrals |                                     
|Amortization of DAC and VOBA (2)                         |                                     
|                                                         |                                     
|Total benefits and expenses                              |                                     
|                                                        
|Operating income before income taxes                     |                                     
|(Provision) for income taxes                             |                                     
|                                                         |                                     
|Operating income                                         |                                     
|                                                         |                                     
|                                                        
|Operating earnings per share  fully diluted:            |                                     
|                                                        
|Annual return on average equity (operating income basis) |                                     
|                                                        
|Weighted-average shares outstanding  diluted:           |                                     
|                                                        
|Effective tax rate                                       |                                     
|                                                        
|Benefit ratio (3)                                        |                                     
|                                                        
|Expense ratio (4)                                        |                                     

Refer to page 25 for footnote descriptions



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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





# Consolidated Statements of Income (unaudited)
(in thousands, except share data and percentages)

|                                                         | KANAWHA LEGACY ACTIVITYYear-to-Date
|-------------------------------------------------------- | -----------------------------------
|
|Insurance premiums, net of reinsurance                   |                                    
|Net investment income                                    |                                    
|Commission and fee income                                |                                    
|Other income                                             |                                    
|                                                         |                                    
|Total revenues                                           |                                    
|                                                        
|Policyholder benefits                                    |                                    
|Insurance commissions, net of deferrals                  |                                    
|                                                        
|Expenses, taxes, fees and depreciation, net of deferrals |                                    
|Amortization of DAC and VOBA (2)                         |                                    
|                                                         |                                    
|Total benefits and expenses                              |                                    
|                                                        
|Operating income before income taxes                     |                                    
|(Provision) for income taxes                             |                                    
|                                                         |                                    
|Operating income                                         |                                    
|                                                         |                                    
|                                                        
|Operating earnings per share  fully diluted:            |                                    
|                                                        
|Annual return on average equity (operating income basis) |                                    
|                                                        
|Weighted-average shares outstanding  diluted:           |                                    
|                                                        
|Effective tax rate                                       |                                    
|                                                        
|Benefit ratio (3)                                        |                                    
|                                                        
|Expense ratio (4)                                        |                                    

Refer to page 25 for footnote descriptions



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Quarterly Financial Supplement

Third Quarter 2006





# Consolidated Statements of Income  unaudited
(in thousands, except share data and percentages)

|                                        | NEW LARGE CASE ACTIVITYQuarter Ended
|--------------------------------------- | ------------------------------------
|
|Insurance premiums, net of reinsurance  |                                     
|Net investment income                   |                                     
|Commission and fee income               |                                     
|Realized investment gains               |                                     
|Other income                            |                                     
|                                        |                                     
|Total revenues                          |                                     
|                                       
|Policyholder benefits                   |                                     
|Insurance commissions, net of deferrals |                                     
|                                       
|Expenses, taxes, fees and depreciation  |                                     
|Amortization of DAC and VOBA (2)        |                                     
|                                        |                                     
|Total benefits and expenses             |                                     
|                                       
|Income before income taxes              |                                     
|(Provision) for income taxes            |                                     
|                                        |                                     
|Operating income                        |                                     
|                                        |                                     
|                                       
|Operating income per share  diluted    |                                     
|                                       
|Weighted-average shares outstanding:    |                                     
|                                       
|Effective tax rate                      |                                     
|                                       
|Benefit ratio (3)                       |                                     
|                                       
|Expense ratio (4)                       |                                     

Refer to page 25 for footnote descriptions



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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





# Consolidated Statements of Income  unaudited
(in thousands, except share data and percentages)

|                                        | NEW LARGE CASE ACTIVITYYear-to-Date
|--------------------------------------- | -----------------------------------
|
|Insurance premiums, net of reinsurance  |                                    
|Net investment income                   |                                    
|Commission and fee income               |                                    
|Realized investment gains               |                                    
|Other income                            |                                    
|                                        |                                    
|Total revenues                          |                                    
|                                       
|Policyholder benefits                   |                                    
|Insurance commissions, net of deferrals |                                    
|                                       
|Expenses, taxes, fees and depreciation  |                                    
|Amortization of DAC and VOBA (2)        |                                    
|                                        |                                    
|Total benefits and expenses             |                                    
|                                       
|Income before income taxes              |                                    
|(Provision) for income taxes            |                                    
|                                        |                                    
|Operating income                        |                                    
|                                        |                                    
|                                       
|Operating income per share  diluted    |                                    
|                                       
|Weighted-average shares outstanding:    |                                    
|                                       
|Effective tax rate                      |                                    
|                                       
|Benefit ratio (3)                       |                                    
|                                       
|Expense ratio (4)                       |                                    

Refer to page 25 for footnote descriptions



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Quarterly Financial Supplement

Third Quarter 2006





# CALCULATIONS OF DILUTED SHARES OUTSTANDING
(shares in actual amounts)

|                                        | Period Ended
|--------------------------------------- | ------------
|
|Ending shares:                          |             
|Common shares outstanding  basic       |             
|                                       
|Incremental shares to compute diluted   |             
|                                        |             
|                                       
|Common shares outstanding  diluted     |             
|                                       
|                                       
|Weighted average shares  year-to-date:
|Common shares outstanding  basic       |             
|                                       
|Incremental shares to compute diluted   |             
|                                        |             
|                                       
|Common shares outstanding  diluted     |             
|                                       
|                                       
|Weighted average shares  quarter only:
|Common shares outstanding  basic       |             
|                                       
|Incremental shares to compute diluted   |             
|                                        |             
|                                       
|Common shares outstanding  diluted     |             



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Third Quarter 2006





# SHARE BASED COMPENSATION DETAIL
All amounts in actual dollars

|                                                | Period Ended
|----------------------------------------------- | ------------
|
|STOCK OPTION DETAILS:                           |             
|                                               
|Option shares outstanding (end of period)       |             
|                                               
|Average exercise price                          |             
|                                               
|                                               
|COMMON STOCK GRANT DETAILS:                     |             
|                                               
|Common stock grants outstanding (end of period) |             
|                                               
|Average grant price                             |             
|                                               
|                                               
|SHARE BASED COMPENSATION EXPENSE:              
|                                               
|quarter only                                    |             
|                                               
|year-to-date                                    |             



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# Reclassification of quarterly operating earnings results to normalize for unusual and nonrecurring items
$ in thousands, except per share data and percentages

|KMA  TOTAL COMPANY:                                    | Quarter Ended
|------------------------------------------------------- | -------------
|
|Operating income                                        |              
|EPS  fully diluted                                     |              
|Annualized ROE *                                        |              
|                                                       
|Normalized operating earnings adjustments, after tax ** |              
|                                                        |              
|                                                       
|Normalized Adjusted Baseline                           
|Operating income                                        |              
|EPS  fully diluted                                     |              
|Annualized ROE *                                        |              

|KANAWHA LEGACY ACTIVITY:                                | Quarter Ended
|------------------------------------------------------- | -------------
|
|Operating income                                        |              
|EPS                                                     |              
|Annualized ROE *                                        |              
|                                                       
|Normalized operating earnings adjustments, after tax ** |              
|                                                        |              
|                                                       
|Normalized Adjusted Baseline                           
|Operating income                                        |              
|EPS                                                     |              
|Annualized ROE *                                        |              

|NEW LARGE CASE ACTIVITY:                                | Quarter Ended
|------------------------------------------------------- | -------------
|
|Operating income                                        |              
|EPS                                                     |              
|                                                       
|Normalized operating earnings adjustments, after tax ** |              
|                                                        |              
|                                                       
|Normalized Adjusted Baseline                            |              
|Operating income                                        |              
|EPS                                                     |              

*
        See page 15 for GAAP equity roll forward and allocation between Kanawha Legacy and New Large Case Activity


** See page 14 for detailed description of unusual items





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# Reclassification of year-to-date operating earnings results to normalize for unusual and nonrecurring items
$ in thousands, except per share data and percentages

|KMA  TOTAL COMPANY:                                    | Year-to-Date
|------------------------------------------------------- | ------------
|
|Operating income                                        |             
|EPS  fully diluted                                     |             
|Annualized ROE *                                        |             
|                                                       
|Normalized operating earnings adjustments, after tax ** |             
|                                                        |             
|                                                       
|Normalized Adjusted Baseline                           
|Operating income                                        |             
|EPS  fully diluted                                     |             
|Annualized ROE *                                        |             

|KANAWHA LEGACY ACTIVITY:                                | Year-to-Date
|------------------------------------------------------- | ------------
|
|Operating income                                        |             
|EPS                                                     |             
|Annualized ROE *                                        |             
|                                                       
|Normalized operating earnings adjustments, after tax ** |             
|                                                        |             
|                                                       
|Normalized Adjusted Baseline                           
|Operating income                                        |             
|EPS                                                     |             
|Annualized ROE *                                        |             

|NEW LARGE CASE ACTIVITY:                                | Year-to-Date
|------------------------------------------------------- | ------------
|
|Operating income                                        |             
|EPS                                                     |             
|                                                       
|Normalized operating earnings adjustments, after tax ** |             
|                                                        |             
|                                                       
|Normalized Adjusted Baseline                            |             
|Operating income                                        |             
|EPS                                                     |             

*
        See page 15 for GAAP equity roll forward and allocation between Kanawha Legacy and New Large Case Activity


** See page 14 for detailed description of unusual items





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DETAILS ON NORMALIZING OPERATING EARNINGS ADJUSTMENTS  $ in thousands



|                                                          |  | Quarter Ended
|--------------------------------------------------------- |  | -------------
|
|Normalization for unusual items (aftertax): **            |  |              
|Premium refund (a)                                        |  |              
|Reserve mismatch (b)                                      |  |              
|Indemnification of items related to initial VOBA (c)      |  |              
|Single large claim (d)                                    |  |              
|                                                          |  |              
|Subtotal Kanawha legacy adjustments                       |  |              
|                                                         
|Excess stop loss claims (e)                               |  |              
|Short-term initial expenses (f)                           |  |              
|                                                          |  |              
|Subtotal new large case activity adjustments              |  |              
|                                                          |  |              
|                                                         
|Total quarterly normalization adjustments, after-tax      |  |              
|                                                          |  |              
|                                                         
|Year-to-date summary of normalized adjustments, after-tax
|Kanawha legacy adjustments                                |  |              
|New large case activity adjustments                       |  |              
|                                                          |  |              
|Total year-to-date normalization adjustments, after-tax   |  |              
|                                                          |  |              

Description of unusual items:

a.
        Premium refund represents a pre-tax charge of $325,000 for a one-time premium refund in the first quarter of 2006 resulting from a mass cancellation of an older Kanawha policy form in the state of Georgia. An offsetting credit was recognized in the third quarter of 2006 as a result of an indemnification from the previous shareholders of Kanawha.


b.
        Reserve mismatch relates to a $271,000 pre-tax charge in the first quarter of 2006 resulting from a mismatch of life insurance endowment benefits paid in cash and associated release of policy reserves. The related policy reserve release occurred in the second quarter of 2006.


c.
        Indemnification of
items related to initial VOBA the indemnification from the previous shareholders of Kanawha in the
third quarter of 2006 included an additional $302,000 pre-tax related to items hat were booked during 2005 as adjustments to the
opening value of business acquired (VOBA) asset as of December 31, 2004. As a result, the adjustments in 2005 did not
directly relate to any reporting period in 2005.


d.
        Single large
claim relates to a single large life insurance claim recognized in the second quarter of 2006 in
the acquired business segment that had an adverse impact of $595,000 pre-tax consisting primarily of accelerated amortization of
VOBA. Because of the disproportionately large impact on VOBA amortization from this single claim that cannot recur, the financial
effect of this claim has been removed from normalized earnings.


e.
        Excess stop loss
claims the Company recognized an additional $850,000 of stop loss claims in the third quarter of
2006 relating to certain policies written in 2005 as it transitions from formula reserving to actual claims experience as the book
grows and matures. The cases giving rise to the higher claims have since been re-priced or not renewed on their policy
anniversaries in 2006. Further, the Company expects experience on the new cases written in 2006  a much bigger block 
to be better than on the 2005 cases with the higher claims. Over time, as the stop loss book increases in size, claims experience
is expected to be less volatile.


f.
        Short term initial
expenses the Company has incurred certain start-up expenses for excess SOX 404 compliance costs in
the first two years, and ING litigation defense costs that are material but temporary in nature. Normalizing entries
have been made in all periods that have the effect of offsetting these temporary initial expenses. Because the Company received
reimbursement of $474,000 pre-tax under its D&O insurance coverage in the third quarter of 2006 for its legal expenses
incurred in current and prior periods related to the ING litigation, the normalizing adjustment in the third quarter was a
reduction in earnings as reported. The adjustment for excess SOX expenses relates to costs it has incurred in 2005 and 2006 over
and above its estimate of $600,000 of annualized ongoing costs for compliance in 2007 and later when such costs are expected to
stabilize.




14

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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





# Development of GAAP Equity for ROE Calculations:
$ in thousands

|                                                         | Period Ended
|-------------------------------------------------------- | ------------
|
|KMA reported net income  quarter only                   |             
|Reported GAAP Equity                                     |             
|Excluding FAS 115 g/(l)                                  |             
|                                                         |             
|GAAP Equity excl FAS 115  ending                        |             
|GAAP Equity excl FAS 115  average quarter only          |             
|GAAP Equity excl FAS 115  year-to-date                  |             
|                                                        
|Kanawha legacy activity:                                
|Net income  quarter only *                              |             
|Attributed GAAP equity **                                |             
|Attributed GAAP equity  average quarter only            |             
|Attributed GAAP equity  year-to-date                    |             
|                                                        
|New large case activity:                                 |             
|GAAP Equity excl FAS 115  ending                        |             
|less GAAP Equity attributed to Kanawha legacy            |             
|                                                         |             
|equals GAAP Equity attributed to new large case activity |             
|Attributed GAAP Equity  average quarter only            |             
|Attributed GAAP Equity  year-to-date                    |             
|                                                        
|KMA reported net income                                  |             
|less KMGA new activity operating income                  |             
|                                                         |             
|Kanawha legacy net income (retained earnings)            |             

* Development of Kanawha legacy net income for equity roll-forward
** Allocation of initial GAAP equity attributed to the Kanawha legacy business is estimated at $155 million, consisting of the
purchase price of $145 million plus the initial $10 million infusion into Kanawha insurance company to maintain statutory surplus.
The equity balances going forward take into account the retained earnings reported by the Kanawha legacy business. The difference
between total KMA reported GAAP equity (net of FAS 115 gains/losses) and GAAP equity attributed to Kanawha legacy activity is
attributed to the new large case activity.





15

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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





# Consolidated GAAP Balance Sheets
(in thousands, except share data)

|                                           | Period Ended
|------------------------------------------ | ------------
|
|Assets:                                    |             
|Cash and cash equivalents                  |             
|Investments                                |             
|                                           |             
|Total cash and investments                 |             
|Accrued investment income                  |             
|DAC                                        |             
|VOBA                                       |             
|Other assets *                             |             
|                                           |             
|Total assets                               |             
|                                           |             
|                                          
|Liabilities and shareholders equity:      |             
|Total policy and contract liabilities      |             
|Deferred income taxes                      |             
|Other liabilities **                       |             
|                                           |             
|Total liabilities                          |             
|Total shareholders equity                 |             
|                                           |             
|Total liabilities and shareholders' equity |             
|                                           |             
|                                          
|Book value per share:                     
|Basic                                      |             
|Diluted                                    |             
|Book value per share: (excl FAS 115) ***   |             
|Basic                                      |             
|Diluted                                    |             
|                                          
|Ending shares outstanding:                
|Basic                                      |             
|Diluted ****                               |             

|*    | Other assets include reinsurance balances
recoverable, real estate and equipment, federal income tax recoverable and other assets                                       
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**   | Other liabilities include accounts payable and
accrued expenses, outstanding principal and accrued interest on a subordinated note, and other miscellaneous liabilities.
|***  | The book values are recalculated excluding FAS 115
unrealized capital gains (losses), net of taxes.                                                                     
|**** | Diluted shares were calculated using the treasury
stock method.                                                                                                         



16

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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





# REPORTED SEGMENT QUARTERLY RESULTS  Unaudited
$ in thousands, except percentages

|                                        | Quarter Ended
|--------------------------------------- | -------------
|
|Insurance premiums, net of reinsurance  |              
|Net investment income                   |              
|Commissions and fee income              |              
|Other income                            |              
|                                        |              
|Total revenues                          |              
|Policyholder benefits                   |              
|Insurance commissions, net of deferrals |              
|Expenses, taxes, fees and depreciation  |              
|Amortization of DAC and VOBA (2)        |              
|                                        |              
|Total benefits and expenses             |              
|                                        |              
|Income before income taxes              |              
|                                        |              
|                                       
|Benefit ratio (3)                       |              
|                                        |              
|                                       
|Segment assets                          |              
|                                        |              
|                                       
|                                       
|
|
|Insurance premiums, net of reinsurance  |              
|Net investment income                   |              
|Commissions and fee income              |              
|Other income                            |              
|                                        |              
|Total revenues                          |              
|Policyholder benefits                   |              
|Insurance commissions, net of deferrals |              
|Expenses, taxes, fees and depreciation  |              
|Amortization of DAC and VOBA (2)        |              
|                                        |              
|Total benefits and expenses             |              
|                                        |              
|Income before income taxes              |              
|                                        |              
|                                       
|Benefit ratio (3)                       |              
|                                        |              
|                                       
|Segment assets                          |              
|                                        |              

Refer to page 25 for footnote descriptions



17

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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





# REPORTED SEGMENT QUARTERLY RESULTS  Unaudited (Continued)
$ in thousands, except percentages

|                                        | Quarter Ended
|--------------------------------------- | -------------
|
|Insurance premiums, net of reinsurance  |              
|Net investment income                   |              
|Commissions and fee income              |              
|Other income                            |              
|                                        |              
|Total revenues                          |              
|Policyholder benefits                   |              
|Insurance commissions, net of deferrals |              
|Expenses, taxes, fees and depreciation  |              
|Amortization of DAC and VOBA (2)        |              
|                                        |              
|Total benefits and expenses             |              
|                                        |              
|Income before income taxes              |              
|                                        |              
|                                       
|Benefit ratio (3)                       |              
|                                        |              
|Segment assets                          |              
|                                        |              

|                                        | Quarter Ended
|--------------------------------------- | -------------
|
|Insurance premiums, net of reinsurance  |              
|Net investment income                   |              
|Commissions and fee income              |              
|Other income                            |              
|                                        |              
|Total revenues                          |              
|Policyholder benefits                   |              
|Insurance commissions, net of deferrals |              
|Expenses, taxes, fees and depreciation  |              
|Amortization of DAC and VOBA (2)        |              
|                                        |              
|Total benefits and expenses             |              
|                                        |              
|Income before income taxes              |              
|                                        |              
|                                       
|Profit margin (6)                       |              
|                                        |              
|                                       
|Segment assets                          |              
|                                        |              

Refer to page 25 for footnote descriptions



18

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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





# REPORTED SEGMENT QUARTERLY RESULTS  Unaudited (Continued)
$ in thousands, except percentages

|                                        | Quarter Ended
|--------------------------------------- | -------------
|
|Insurance premiums, net of reinsurance  |              
|Net investment income                   |              
|Commissions and fee income              |              
|Realized gains (losses)                 |              
|Other income                            |              
|                                        |              
|Total revenues                          |              
|Policyholder benefits                   |              
|Insurance commissions, net of deferrals |              
|Expenses, taxes, fees and depreciation  |              
|Amortization of DAC and VOBA (2)        |              
|                                        |              
|Total benefits and expenses             |              
|                                        |              
|Income (loss) before income taxes       |              
|                                        |              
|                                       
|Segment assets                          |              
|                                        |              

Refer to page 25 for footnote descriptions



19

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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





# REPORTED SEGMENT YEAR-TO-DATE RESULTS  Unaudited
$ in thousands, except percentages

|                                        | Year-to-Date
|--------------------------------------- | ------------
|
|Insurance premiums, net of reinsurance  |             
|Net investment income                   |             
|Commissions and fee income              |             
|Other income                            |             
|                                        |             
|Total revenues                          |             
|Policyholder benefits                   |             
|Insurance commissions, net of deferrals |             
|Expenses, taxes, fees and depreciation  |             
|Amortization of DAC and VOBA (2)        |             
|                                        |             
|Total benefits and expenses             |             
|                                        |             
|Income before income taxes              |             
|                                        |             
|                                       
|Benefit ratio (3)                       |             
|                                        |             
|                                       
|Segment assets                          |             
|                                        |             
|                                       
|                                       
|
|
|Insurance premiums, net of reinsurance  |             
|Net investment income                   |             
|Commissions and fee income              |             
|Other income                            |             
|                                        |             
|Total revenues                          |             
|Policyholder benefits                   |             
|Insurance commissions, net of deferrals |             
|Expenses, taxes, fees and depreciation  |             
|Amortization of DAC and VOBA (2)        |             
|                                        |             
|Total benefits and expenses             |             
|                                        |             
|Income before income taxes              |             
|                                        |             
|                                       
|Benefit ratio (3)                       |             
|                                        |             
|                                       
|Segment assets                          |             
|                                        |             

Refer to page 25 for footnote descriptions



20

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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





# REPORTED SEGMENT YEAR-TO-DATE RESULTS  Unaudited (Continued)
$ in thousands, except percentages

|                                        | Year-to-Date
|--------------------------------------- | ------------
|
|Insurance premiums, net of reinsurance  |             
|Net investment income                   |             
|Commissions and fee income              |             
|Other income                            |             
|                                        |             
|Total revenues                          |             
|Policyholder benefits                   |             
|Insurance commissions, net of deferrals |             
|Expenses, taxes, fees and depreciation  |             
|Amortization of DAC and VOBA (2)        |             
|                                        |             
|Total benefits and expenses             |             
|                                        |             
|Income before income taxes              |             
|                                        |             
|                                       
|Benefit ratio (3)                       |             
|                                        |             
|                                       
|Segment assets                          |             
|                                        |             
|                                       
|                                       
|
|
|Insurance premiums, net of reinsurance  |             
|Net investment income                   |             
|Commissions and fee income              |             
|Other income                            |             
|                                        |             
|Total revenues                          |             
|Policyholder benefits                   |             
|Insurance commissions, net of deferrals |             
|Expenses, taxes, fees and depreciation  |             
|Amortization of DAC and VOBA (2)        |             
|                                        |             
|Total benefits and expenses             |             
|                                        |             
|Income before income taxes              |             
|                                        |             
|                                       
|Profit margin (6)                       |             
|                                        |             
|                                       
|Segment assets                          |             
|                                        |             

Refer to page 25 for footnote descriptions



21

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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





# REPORTED SEGMENT YEAR-TO-DATE RESULTS  Unaudited (Continued)
$ in thousands, except percentages

|                                        | Year-to-Date
|--------------------------------------- | ------------
|
|Insurance premiums, net of reinsurance  |             
|Net investment income                   |             
|Commissions and fee income              |             
|Realized gains (losses)                 |             
|Other income                            |             
|                                        |             
|Total revenues                          |             
|Policyholder benefits                   |             
|Insurance commissions, net of deferrals |             
|Expenses, taxes, fees and depreciation  |             
|Amortization of DAC and VOBA (2)        |             
|                                        |             
|Total benefits and expenses             |             
|                                        |             
|Income (loss) before income taxes       |             
|                                        |             
|                                       
|Segment assets                          |             
|                                        |             

Refer to page 25 for footnote descriptions



22

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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





# Statistical and Operating Data at or for the Periods Indicated
(in thousands, except percentages)

# SALES  ISSUED NEW ANNUALIZED PREMIUMS (Unaudited)
$ in thousands

|                                                     | Quarter Ended
|---------------------------------------------------- | -------------
|
|Worksite insurance segment  Kanawha Legacy          |              
|Life                                                 |              
|Cancer                                               |              
|Disability income                                    |              
|Other A&H                                            |              
|                                                     |              
|Total worksite  Kanawha Legacy                      |              
|                                                    
|Worksite insurance segment  New Large Case Activity
|Core Group Products:                                 |              
|Life                                                 |              
|Stop loss                                            |              
|Disability income                                    |              
|Other A&H                                            |              
|Voluntary Benefit Products:                         
|Life *                                               |              
|Cancer                                               |              
|Disability income                                    |              
|Other A&H                                            |              
|                                                     |              
|Total worksite  New Large Case Activity             |              
|                                                    
|Other Kanawha legacy sales                          
|Long term care                                       |              
|                                                     |              
|                                                    
|Total sales                                          |              
|                                                     |              

* Life sales for the third quarter 2006 results
include $5.3 million of annualized premium related to a small block transaction (primarily voluntary term life
policies).



23

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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





# Statistical and Operating Data at or for the Periods Indicated
(in thousands, except percentages)

# SALES  ISSUED NEW ANNUALIZED PREMIUMS (Unaudited)
$ in thousands

|                                                     | Year-to-Date
|---------------------------------------------------- | ------------
|
|Worksite insurance segment  Kanawha Legacy          |             
|Life                                                 |             
|Cancer                                               |             
|Disability income                                    |             
|Other A&H                                            |             
|                                                     |             
|Total worksite  Kanawha Legacy                      |             
|                                                    
|Worksite insurance segment  New Large Case Activity
|Core Group Products:                                 |             
|Life                                                 |             
|Stop loss                                            |             
|Disability income                                    |             
|Other A&H                                            |             
|Voluntary Benefit Products:                         
|Life *                                               |             
|Cancer                                               |             
|Disability income                                    |             
|Other A&H                                            |             
|                                                     |             
|Total worksite  New Large Case Activity             |             
|                                                    
|Other Kanawha legacy sales                          
|Long term care                                       |             
|                                                     |             
|                                                    
|Total sales                                          |             
|                                                     |             

* Life sales for the nine months year-to-date 2006
results include $5.3 million of annualized premium related to a small block transaction (primarily voluntary term life
policies).



24

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KMG America Corporation

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Third Quarter 2006





List of footnotes references:



(1)
        Operating income is a non-GAAP measure, and is defined as net income excluding realized gains (losses), except for realized gains (losses) that are directly offset by executive deferred compensation expenses, net of taxes.




(2)
        DAC:  deferred acquisition costs;  VOBA:  value of business acquired




(3)
        Benefit ratio is defined as total policyholder benefits divided by total net premiums.




(4)
        Expense ratio is defined as commissions, expenses and amortization of DAC/VOBA (on an operating income basis) divided by earned premiums plus commissions/fees.




(5)
        Average portfolio yield is defined as net investment income divided by average invested assets, excluding the impact of FAS 115 unrealized gains (losses) plus average cash and equivalents. Average cash/equivalents and short term assets include the portion of initial public offering proceeds that are invested short (less than 2 year maturities).




(6)
        Profit margin is defined as pretax income divided by commissions/fees




25

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KMG America Corporation

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Third Quarter 2006





APPENDIX  SEGMENT PRO FORMA RESULTS



Rationale for pro forma segment
reclassifications



To supplement the financial
statements presented on a GAAP basis, the Company has presented quarterly segment results on a pro forma basis, which is a
non-GAAP measure. The second quarter 2006 reported segment results were impacted by the reallocation of portions of policy
reserves and corresponding investment income between the Kanawha legacy reporting segments. When KMG America acquired Kanawha in
December of 2004, an additional provision for adverse deviations related to all legacy business was added to policy reserves, and
allocated primarily to the acquired business segment and a smaller amount to the life products included in the legacy portion of
the worksite insurance business segment. Given the discontinuation of long term care sales activity combined with the uncertainty
in the amount and timing in obtaining approvals for rate increases for long term care policies from state insurance regulators,
the company has deemed it appropriate to reallocate much more of the initial provision for adverse deviations to the senior
segment. The triggering event for implementing this reallocation of policy reserves as of June 30, 2006, was the implementation of
the final reserve methodology which replaced the preliminary reserve methodology that had been in use since inception.



The result of the reallocation of
reserves between Kanawha legacy segments was to increase reserves by $37.5 million in the senior segment, offset by reduced
reserves of $31.2 million in the acquired segment and $6.3 million in the legacy portion of the worksite segment as of June 30,
2006. There was no impact to overall policy reserves or to reported earnings to date.



This reallocation of reserves
between the Kanawha legacy segments distorts the second quarter 2006 reported policyholder benefits and the resulting reported
benefit ratios by segment. To provide a meaningful period-over-period comparison by reporting segment,policy reserves and investment income contained in the segment results
over the prior quarters have been reclassified on a pro forma basis in the attached financial tables and are also reflected in the
subsequent discussion of segment results above.



A reconciliation of the non-GAAP
pro forma adjustments is presented on pages 30-31.



26

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Third Quarter 2006





RECLASSIFICATION OF PRO FORMA SEGMENT QUARTERLY OPERATING RESULTS (Unaudited)
$ in thousands, except percentages

|Worksite  Kanawha Legacy:              | Quarter Ended
|--------------------------------------- | -------------
|
|Insurance premiums, net of reinsurance  |              
|Net investment income                   |              
|Commissions and fee income              |              
|Other income                            |              
|                                        |              
|Total revenues                          |              
|Policyholder benefits                   |              
|Insurance commissions, net of deferrals |              
|Expenses, taxes, fees and depreciation  |              
|Amortization of DAC and VOBA (2)        |              
|                                        |              
|Total benefits and expenses             |              
|                                        |              
|Income before income taxes              |              
|(Provision) for income taxes            |              
|                                        |              
|Operating income after tax              |              
|                                        |              
|                                       
|Benefit ratio (3)                       |              
|                                        |              
|                                       
|Segment assets                          |              
|                                        |              
|                                       
|                                       
|
|
|Insurance premiums, net of reinsurance  |              
|Net investment income                   |              
|Commissions and fee income              |              
|Other income                            |              
|                                        |              
|Total revenues                          |              
|Policyholder benefits                   |              
|Insurance commissions, net of deferrals |              
|Expenses, taxes, fees and depreciation  |              
|Amortization of DAC and VOBA (2)        |              
|                                        |              
|Total benefits and expenses             |              
|                                        |              
|Income before income taxes              |              
|(Provision) for income taxes            |              
|Operating income after tax              |              
|                                        |              
|                                       
|Benefit ratio (3)                       |              
|                                        |              
|                                       
|Segment assets                          |              
|                                        |              

Refer to page 25 for footnote descriptions



27

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KMG America Corporation

Quarterly Financial Supplement

Third Quarter 2006





RECLASSIFICATION OF PRO FORMA SEGMENT QUARTERLY OPERATING RESULTS (Unaudited)  Continued
$ in thousands, except percentages

|Senior market insurance business:       | Quarter Ended
|--------------------------------------- | -------------
|
|Insurance premiums, net of reinsurance  |              
|Net investment income                   |              
|Commissions and fee income              |              
|Other income                            |              
|                                        |              
|Total revenues                          |              
|Policyholder benefits                   |              
|Insurance commissions, net of deferrals |              
|Expenses, taxes, fees and depreciation  |              
|Amortization of DAC and VOBA (2)        |              
|                                        |              
|Total benefits and expenses             |              
|                                        |              
|Income before income taxes              |              
|(Provision) for income taxes            |              
|                                        |              
|Operating income after tax              |              
|                                        |              
|                                       
|Benefit ratio (3)                       |              
|                                        |              
|                                       
|Segment assets                          |              
|                                        |              
|                                       
|                                       
|
|
|Insurance premiums, net of reinsurance  |              
|Net investment income                   |              
|Commissions and fee income              |              
|Other income                            |              
|                                        |              
|Total revenues                          |              
|Policyholder benefits                   |              
|Insurance commissions, net of deferrals |              
|Expenses, taxes, fees and depreciation  |              
|Amortization of DAC and VOBA (2)        |              
|                                        |              
|Total benefits and expenses             |              
|                                        |              
|Income before income taxes              |              
|(Provision) for income taxes            |              
|                                        |              
|Operating income after tax              |              
|                                        |              
|                                       
|Benefit ratio (3)                       |              
|                                        |              
|                                       
|Segment assets                          |              
|                                        |              

Refer to page 25 for footnote descriptions



28

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Quarterly Financial Supplement

Third Quarter 2006





RECLASSIFICATION OF PRO FORMA SEGMENT QUARTERLY OPERATING RESULTS (Unaudited)  Continued
$ in thousands, except percentages

|Corporate and other:                    | Quarter Ended
|--------------------------------------- | -------------
|
|Insurance premiums, net of reinsurance  |              
|Net investment income                   |              
|Commissions and fee income              |              
|Other income                            |              
|                                        |              
|Total revenues                          |              
|Policyholder benefits                   |              
|Insurance commissions, net of deferrals |              
|Expenses, taxes, fees and depreciation  |              
|Kanawha legacy                          |              
|KMG new activity                        |              
|Amortization of DAC and VOBA (2)        |              
|                                        |              
|Total benefits and expenses             |              
|                                        |              
|Income before income taxes              |              
|(Provision) for income taxes            |              
|                                        |              
|Operating income after tax              |              
|                                        |              
|                                       
|Segment assets                          |              
|                                        |              

Refer to page 25 for footnote descriptions



29

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# KMG America Corporation
Reconciliation of Operating Income, Consolidated Statements of Income, and Segment Assets (Unaudited)
(in thousands)

|Worksite insurance business:                                    | Quarter Ended
|--------------------------------------------------------------- | -------------
|
|Income(loss) before taxes as reported in 10Q                    |              
|                                                               
|Pro forma adjustments:                                         
|Reallocation of investment income                               |              
|Reallocation of policy reserves                                 |              
|                                                                |              
|Subtotal                                                        |              
|less portion of Worksite attributed to new large case activity: |              
|                                                                |              
|Pro forma income before taxes                                   |              
|Taxes @ 35%                                                     |              
|                                                                |              
|Pro forma operating income after taxes  Worksite legacy        |              
|                                                                |              
|                                                               
|Assets as reported in 10Q                                       |              
|                                                               
|Reallocation of assets                                          |              
|less portion of Worksite attributed to new large case activity: |              
|                                                                |              
|                                                               
|Pro forma assets  Worksite legacy business                     |              
|                                                                |              

|Senior market insurance business:            | Quarter Ended
|-------------------------------------------- | -------------
|
|Income(loss) before taxes as reported in 10Q |              
|                                            
|Pro forma adjustments:                       |              
|Reallocation of investment income            |              
|Reallocation of policy reserves              |              
|                                             |              
|Pro forma income before taxes                |              
|Taxes @ 35%                                  |              
|                                             |              
|Pro forma operating income after taxes       |              
|                                             |              
|                                            
|Assets as reported in 10Q                    |              
|                                            
|Reallocation of assets                       |              
|                                             |              
|                                            
|Pro forrma assets                            |              
|                                             |              



Note:   pro forma reconciling
adjustments reflect the reclassification of policy reserves, assets and corresponding investment income between the Kanawha legacy
reporting segments that relate to the implementation of the final purchase GAAP reserves as if the implementation occurred as of
December 31, 2004. The reclassifications by segment did not impact total company results.



30

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# KMG America Corporation
Reconciliation of Operating Income, Consolidated Statements of Income, and Segment Assets (Unaudited)  Continued
(in thousands)

|Acquired insurance business:           | Quarter Ended
|-------------------------------------- | -------------
|
|Income before taxes as reported in 10Q |              
|                                      
|Pro forma adjustments:                 |              
|Reallocation of investment income      |              
|Reallocation of policy reserves        |              
|                                       |              
|Pro forma income before taxes          |              
|Taxes @ 35%                            |              
|                                       |              
|Pro forma operating income after taxes |              
|                                       |              
|Assets as reported in 10Q              |              
|Reallocation of assets                 |              
|                                       |              
|Pro forrma assets                      |              
|                                       |              

|Corporate and Other:                               | Quarter Ended
|-------------------------------------------------- | -------------
|
|Income(loss) before taxes as reported in 10Q       |              
|                                                  
|Reconciliation to pro forma operating income:      |              
|Exclude realized gains (losses)                    |              
|Exclude offsetting deferred compensation expense * |              
|Reallocation of investment income                  |              
|                                                   |              
|Pro forma income before taxes                      |              
|Taxes                                              |              
|                                                   |              
|Pro forma operating income after taxes             |              
|                                                   |              

* Offsetting expense for realized gains(losses) related to
executive deferred compensation trading activity

Note:   pro forma reconciling
adjustments reflect the reclassification of policy reserves, assets and corresponding investment income between the Kanawha legacy
reporting segments that relate to the implementation of the final purchase GAAP reserves as if the implementation occurred as of
December 31, 2004. The reclassifications by segment did not impact total company results.



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