**EXHIBIT
        20.1**
 
 
 
 **Report
        of Independent Registered Public Accounting Firm**
 
 
 The
        Board
        of Directors
 Professionals
        Direct Inc. and Subsidiaries
 Grand
        Rapids, Michigan
 
 We
        have
        audited the accompanying consolidated balance sheet of Professionals Direct
        Inc.
        and Subsidiaries as of December 31, 2006, and the related consolidated
        statements of income and comprehensive income, shareholders’ equity and cash
        flows for the two years in the period then ended. These consolidated financial
        statements are the responsibility of the Company’s management. Our
        responsibility is to express an opinion on these consolidated financial
        statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. The
        Company
        is not required to have, nor were we engaged to perform, an audit of its
        internal control over financial reporting. Our audits included consideration
        of
        internal control over financial reporting as a basis for designing audit
        procedures that are appropriate in the circumstances, but not for the purpose
        of
        expressing an opinion on the effectiveness of the Company’s internal control
        over financial reporting. Accordingly, we express no such opinion. An audit
        also
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements, assessing the accounting principles
        used and significant estimates made by management, as well as evaluating
        the
        overall financial statement presentation. We believe that our audits provide
        a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Professionals
        Direct Inc. and Subsidiaries as of December 31, 2006, and the consolidated
        results of their operations and their cash flows for the two years in the
        period
        then ended in conformity with accounting principles generally accepted in
        the
        United States of America.
 
 
 /s/
        BDO
        Seidman, LLP
 
 Grand
        Rapids, Michigan
 March
        29,
        2007
 
  1
  **PROFESSIONALS
        DIRECT INC. AND SUBSIDIARIES**
 CONSOLIDATED
        BALANCE SHEET
 
 *December
                  31,*
              
              **2006****(000)****Assets**(Note
                  9)Fixed
                  maturities held to maturity, at amortized cost (Note 3)
              
              **$**
              **7,046**Fixed
                  maturities available for sale, at fair value (Note 3)
              
              
              **29,849**Other
                  invested asset, at cost which approximates fair value
              
              
              **277**Total
                  investments
              
              
              **37,172**Cash
                  and cash equivalents
              
              
              **5,542**Receivables:Premiums
                  (Note 4)
              
              
              **1,418**Amounts
                  due from reinsurers (Note 8)
              
              
              **16,381**Investment
                  income
              
              
              **526**Other
              
              
              **104**Prepaid
                  reinsurance premiums
              
              
              **4,119**Federal
                  income taxes recoverable
              
              
              **110**Property
                  and equipment, net (Note 6)
              
              
              **529**Deferred
                  acquisition costs (Note 14)
              
              
              **1,416**Net
                  deferred federal income taxes (Note 13)
              
              
              **1,238**Intangible
                  assets, net (Note 5)
              
              
              **569**Other
                  assets
              
              
              **87****Total
                  Assets**
              
              **$**
              **69,211****Liabilities
                  and Shareholders’ Equity****Liabilities**Loss
                  and loss adjustment expense reserves (Note 7)
              
              **$**
              **32,877**Unearned
                  premiums
              
              
              **11,785**Amounts
                  due to reinsurers
              
              
              **1,730**Unearned
                  ceding commissions (Note 14)
              
              
              **686**Accrued
                  expenses and other liabilities
              
              
              **2,060**Accrued
                  interest
              
              
              **1,145**Surplus
                  certificates (Note 11)
              
              
              **1,603**Trust
                  preferred securities (Note 10)
              
              
              **5,000****Total
                  Liabilities**
              
              
              **56,886**Commitments
                  and Contingencies****(Notes
                  8, 9 and 15)**Shareholders’
                  Equity**(Note
                  11)Preferred
                  stock, no par (500,000 shares authorized, no shares
                  issued)
              
              
              **-**Common
                  stock, no par (5,000,000 shares authorized, 333,300 shares issued
                  and
                  outstanding)
              
              
              **3,204**Retained
                  earnings
              
              
              **9,427**Accumulated
                  other comprehensive loss
              
              
              **(306**
              **)****Total
                  Shareholders’ Equity**
              
              
              **12,325****Total
                  Liabilities and Shareholders’ Equity**
              
              **$**
              **69,211**
   See
        accompanying notes to consolidated financial
        statements.
  2
  **PROFESSIONALS
        DIRECT INC. AND SUBSIDIARIES**
 CONSOLIDATED
        STATEMENTS OF INCOME
 AND
        COMPREHENSIVE INCOME
 
 
 *Year
                  ended December 31,*
              
              **2006**
              
              2005**(000)**
              
              (000)**Revenues**Net
                  premiums earned (Note 8)
              
              **$**
              **16,033**
              
              $
              15,375Fees
                  and commissions
              
              
              **952**
              
              
              792Net
                  investment income (Note 3)
              
              
              **1,498**
              
              
              1,171Finance
                  and other income - including unusual gain of $231 in 2006 (Note
                  11)
              
              
              **423**
              
              
              153Totalrevenues
              
              
              **18,906**
              
              
              17,491**Expenses**Losses
                  and loss adjustment expenses (Notes 7 and 8)
              
              
              **11,860**
              
              
              12,521Operating
                  and administrative (Note 14)
              
              
              **4,218**
              
              
              3,785Interest
              
              
              **554**
              
              
              506Total
                  expenses
              
              
              **16,632**
              
              
              16,812Income
                  before federal income taxes
              
              
              **2,274**
              
              
              679Federal
                  income taxes (Note 13)
              
              
              **646**
              
              
              177**Net****income**
              
              
              **1,628**
              
              
              502Other
                  comprehensive income (loss)****(Note
                  18)
              
              
              **99**
              
              
              (188
              )**Comprehensive****income**
              
              **$**
              **1,727**
              
              $
              314Per
                  share of common stock (not in thousands):Basic
                  and diluted net income per share
              
              **$**
              **4.88**
              
              $
              1.51Basic
                  and diluted comprehensive income per share
              
              
              **5.18**
              
              
              .94
 
 *See
        accompanying notes to consolidated financial statements.*
  3
  **PROFESSIONALS
        DIRECT INC. AND SUBSIDIARIES**
 CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS’ EQUITY
 
 Common
                    shares
                
                Common
                    stock par value
                
                Retained
                    earnings
                
                Accumulated
                    other comprehensive loss
                
                Total(000)
                
                (000)
                
                (000)
                
                (000)**Balance**,
                    January 1, 2005
                
                
                333,500
                
                $
                3,206
                
                $
                7,299
                
                $
                (217
                )
                $
                10,288Net
                    income for the year
                
                
                -
                
                
                -
                
                
                502
                
                
                -
                
                
                502Net
                    depreciation on available for sale securities, net of taxes (Note
                    18)
                
                
                -
                
                
                -
                
                
                -
                
                
                (188
                )
                
                (188
                )**Balance**,
                    December 31, 2005
                
                
                333,500
                
                $
                3,206
                
                $
                7,801
                
                $
                (405
                )
                $
                10,602Net
                    income for the year
                
                
                -
                
                
                -
                
                
                1,628
                
                
                -
                
                
                1,628Shares
                    repurchased
                
                
                (200
                )
                
                (2
                )
                
                (2
                )
                
                -
                
                
                (4
                )Net
                    appreciation on available for sale securities, net of taxes (Note
                    18)
                
                
                -
                
                
                -
                
                
                -
                
                
                99
                
                
                99**Balance**,
                    December 31, 2006
                
                
                333,300
                
                $
                3,204
                
                $
                9,427
                
                $
                (306
                )
                $
                12,325
   See
        accompanying notes to consolidated financial
        statements.
  4
  **PROFESSIONALS
        DIRECT INC. AND SUBSIDIARIES**
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 
 
 *Year
                  ended December 31,*
              
              **2006**
              
              2005**(000)**
              
              (000)**Operating****activities**Net
                  income
              
              **$**
              **1,628**
              
              $
              502Adjustments
                  to reconcile net income to net cash from operating
                  activities:Deferred
                  federal income tax (benefit)
              
              
              **289**
              
              
              (43
              )Gain
                  from redemption of surplus certificates
              
              
              **(231**
              **)**
              
              -Depreciation
              
              
              **198**
              
              
              147Amortization
              
              
              **451**
              
              
              631Changes
                  in operating assets and liabilities:Premiums
                  receivable
              
              
              **(24**
              **)**
              
              (292
              )Amounts
                  due from reinsurers
              
              
              **1,494**
              
              
              (11,596
              )Investment
                  income receivable
              
              
              **(127**
              **)**
              
              5Other
                  receivable
              
              
              **4**
              
              
              239Prepaid
                  reinsurance premiums
              
              
              **56**
              
              
              (12
              )Federal
                  income taxes recoverable
              
              
              **(110**
              **)**
              
              561Deferred
                  acquisition costs
              
              
              **(38**
              **)**
              
              37Other
                  assets
              
              
              **(37**
              **)**
              
              (47
              )Loss
                  and loss adjustment expense reserves
              
              
              **(2,591**
              **)**
              
              14,420Unearned
                  premiums
              
              
              9
              
              
              1,038Amounts
                  due to reinsurers
              
              
              **(125**
              **)**
              
              (181
              )Unearned
                  ceding commissions
              
              
              **(28**
              **)**
              
              (72
              )Accrued
                  expenses and other liabilities
              
              
              **677**
              
              
              396Accrued
                  interest
              
              
              **(508**
              **)**
              
              133Federal
                  income taxes payable
              
              
              **(196**
              **)**
              
              196Net
                  cash from operating activities
              
              
              **791**
              
              
              6,062**Investing****activities**Cost
                  of available for sale fixed maturities acquired
              
              
              **(13,406**
              **)**
              
              (5,207
              )Cost
                  of held to maturity fixed maturities acquired
              
              
              **(2,767**
              **)**
              
              (4,072
              )Proceeds
                  from sales or maturities of fixed maturities available for
                  sale
              
              
              **12,861**
              
              
              7,821Cost
                  of property and equipment acquired
              
              
              **(375**
              **)**
              
              (202
              )Net
                  cash for investing activities
              
              
              **(3,687**
              **)**
              
              (1,660
              )**Financing****activities**Repayments
                  of surplus certificates
              
              
              **(697**
              **)**
              
              -Net
                  repayments under lines of credit
              
              
              **(170**
              **)**
              
              (2,337
              )Repurchase
                  of common stock
              
              
              **(4**
              **)**
              
              -Payment
                  of debt issue costs
              
              
              -
              
              
              (150
              )Proceeds
                  from issuance of trust preferred securities
              
              
              -
              
              
              3,000Net
                  cash from (for) financing activities
              
              
              **(871**
              **)**
              
              513**Net****increase
                  (decrease) in cash and cash equivalents**
              
              
              **(3,767**
              **)**
              
              4,915**Cash
                  and cash equivalents**,
                  beginning of year
              
              
              **9,309**
              
              
              4,394**Cash
                  and cash equivalents**,
                  end of year
              
              **$**
              **5,542**
              
              $
              9,309**Supplemental****disclosures
                  of cash flow information:**Federal
                  income tax payments (recoveries) - net
              
              **$**
              **663**
              
              $
              (537
              )Interest
                  payments
              
              
              **1,062**
              
              
              373
  See
        accompanying notes to consolidated financial
        statements.
  5
  **1.**  **Organization
        of the Company and Nature of Business**
 
 Professionals
        Direct, Inc. (Company) is an insurance holding company with four subsidiaries
        (see Note 2). One of the subsidiaries, Professionals Direct Insurance Company
        (PDIC) is the former Michigan Lawyers Mutual Insurance Company (the Mutual).
        The
        Mutual was originally formed in the State of Michigan on June 4, 1987, for
        the
        principal purpose of providing professional liability insurance on a claims-made
        basis to attorneys practicing in Michigan. PDIC continues to provide
        professional liability insurance to attorneys and law firms in Michigan and
        other states. In 2006, 32% of premiums were written in Michigan, 11% in
        Colorado, 8% each in Arizona and Pennsylvania, 7% in Florida, and the balance
        in
        twenty-seven additional states with no other state exceeding 7%.
 
 The
        Lawyers Direct Risk Purchasing Group (Group) was formed during 2002 to
        facilitate the purchase of liability insurance by certain of the Company’s
        insureds. The Group is a non-profit corporation with current management of
        the
        Company comprising its Board.
 
 **2.**  **Basis
        of Presentation and Significant Accounting Policies**
 
 *Basis
        of Presentation*
 
 These
        consolidated financial statements have been prepared in accordance with
        accounting principles generally accepted in the United States of America
        (GAAP).
 
 *Principles
        of Consolidation*
 
 The
        accompanying consolidated financial statements include the accounts of the
        Company and its wholly-owned subsidiaries (Professionals Direct Insurance
        Company, a property and casualty insurance company; Professionals Direct
        Employer Organization, Inc., an inactive Michigan professional employer
        organization; Professionals Direct Finance, Inc. (Finance), a premium finance
        company; Professionals Direct Insurance Services, Inc. (Services), a company
        providing underwriting, claims, accounting, information technology services
        and
        selling professionals liability and other insurance ),
        plus
        Lawyers Direct Risk Purchasing Group, which the company controls.
 
 Professionals
        Direct Statutory Trust I and II are accounted for under the equity method
        in the
        accompanying financial statements. They are not consolidated because the
        Company
        is not the primary beneficiary.
 
 All
        significant intercompany transactions and balances have been
        eliminated.
 
 *Investments*
 
 The
        Company classifies marketable investment securities in one of three categories:
        trading, available for sale, or held to maturity. Trading securities are
        bought
        and held principally for the purpose of selling them in the near term. Held
        to
        maturity securities are those securities which the Company has the ability
        and
        intent to hold until maturity. All other securities are classified as available
        for sale.
 
 Held
        to
        maturity securities are recorded at amortized cost. Unrealized gains and
        losses
        are excluded from comprehensive income.
 
 Available
        for sale securities are recorded at fair value based upon quoted market prices
        of the underlying securities. Unrealized gains and losses, net of the related
        tax effect, on available for sale securities are excluded from net income
        and
        reported as accumulated other comprehensive income (loss), until realized.
        A
        decline in the fair value of any available for sale security below cost,
        that is
        deemed other than temporary, is charged to earnings and results in the
        establishment of a new cost basis for the security.
 
 Premiums
        and discounts are amortized or accreted over the life of the related fixed
        maturity security as an adjustment to yield using the effective interest
        method.
        Dividend and interest income is recognized when earned.
  6
  Realized
        gains and losses are included in earnings and are derived using the specific
        identification method for determining the cost of the securities
        sold.
 
 *Other
        Invested Asset*
 
 Other
        invested asset is an investment in a non-public reinsurance company accounted
        for using cost basis accounting. The fair value of this investment represents
        management’s best estimate of fair value based upon information received from
        the investee. A decline in the estimated fair value of any other invested
        asset
        below cost that is deemed other than temporary is charged to earnings and
        results in the establishment of a new cost basis for the security.
 
 *Cash
        and Cash Equivalents*
 
 Cash
        and
        cash equivalents include money market mutual funds and investments with original
        maturities of three months or less and are stated at cost, which approximates
        fair value.
 
 *Property
        and Equipment*
 
 Property
        and equipment, consisting principally of furniture and fixtures, computer
        equipment and software, is stated at cost, less accumulated depreciation
        and
        amortization. Software development costs, consisting principally of the costs
        of
        external consultants, are capitalized and amortized over estimated useful
        lives.
        Depreciation and amortization are provided using accelerated and straight-line
        methods over estimated useful lives, which range from three to ten
        years.
 
 *Intangible
        Assets*
 
 Intangible
        assets consist of customer lists and non-compete agreements that are amortized
        on a straight-line basis over the estimated benefit periods from two to fifteen
        years, and debt issue costs that are amortized by the effective interest
        method
        over the term of the securities.
 
 *Revenue
        Recognition*
 
 Insurance
        premiums are earned on a daily pro-rata basis over the term of the policy.
        Most
        policies have a term of twelve months. Finance and service fee income are
        earned
        when the related services are performed.
 
 *Commission
        Income*
 
 Commissions
        are recognized when the respective policies become effective.
 
 *Deferred
        Acquisition Costs and Unearned Ceding Commissions*
 
 Acquisition
        costs, consisting of commissions, premium taxes and other underwriting costs
        that are directly related to and vary with the acquisition of insurance policies
        are deferred and amortized ratably over the terms of the policies, generally
        one
        year. The recoverability of deferred acquisition costs is assessed and such
        costs are reduced if a premium deficiency exists. Unearned ceding commissions
        are deferred and amortized ratably over the terms of the treaties.
 
 *Unearned
        Premiums*
 
 Unearned
        premiums represent the portion of premiums written which is applicable to
        the
        unexpired terms of policies in force, calculated using the daily pro-rata
        basis.
 
 
  7
  *Loss
        and Loss Adjustment Expenses*
 
 Unpaid
        loss and loss adjustment expenses (LAE) are provided for as claims are incurred.
        The provision for unpaid loss and LAE includes: (1) the accumulation of
        individual case estimates for claims and claim adjustment expenses reported
        prior to the close of the accounting period; (2) estimates for unreported
        claims
        based on historical and industry data; (3) estimates of expenses for
        investigating and adjusting claims based on the experience of the Company
        and
        the industry; and (4) estimates of additional development of these losses
        over
        case basis estimates based upon past experience.
 
 Inherent
        in the estimates of ultimate claims are expected trends in claim severity,
        frequency and other factors that may vary as claims are settled. The amount
        of
        uncertainty in the estimates for liability coverage is significantly affected
        by
        such factors as the amount of claim experience relative to the development
        period, knowledge of the actual facts and circumstances and the amount of
        risk
        retained. The liability for loss and LAE is necessarily an estimate and while
        it
        is believed to be adequate, the ultimate liability could exceed or be less
        than
        such estimate. The methods for making such estimates and for establishing
        the
        resulting liability are continually reviewed, and any adjustments are reflected
        in current operations.
 
 *Reinsurance*
 
 In
        the
        normal course of business, the Company seeks to reduce the risk of loss that
        may
        arise from significant events that cause unfavorable underwriting results
        by
        reinsuring certain levels of risk with reinsurers.
 
 Amounts
        recoverable from reinsurers are estimated in a manner consistent with the
        provisions of the reinsurance agreement and the establishment of the liability
        for loss and LAE. Premiums earned, losses and LAE and policy acquisition
        costs
        are reported net of the amounts related to reinsurance ceded to other companies.
        Amounts recoverable from reinsurers related to the portions of the liabilities
        for loss and LAE and unearned premiums ceded are reported as
        assets.
 
 *Federal
        Income Taxes*
 
 Deferred
        tax assets and liabilities are recognized for the future tax consequences
        attributable to differences between the financial statement carrying amounts
        of
        existing assets and liabilities and their respective tax basis. Deferred
        tax
        assets and liabilities are measured using enacted tax rates in effect at
        the
        balance sheet date. The effect on deferred tax assets and liabilities of
        a
        change in tax rates is recognized as a charge or credit to income tax expense
        in
        the period that includes the enactment date.
 
 *Use
        of Estimates*
 
 In
        preparing the financial statements, management is required to make estimates
        and
        assumptions that affect the reported amounts of assets and liabilities and
        disclosure of contingent assets and liabilities at the date of the financial
        statements, and reported amounts of revenues and expenses during the reporting
        period. Actual results may differ from those estimates.
 
 The
        most
        significant estimates that are susceptible to significant change in the near
        term relate to the determination of the loss and LAE reserves and amounts
        due
        from reinsurers. Although considerable variability is inherent in these
        estimates, management believes that they are fairly stated based on presently
        available information. Estimates are reviewed regularly and adjusted as deemed
        appropriate. Such adjustments are reflected in current operations.
 
 *Earnings
        Per Share of Common Stock*
 
 Basic
        earnings per share is computed by dividing net income by the weighted average
        number of shares of common stock outstanding. Diluted earnings per share
        is
        equal to basic earnings per share as there are no stock options or other
        dilutive instruments outstanding.
  8
  ***Certain
        Significant Risks***
 
 Following
        is a description of the more significant risks facing property/casualty insurers
        and how the Company mitigates those risks:
 
 *Legal/Regulatory
        Risk* - is the
        risk that changes in the legal or regulatory environment in which an insurer
        operates will change and create additional loss costs or expenses not
        anticipated by the insurer in pricing its products. That is, regulatory
        initiatives designed to reduce insurer profits or new legal theories may
        create
        costs for the insurer beyond those recorded in the financial statements.
        The
        Company mitigates this risk through underwriting and loss adjusting practices
        intended to identify and minimize the adverse impact of this risk.
 
 *Credit
        Risk* - is the
        risk that issuers of securities owned by the Company will default, or other
        parties, including reinsurers and customers which owe the Company money,
        will
        not pay. The Company has a concentration of amounts due from customers in
        the
        State of Michigan as approximately 32% of current year revenues were derived
        from Michigan customers. The Company manages this risk by adhering to a
        conservative investment strategy, by maintaining sound reinsurance and credit
        and collection policies, and by providing for any amounts deemed
        uncollectible.
 
 *Interest
        Rate Risk* - is the
        risk that interest rates will change and cause a decrease in the value of
        an
        insurer’s investments. The Company mitigates this risk by attempting to match
        the maturity schedule of its assets with the expected payout of its liabilities.
        To the extent that liabilities come due more quickly than assets mature or
        the
        Company liquidates investments to meet operating needs, the Company would
        have
        to sell assets prior to maturity and recognize a gain or loss. At December
        31,
        2006, the estimated fair value of the Company’s bond portfolio was less than its
        cost. The Company believes that it has the ability to hold securities to
        maturity, thereby minimizing the risk of loss.
 
 ***Fair
        Value of Financial Instruments***
 
 The
        following methods and assumptions were used to estimate the fair value of
        each
        class of financial instrument for which it is practicable to estimate that
        value:
 
 **Fixed
        Maturity Securities**
 The
        fair
        values of fixed maturity securities are based on quoted market prices, when
        available, or based on values obtained from investment brokers.
 
 **Cash
        and Cash Equivalents**
 The
        carrying amount is a reasonable estimate of fair value.
 
 **Premiums
        and Finance Receivables and Accounts Payable and Accrued
        Expenses**
 The
        carrying amount is considered to be a reasonable estimate of fair value due
        to
        their short-term nature.
 
 **Surplus
        Certificates**
 The
        carrying amount is a reasonable estimate of fair value due to the restrictive
        nature and limited marketability of the notes.
 
 **Trust
        Preferred Securities**
 The
        carrying value of the issue dated June 30, 2005, which has a fixed rate of
        interest, is a reasonable estimate of fair value based on interest rates
        as of
        December 31, 2006. The carrying value of the issue dated December 4, 2002
        is a
        reasonable estimate of fair value due to its variable rate of interest
        .
  9
  **3.**  **Investments**
 
 A
        summary
        of amortized cost, gross unrealized gains and losses, and fair value of fixed
        maturities is as follows:
 
 Gross
                  unrealized*December
                  31, 2006*
              
              Amortized
                  cost
              
              Gains
              
              Losses
              
              Fair
                  value(000)
              
              (000)
              
              (000)
              
              (000)Fixed
                  maturities held to maturity:Obligations
                  of states and politicalsubdivisions
              
              $
              7,046
              
              $
              36
              
              $
              9
              
              $
              7,073Fixed
                  maturities available for sale:U.S.
                  treasury securities and obligationsof
                  U.S. government agencies
              
              
              5,490
              
              
              -
              
              
              84
              
              
              5,406Obligations
                  of states and politicalsubdivisions
              
              
              18,752
              
              
              27
              
              
              344
              
              
              18,435Corporate
                  securities
              
              
              5,751
              
              
              -
              
              
              76
              
              
              5,675Mortgage
                  and other asset-backedsecurities
              
              
              338
              
              
              -
              
              
              5
              
              
              333Total
                  fixed maturities available for sale
              
              
              30,331
              
              
              27
              
              
              509
              
              
              29,849Total
                  fixed maturities
              
              $
              37,377
              
              $
              63
              
              $
              518
              
              $
              36,922
 
 The
        amortized cost and fair value of fixed maturities, by contractual maturity,
        are
        shown below. Actual maturities may differ from contractual maturities because
        borrowers may have the right to call or prepay obligations with or without
        call
        or prepayment penalties.
 
 *December
                  31, 2006*
              
              Amortized
                  cost
              
              Fair
                  value(000)
              
              (000)Fixed
                  maturities held to maturity, other than mortgage and other
                  asset-backed securities:Due
                  after five years through ten years
              
              $
              5,757
              
              $
              5,775Due
                  after ten years
              
              
              1,289
              
              
              1,298Total
                  fixed maturities held to maturity
              
              
              7,046
              
              
              7,073Fixed
                  maturities available for sale, other than mortgage and other
                  asset-backed securities:Due
                  in one year or less
              
              
              5,168
              
              
              5,129Due
                  after one year through five years
              
              
              16,421
              
              
              16,120Due
                  after five years through ten years
              
              
              5,860
              
              
              5,786Due
                  after ten years
              
              
              2,544
              
              
              2,481Total
                  fixed maturities available for sale
              
              
              29,993
              
              
              29,516Mortgage
                  and other asset-backed securities
              
              
              338
              
              
              333$
              37,377
              
              $
              36,922
 
  10
  Proceeds
        from sales of available for sale fixed maturities were $3,650,000 and $0
        in 2006
        and 2005, respectively, on which gross gains of $146 and $0 were realized
        in
        2006 and 2005, respectively. There were no realized losses in either
        year.
 
 **Other
        than Temporary Impairments of Securities and Unrealized Losses on
        Investments**
 
 At
        December 31, 2006, the Company had 56 securities deemed to be temporarily
        impaired. These investments had unrealized losses of less than 10% each and
        no
        single security loss exceeded $61,000. Forty-three investments have had
        unrealized losses for more than one year, which losses aggregated $428,000
        at
        December 31, 2006.
 
 In
        concluding that investments with unrealized losses are not
        other-than-temporarily impaired, positive evidence consisted of: 1) no specific
        events related to credit risk of the issuer caused concern; 2) interest payments
        are current; 3) market prices have risen; 4) changes in market value are
        normal
        relative to fluctuations in overall interest rates; and 5) the Company has
        the
        intent and ability to hold the security until the anticipated recovery in
        value
        occurs.
 
 The
        fair
        value and amount of unrealized losses segregated by the time period the
        investment has been in an unrealized loss position is as follows:
 
 December
                  31, 2006
              
              Less
                  than 12 months
              
              Greater
                  than 12 monthsFair
                  value of
                investments
                  with
                unrealized
                losses
              
              Gross
                unrealized
                losses
              
              Fair
                  value of
                investments
                  with
                unrealized
                losses
              
              Gross
                unrealized
                losses(000)
              
              (000)
              
              (000)
              
              (000)Debt
                  Securities:U.S.
                  treasury securities and obligations of U.S. government
                  agencies
              
              $
              2,012
              
              $
              5
              
              $
              2,389
              
              $
              79Obligations
                  of states and political subdivisions
              
              
              5,645
              
              
              72
              
              
              9,231
              
              
              273Corporate
                  securities
              
              
              287
              
              
              1
              
              
              5,388
              
              
              74Mortgage
                  and other asset-backed securities
              
              
              211
              
              
              3
              
              
              122
              
              
              2Totals
              
              $
              8,155
              
              $
              81
              
              $
              17,130
              
              $
              428
 
 At
        December 31, 2006, investments with a fair value of $2,963,419 and amortized
        cost of $2,980,119 were on deposit with regulatory authorities, as required
        by
        law.
 
 
  11
  Net
        investment income was comprised of the following components:
 
 *Year
                  ended December 31,*
              
              **2006**
              
              2005**(000)**
              
              (000)Investment
                  income:Fixed
                  maturities
              
              **$**
              **1,296**
              
              $
              1,054Short-term
                  investments
              
              
              **313**
              
              
              219Net
                  realized gains (losses)
              
              
              **-**
              
              
              -**1,609**
              
              
              1,273Less
                  investment expenses
              
              
              **111**
              
              
              102Net
                  investment income
              
              **$**
              **1,498**
              
              $
              1,171
 
 No
        individual investment exceeds ten percent of shareholders’ equity.
 
 **4.**  **Premiums
        and Deductibles Receivable and Allowance for Doubtful
        Accounts**
 
 Premium
        receivables are primarily customer obligations due under terms of premium
        finance contracts. We sell our policies exclusively to lawyers and law firms.
        Professionals Direct Finance, Inc. provides premium financing to policyholders
        of Professionals Direct Insurance Company for up to seventy-five percent
        of the
        premium. Typically, Finance will accept installment payments over nine months,
        including a finance charge. Finance holds the policy as collateral and if
        an
        account is delinquent will have PDIC cancel the policy. The return of unearned
        premium should exceed the amount owed on the contract and the difference
        is paid
        to the policyholder. As a result, no allowance for doubtful accounts is
        provided.
 
 Deductible
        receivables are amounts due from policyholders under the terms of the policy
        when the Company pays indemnity or expenses on behalf of a policyholder.
        There
        are typically a limited number of policyholders with deductible balances
        outstanding. We record an allowance for doubtful accounts based on specifically
        identified amounts that we believe to be uncollectible. After all attempts
        to
        collect a receivable have failed, the receivable is written off against the
        allowance. The allowance for doubtful accounts at December 31, 2006 was
        $5,000.
 
 **5.**  **Intangible
        Assets**
 
 Intangible
        assets consist of the following:
 
 *December
                  31,*
              
              2006(000)Cost:Debt
                  issue costs
              
              $
              244Covenants
                  not to compete
              
              
              310Renewal
                  rights and customer lists
              
              
              5271,081Less
                  accumulated amortization
              
              
              512Net
                  intangible assets
              
              $
              569
 
 Intangible
        assets include debt issue costs of $150,237 and $93,848 incurred in 2005
        and
        2002, respectively, in connection with the issuance of trust preferred
        securities (see Note 10). In 2002, the Company purchased the renewal rights
        to
        the direct written lawyers professional liability policies of Interlex Insurance
        Company for
  12
  $309,000.
        In conjunction with this purchase, the Company obtained certain non-competition
        covenants from Interlex and its employees for $132,428 and acquired the renewal
        rights and a covenant not to compete from a former Interlex agent for
        $49,371.
  The
        renewal rights are being amortized on a straight line basis over fifteen
        years.
        The covenants are being amortized over the associated duration of the covenant
        up to 51 months. Debt issue costs are being amortized by the effective interest
        method over the term of the repayment period (30 years), and have been included
        in interest expense. Amortization expense incurred related to intangible
        assets
        during 2006 and 2005 amounted to $38,624 and $65,789, respectively. Intangible
        assets are assessed for impairment at least quarterly, or more often if
        circumstances suggest that an impairment of the carrying value of the asset
        may
        exist. No impairment was deemed to have occurred during 2006 or
        2005.
 
 Future
        amortization expense is $43,000 per year through 2011 and $354,000 thereafter
        for a total of $569,000.
 
 **6.**  **Property
        and Equipment**
 
 Property
        and equipment consist of the following:
 
 *December
                  31,*
              
              2006(000)Cost:Computer
                  equipment
              
              $
              245Furniture
                  and other equipment
              
              
              302Computer
                  software
              
              
              1,252Leasehold
                  improvements
              
              
              911,890Less
                  accumulated depreciation and amortization
              
              
              1,361Net
                  property and equipment
              
              $
              529
 
 **7.**  **Loss
        and Loss Adjustment Expense (“LAE”) Reserves**
 
 Activity
        in the loss and LAE reserves is summarized as follows:
 
 *December
                  31,*
              
              **2006**
              
              2005**(000)**
              
              (000)**Balance,**beginning of year
              
              **$**
              **35,468**
              
              $
              21,048Less
                  reinsurance balances recoverable
              
              
              **17,812**
              
              
              (5,699
              )Net
                  balance, beginning of year
              
              
              **17,656**
              
              
              15,349Incurred
                  related to:Current
                  year
              
              
              **10,675**
              
              
              11,212Prior
                  years
              
              
              **1,185**
              
              
              1,309Total
                  incurred
              
              
              **11,860**
              
              
              12,521Paid
                  related to:Current
                  year
              
              
              **2,430**
              
              
              2,085Prior
                  years
              
              
              **10,238**
              
              
              8,129Total
                  paid
              
              
              **12,668**
              
              
              10,214Net
                  balance, end of year
              
              
              **16,848**
              
              
              17,656Plus
                  reinsurance balances recoverable
              
              
              **16,029**
              
              
              17,812**Balance,**end of year
              
              **$**
              **32,877**
              
              $
              35,468
   13
  The
        2006
        increase in incurred losses related to prior years is primarily attributable
        to
        the 2003 year and resulted from increases in reserves caused by increased
        loss
        severity. The 2005 increase in incurred losses related to prior years is
        primarily attributable to years 2002, 2003 and 2004 and resulted from increases
        in reserves caused by increased loss severity.
 
 **8.**  **Reinsurance**
 
 In
        the
        normal course of business, the Company seeks to reduce the loss that may
        arise
        from events that cause unfavorable underwriting results by reinsuring certain
        levels of risk in various areas of exposure with other insurance enterprises
        or
        reinsurers. Amounts recoverable from reinsurers are estimated in a manner
        consistent with the claim liability associated with the reinsurance policy.
        Although reinsurance agreements contractually obligate the Company’s reinsurers
        to reimburse the Company for their proportionate share of losses, they do
        not
        discharge the primary liability of the Company. The Company is contingently
        liable for unpaid losses and LAE and unearned premiums associated with ceded
        insured risks in the event the assuming insurance organizations fail to meet
        their contractual obligations.
 
 In
        2006
        and 2005, the Company’s net retention on policies issued was $250,000 per
        claim.
 
 The
        effect of reinsurance on premiums written and earned is as follows:
 
 **2006**
              
              2005**Written**
              
              **Earned**
              
              Written
              
              Earned**(000)**
              
              **(000)**
              
              (000)
              
              (000)Direct
              
              **$**
              **25,181**
              ****
              **$**
              **25,172**
              
              $
              25,902
              
              $
              24,864Ceded
              
              
              **(9,082**
              **)**
              ****
              **(9,139**
              **)**
              
              (9,501
              )
              
              (9,489
              )Net
                  Premiums
              
              **$**
              **16,099**
              ****
              **$**
              **16,033**
              
              $
              16,401
              
              $
              15,375
 
 As
        a
        result of reinsurance ceded, losses and LAE incurred were reduced by $3,792,321
        and $14,813,363 in 2006 and 2005, respectively. This decrease in ceded losses
        reflects the return to typical levels after the increase in 2005 that primarily
        resulted from two claims reserved at policy limits. One claim settled for
        less
        than the policy limit in 2006; the other remains open at less than the policy
        limit.
 
 Amounts
        due from reinsurers at December 31, 2006 were paid and unpaid loss and LAE
        of
        $352,000 and $16,029,000, respectively, for a total of $16,381,000.
 
 The
        Company holds collateral under related reinsurance agreements in the form
        of
        irrevocable letters of credit with various banks. At December 31, 2006, the
        balance of these letters of credit was $4,715,338.
 
 **9.**  **Lines
        of Credit**
 
 At
        December 31, 2006, the Company had available a $1.8 million line of credit
        that
        bears interest at .5% over the bank’s prime rate (effectively 8.75% at December
        31, 2006) and a second line of credit of $1.0 million that bears interest
        at
        1.0% over the bank’s prime rate (effectively 9.25% at December 31, 2006). Both
        lines grant a security interest in substantially all assets of the Company,
        Services and Finance, its shares of PDIC, and impose financial covenants.
        The
        Company was in compliance with all covenants as of December 31,
        2006.
 
  14
  **10.**  **Trust
        Preferred Securities**
 
 **Issue
        dated June 30, 2005:**
 
 On
        June
        30, 2005, the Company issued a junior subordinated debenture (the “Debenture”)
        having a principal amount of $3,093,000 to Professionals Direct Statutory
        Trust
        II (the “Trust”). Cumulative interest on the Debenture accrues from June 30,
        2005, and is payable quarterly in arrears. The rate is fixed at 7.785% until
        September 15, 2010, thereafter it is variable at a rate of three-month LIBOR
        (London Interbank Offering Rate) plus 3.625%. The Debenture is subordinate
        and
        junior to all senior indebtedness (as defined in the indenture) of the Company
        with the exception of other Trust Preferred Securities. The Debenture matures
        on
        September 15, 2035, but may be redeemed in whole or in part beginning on
        September 15, 2010.
 
 On
        June
        30, 2005, the Trust sold capital securities (“Capital Securities”) for $3
        million to investors and issued common securities (“Common Securities”) for
        $93,000 to the Company. All of the proceeds from the sale of Capital Securities
        and Common Securities were invested in the Debenture. Capital Securities
        and
        Common Securities represent undivided beneficial interests in the Debenture,
        which is the sole asset of the Trust. Holders of Capital Securities and Common
        Securities are entitled to receive distributions from the Trust on terms
        which
        correspond to those of the Debenture. Distributions by the Trust and payments
        on
        liquidation of the Trust or redemption of Capital Securities are guaranteed
        by
        the Company to the extent the Trust has funds available (the “Guarantee”). The
        Company’s obligations under the Guarantee, taken together with its obligations
        under the Debenture and the Indenture, constitute a full and unconditional
        guarantee of all of the Trust’s obligations under the Capital Securities issued
        by the Trust.
 
 **Issue
        Dated December 4, 2002:**
 
 On
        December 4, 2002, the Company issued a floating rate junior subordinated
        debenture (the “Debenture”) having a principal amount of $2,062,000 to
        Professionals Direct Statutory Trust I (the “Trust”). Cumulative interest on the
        Debenture accrues from December 4, 2002, and is payable quarterly in arrears.
        The rate is variable at LIBOR (London Interbank Offering Rate) plus 4.00%
        (not
        to exceed 12.50%). At December 31, 2006, interest accrued at an annual rate
        of
        9.37%. The Debenture is subordinate and junior to all senior indebtedness
        (as
        defined in the indenture) of the Company with the exception of other Trust
        Preferred Securities. The Debenture matures on December 4, 2032, but may
        be
        redeemed in whole or in part beginning on December 4, 2007.
 
 On
        December 4, 2002, the Trust sold floating rate capital securities (“Capital
        Securities”) for $2 million to investors and issued floating rate common
        securities (“Common Securities”) for $62,000 to the Company. All of the proceeds
        from the sale of Capital Securities and Common Securities were invested in
        the
        Debenture. Capital Securities and Common Securities represent undivided
        beneficial interests in the Debenture, which is the sole asset of the Trust.
        Holders of Capital Securities and Common Securities are entitled to receive
        distributions from the Trust on terms which correspond to those of the
        Debenture. Distributions by the Trust and payments on liquidation of the
        Trust
        or redemption of Capital Securities are guaranteed by the Company to the
        extent
        the Trust has funds available (the “Guarantee”). The Company’s obligations under
        the Guarantee, taken together with its obligations under the Debenture and
        the
        Indenture, constitute a full and unconditional guarantee of all of the Trust’s
        obligations under the Capital Securities issued by the Trust.
 
 **11.**  **Surplus
        Certificates**
 
 Surplus
        certificates were offered for sale only in the State of Michigan to lawyers
        resident in and authorized to practice in Michigan, and to law partnerships
        and
        professional corporations which have their principal place of business in
        Michigan. Certificate ownership was required for a lawyer to be insured by
        the
        Company prior to March 31, 1995, when the requirement was suspended and,
        effective December 9, 2000, this requirement was permanently
        removed.
 
 Certificates
        have a principal value of $1,000 each and bear simple interest at the rate
        of
        5.25% per annum from the issuance date until paid. Principal and accrued
        interest thereon may be paid only from surplus earnings, and then only upon
        the
        written consent of the OFIS and in such amounts as are determined by the
        Board
        of Directors. Subject to these conditions for repayment, certificates are
        redeemable by the holder after they have been outstanding for ten years.
        The
        Company has received approval to pay certain interest on certificates issued
        prior to
  15
  December
        31, 1993. Interest payments during 2006 and 2005 to these certificate holders
        amounted to $8,838 and $621, respectively.
 
 During
        2006, three separate redemption programs were approved by the Company’s Board of
        Directors and OFIS.
 
 Effective
                  date
              Term
                  Redemption Amount
              Optional
                  Redemption AmountFebruary
                  15, 2006
              $150,000
              $150,000July
                  1, 2006
              $250,000
              $250,000January
                  1, 2007
              $500,000
              $500,000
 
 Term
        redemption results in full payment of the face value plus accrued interest
        to
        the certificate holder in the order the certificates were issued. A total
        of 538
        surplus certificates were redeemed under the 2006 term redemption programs.
        Optional redemption is available to all certificate holders. Under optional
        redemption, certificate holders that choose to participate submit bids in
        a
        reverse auction to determine which will be redeemed. In 2006, 380 surplus
        certificates were redeemed under the optional redemption programs. In connection
        with the optional redemptions, an unusual gain of $231,000 resulted from
        certificate holders forgiving principal in return for early
        redemption.
 
 In
        connection with the optional redemption effective January 1, 2007, approximately
        250 certificates were redeemed after January 1, 2007 which will result in
        a gain
        approximating $82,000.
 
 At
        December 31, 2006, 1,603 certificates remain outstanding with interest accrued
        and unpaid of approximately $1,120,000.
 
 In
        the
        event of the Company’s liquidation, receivership, insolvency, reorganization,
        dissolution, termination of existence, or sale by the Company of substantially
        all its assets, outstanding certificates will be of equal rank regardless
        of
        issuance date and redemption subordinate to claims of creditors, policyholders
        and any other priority claims provided for by the Michigan insurance code.
        Should assets be insufficient to pay interest and principal in full, payment
        will be made pro rata.
 
 **12.**  **Statutory
        Information**
 
 *Dividend
        Restrictions*
 
 As
        required by the Plan of Conversion, PDIC is prohibited from making dividend
        payments to the Company until such time as the surplus certificates are
        redeemed. In addition, under Michigan law, the maximum dividend that may
        be paid
        by PDIC to the Company during any twelve-month period without the prior approval
        of the OFIS is the greater of 10% of PDIC’s statutory surplus as reported on the
        most recent Annual Statement filed with the OFIS or the net income of PDIC
        for
        the period covered by such Annual Statement.
 
 *Statutory
        Information*
 
 At
        December 31, 2006, statutory surplus of PDIC was $17.6 million. The State
        of
        Michigan requires insurance companies domiciled in Michigan to have minimum
        statutory surplus of $7 million. Statutory net income for the years ended
        December 31, 2006 and 2005 was $1,379,354 and $203,336,
        respectively.
 
 *Risk-Based
        Capital*
 
 The
        NAIC
        has established RBC requirements to assist regulators in monitoring the
        financial strength and stability of property and casualty insurers. Under
        the
        NAIC requirements, each insurer must maintain its total capital and surplus
        above a calculated minimum threshold or take corrective measures to achieve
        that
        threshold. PDIC has calculated its RBC levels based on these requirements
        and
        determined that it has surplus in excess of the minimum
        threshold.
  16
 
 **13.**  **Federal
        Income Taxes**
 
 Federal
        income tax expense consists of:
 
 *Year
                  ended December 31,*
              
              **2006**
              
              2005**(000)**
              
              (000)Current
              
              **$**
              **357**
              
              $
              220Deferred
              
              
              **289**
              
              
              (43
              )****
              **$**
              **646**
              
              $
              177
 
 The
        significant components of federal income tax expense were as
        follows:
 
 *Year
                  ended December 31,*
              
              **2006**
              
              2005**(000)**
              
              (000)Operations
              
              **$**
              **646**
              
              $
              177Equity
                  - accumulated other comprehensive loss
              
              
              **51**
              
              
              (97
              )
 
 A
        reconciliation of the federal statutory tax rate to the Company’s effective tax
        rate is as follows:
 
 *Year
                  ended December 31,*
              
              **2006**
              
              2005Federal
                  statutory tax rate
              
              
              **34.0**
              **%**
              
              34.0
              %Reduction
                  in income taxes relating to tax-exempt municipal bond
                  interest
              
              
              **(5.6**
              **)**
              
              (7.9
              )Effective
                  tax rate
              
              
              **28.4**
              **%**
              
              26.1
              %
 
 Several
        provisions of the Internal Revenue Code specifically affect property and
        casualty insurers. Such provisions that materially affect the Company are
        the
        discounting of loss and LAE reserves, a reduction in the allowable deduction
        for
        unearned premium reserves, a reduced exclusion for interest from certain
        tax-exempt bonds, and utilization of the section 179 deduction. The tax effects
        of these and other temporary differences that give rise to deferred tax assets
        and liabilities are presented below:
 
 *December
                  31,*
              
              2006(000)Deferred
                  tax assets:Loss
                  reserve discounting
              
              $
              437Unearned
                  premium reserves
              
              
              521Interest
                  on surplus certificates
              
              
              300Other
              
              
              228Total
                  gross deferred tax assets
              
              
              1,486Deferred
                  tax liabilities - deferred acquisition costs
              
              
              (248
              )Net
                  deferred federal income tax asset
              
              $
              1,238
 
  17
  In
        assessing the realizability of deferred federal income tax assets, management
        considers whether it is more likely than not that some portion of the deferred
        federal income tax assets will not be realized. Because of the carryforward
        provisions of the Internal Revenue Code, and the Company’s expectation that
        temporary differences will reverse during periods in which taxable income
        is
        generated, management believes it is more likely than not that the Company
        will
        fully realize the net deferred federal income tax assets. Accordingly, no
        valuation allowance has been established.
 
 **14.**  **Deferred
        Acquisition Costs and Unearned Ceding Commission**
 
 Changes
        in deferred acquisition costs are summarized as follows:
 
 *Year
                  ended December 31,*
              
              **2006**
              
              2005**(000)**
              
              (000)**Balance,**beginning of year
              
              **$**
              **1,378**
              
              $
              1,415Amounts
                  deferred:Commissions
              
              
              **1,246**
              
              
              1,186Premium
                  taxes
              
              
              **432**
              
              
              420Internal
                  underwriting expenses
              
              
              **1,348**
              
              
              1,425Total
                  amounts deferred
              
              
              **4,404**
              
              
              4,446Less
                  amortization
              
              
              **(2,988**
              **)**
              
              (3,068
              )**Balance,**end of year
              
              **$**
              **1,416**
              
              $
              1,378
 
 Changes
        in unearned ceding commission are summarized as follows:
 
 *Year
                  ended December 31,*
              
              **2006**
              
              2005**(000)**
              
              (000)**Balance,**beginning of year
              
              **$**
              **714**
              
              $
              786Ceding
                  commissions deferred
              
              
              **1,503**
              
              
              1,624Less
                  amortization
              
              
              **(1,531**
              **)**
              
              (1,696
              )**Balance,**end of year
              
              **$**
              **686**
              
              $
              714
 
 **15.**  **Commitments
        and Contingencies**
 
 On
        March
        21, 2006, the Company entered into a non-cancelable lease for office space.
        The
        lease is for ten years beginning July 1, 2006 with fixed annual increases
        in
        minimum lease payments. Lease payments are waived for the first year. This
        lease
        is accounted for in accordance with Financial
        Accounting Standards Board (FASB) Statement No. 13 *,
        Accounting for Leases,* which
        requires that lease expense be equal to the pro-rata portion of the fixed
        lease
        payments over the term of the lease rather than as paid.
 
 18
  Future
        net minimum lease payments under noncancelable leases are as
        follows:
 
 *Year
                  ending December 31,*(000)2007
              
              $
              1922008
              
              
              2432009
              
              
              2332010
              
              
              2292011
              
              
              211Thereafter
              
              
              904$
              2,012
 
 Operating
        lease rental expense for office space and equipment totaled $235,275 and
        $209,145 in 2006 and 2005, respectively.
 
 The
        Company purchased an annuity policy from a life insurance company for purposes
        of funding a structured claim settlement. At December 31, 2006, the Company
        remains contingently liable for this settlement in the amount of
        $396,000.
 
 **16.**  **Benefit
        Plans**
 
 The
        Company maintains a 401(k) defined contribution employee benefit plan covering
        substantially all employees meeting eligibility requirements. The Company
        matches 50% of employee contributions up to an annual maximum of 5% of an
        employee’s salary. The Company’s expense under this plan was $63,591 and $54,160
        in 2006 and 2005, respectively.
 
 The
        Company established an Outside Directors’ Deferred Compensation Plan and an
        Employee and Director Stock Purchase Plan effective March 23, 2005 which
        was
        approved by shareholders May 11, 2005. Each plan authorizes the issuance
        of
        35,000 shares. The Deferred Compensation Plan permits deferral of up to 100%
        of
        directors’ fees converted to shares based on their fair market value. The Stock
        Purchase Plan permits employees and directors to purchase Company stock at
        90%
        of fair market value. To date there has been no activity in either
        plan.
 
 **17.**  **Related
        Party Transaction**
 
 The
        Company’s president serves on the Board of Directors and is treasurer of Lawyers
        Reinsurance Company (“Lawyers Re”), in which the Company has an investment. Lawyers
        Re is a participant in the reinsurance treaties of PDIC. During 2006 and
        2005,
        premiums of $146,000 and $336,000 were ceded to Lawyers Re. During 2006,
        $184,000 in losses were paid by Lawyers Re. As of December 31, 2006, unearned
        premiums ceded to Lawyers Re were $63,000.
 
 **18.**  **Other
        Comprehensive Income (Loss)**
 
 The
        significant components of other comprehensive income (loss) were as
        follows:
 
 *Year
                  ended December 31,*
              
              **2006**
              
              2005**(000)**
              
              (000)Decrease
                  (increase) in unrealized holding loss on securities
              
              **$**
              **150**
              
              $
              (285
              )Income
                  tax benefit (expense)
              
              
              **(51**
              **)**
              
              97Other
                  comprehensive income (loss)
              
              **$**
              **99**
              ****
              $
              (188
              )
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