**UNITED
STATES**
 **SECURITIES
AND EXCHANGE COMMISSION**
 **Washington,
D.C.  20549**
 
 
 **FORM
10-Q**
 
 
 **QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**
 **SECURITIES
EXCHANGE ACT OF 1934**
 
 
 **For
the Quarterly Period Ended March 31, 2005**
 **Commission
File No. 001-31984**
 
 
 **BRISTOL
WEST HOLDINGS, INC.**
 (Exact
name of registrant as specified in its charter)
 
 **Delaware**
    ****
    **13-3994449**(State
      or other jurisdiction
      of
      incorporation or organization)
    
    (I.R.S.
      Employer
      Identification
      No.)**5701
      Stirling Road, Davie, Florida**
    ****
    **33314**(Address
      of principal executive offices)
    
    (Zip
      Code)Registrant’s
      telephone number, including area code:**(954)
      316-5200**
 
 
 Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
 
 Yes xNo o
 
 Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
 
 Yes o     No x
 
 At April
30, 2005, the Registrant had issued and outstanding an aggregate of 31,612,395 shares of
its Common Stock.
 
 
 
 
 
  Index
  
 
 **INDEX TO QUARTERLY REPORT**
 
 **ON
FORM 10-Q**
 
 **Page**Part I
    Financial InformationItem 1.
    Financial Statements:Consolidated Balance Sheets as of
      March 31, 2005 and December 31, 2004(unaudited)
    3Consolidated
      Statements of Income for the three months ended March 31, 2005 and
      2004(unaudited)
    4Consolidated
      Statements of Changes in Stockholders’ Equity for the three months ended
      March 31, 2005 and2004
      (unaudited)
    5Consolidated Statements of Cash Flow for the three
      months ended March 31, 2005 and 2004 (unaudited)
    6Notes to Consolidated Financial
      Statements
    7Item 2.
    Management’s Discussion and
      Analysis of Financial Condition and Results of
    Operations
    10Item 3.
    Quantitative and Qualitative Disclosure
      About Market Risk
    21Item 4.
    Controls and Procedures
    22Part II
    Other Information
    22Item 1.
    Legal Proceedings
    22Item 2.
    Unregistered Sales of Equity
      Securities and Use of Proceeds
    23Item 3.
    Defaults Upon Senior
      Securities
    23Item 4.
    Submission of Matters to a Vote of
      Security Holders
    23Item 5.
    Other Information
    23Item 6.
    Exhibits
    24Signatures
    25Certifications Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002Certification Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
 
  2
 Index
 **PART I-FINANCIAL INFORMATION**

**Item
1.  Financial Statements**
 **BRISTOL
      WEST HOLDINGS, INC.****CONSOLIDATED BALANCE
      SHEETS****(Unaudited)********March
      31,**
    
    **December
      31,****2005**
    
    **2004****(in
      thousands, except share data)****Assets:**Investments:Fixed
      maturities available-for-sale (amortized cost $403,143 and $280,578
      at
      March 31, 2005 and December 31, 2004, respectively)
    $                    
      398,436
    
    $                    
      281,568Equity
      securities (cost $2,000 at March 31, 2005 and December
      31, 2004)
    2,000
    
    2,000Total
      investments
    400,436
    
    283,568Cash
      and cash equivalents
    91,179
    
    11,508Accrued
      investment income
    4,020
    
    2,958Premiums
      and other receivables
    178,949
    
    180,289Reinsurance
      recoverables on paid and unpaid losses & loss adjustment
      expenses
    11,658
    
    155,326Prepaid
      reinsurance
    15,965
    
    108,601Ceding
      commission receivable
    4,324
    
    138,092Deferred
      policy acquisition costs
    57,000
    
    31,028Property,
      software and equipment - net
    18,106
    
    18,017Goodwill
    101,611
    
    101,611Other
      assets
    10,737
    
    9,922Total
      assets
    $                    
      893,985
    
    $                
       1,040,920**Liabilities
      and Stockholders' Equity:**Liabilities:Policy
      liabilities:Reserve
      for losses and loss adjustment expenses
    $                    
      217,964
    
    $                   
       222,326Drafts
      outstanding
    2
    
    1,239Unearned
      premiums
    215,033
    
    214,431Total
      policy liabilities
    432,999
    
    437,996Reinsurance
      payables
    20,242
    
    166,513Accounts
      payable and other liabilities
    35,183
    
    31,421Deferred
      income taxes
    5,070
    
    9,279Long-term
      debt, including current portion
    72,850
    
    73,388Total
      liabilities
    566,344
    
    718,597Commitments
      and contingent liabilities (Note 7)Stockholders'
      equity:Preferred
      stock, $0.01 par value (15,000,000 shares authorized; 0 sharesoutstanding
      as of March 31, 2005 and December 31, 2004)
    -
    
    -Common
      stock, $0.01 par value (200,000,000 shares authorized; 32,729,531
      and32,554,437
      shares issued as of March 31, 2005 and December 31, 2004,
      respectively)
    327
    
    325Additional
      paid-in capital
    234,234
    
    231,281Retained
      earnings
    113,105
    
    97,885Deferred
      compensation on restricted stock
    (7,166)
    
    (4,723)Treasury
      stock at cost (1,117,136 and 683,036 shares held as of March 31, 2005 andDecember
      31, 2004, respectively)
    (9,743)
    
    (2,965)Stock
      subscription receivable
    (107)
    
    (120)Accumulated
      other comprehensive (loss) income
    (3,009)
    
    640Total
      stockholders' equity
    327,641
    
    322,323Total
      liabilities and stockholders' equity
    $      
                  
       893,985
    
    $                
       1,040,920The
      accompanying notes are an integral part of the consolidated financial
      statements.
 3
 Index
  **BRISTOL
      WEST HOLDINGS, INC.****CONSOLIDATED STATEMENTS OF
      INCOME******(Unaudited)******Three
      Months Ended March 31,****2005**
    
    **2004****(in thousands, except per share
      data)****Revenues:**Net
      premiums earned
    $      
                  163,459
    
    $      
      69,609Net
      investment income
    3,633
    
    1,805Realized
      (loss) gain on investments, net
    (1)
    
    -Policy
      service fee revenue
    17,766
    
    17,850Other
      income
    748
    
    613Total
      revenues
    185,605
    
    89,877**Costs
      and Expenses:**Losses
      and loss adjustment expenses incurred
    107,765
    
    47,566Commissions
      and other underwriting expenses
    40,815
    
    9,497Other
      operating and general expenses
    9,265
    
    7,064Interest
      expense
    968
    
    651Extinguishment
      of debt
    -
    
    1,613Stock
      based compensation expense
    406
    
    579Total
      costs and expenses
    159,219
    
    66,970Income
      before income taxes
    26,386
    
    22,907Income
      taxes
    9,565
    
    8,361**Net
      Income**
    $      
          16,821
    
    $        
        14,546Net
      income per common share - Basic
    $  
                  0.53
    
    $       
                  0.51Net
      income per common share - Diluted
    $         
                0.51
    
    $                          0.48Dividends
      declared per common share
    $                    0.05
    
    $                                -The
      accompanying notes are an integral part of the consolidated financial
      statements.
 4
 Index
  **BRISTOL
      WEST HOLDINGS, INC.****CONSOLIDATED STATEMENTS OF CHANGES IN
      STOCKHOLDERS’ EQUITY******(Unaudited)******Three
      Months Ended March 31,****2005**
    
    **2004****(in thousands, except share data)****STOCKHOLDERS'
      EQUITY:****Common
      Stock**Balance,
      beginning of period
    $               
                  325
    
    $                    
             245Issuance
      of common stock in initial public offering (6,250,000 shares -- 2004)
    -
    
    62Exercise
      of options and warrants, including tax benefit (3,265 shares--2005,
      750,751 shares--2004)
    -
    
    8Shares
      issued for services (4,137 shares -- 2005, 29,550 shares -- 2004)
    -
    
    -Issuance
      of restricted common stock (167,669 shares -- 2005)
    2
    
    -Shares
      issued in payment of dividend (23 shares -- 2005)
    -
    
    -Balance,
      end of period
    327
    
    315**Additional
      Paid-In Capital**Balance,
      beginning of period
    231,281
    
    97,810Issuance
      of common stock in initial public offering (6,250,000 shares -- 2004)
    -
    
    113,099Exercise
      of options and warrants, including tax benefit (3,265 shares--2005,
      750,751 shares--2004)
    29
    
    6,928Shares
      issued for services (4,137 shares--2005, 29,550 shares--2004)
    84
    
    579Issuance
      of restricted common stock (167,669 shares -- 2005)
    2,840
    
    -Shares
      issued in payment of dividend (23 shares--2005)
    -
    
    -Balance,
      end of period
    234,234
    
    218,416**Retained
      Earnings**Balance,
      beginning of period
    97,885
    
    41,504Net
      income
    16,821
    
    14,546Dividend
      to common shareholders ($0.05 per share -- 2005)
    (1,601)
    
    -Balance,
      end of period
    113,105
    
    56,050**Deferred
      Compensation on Restricted Stock**Balance,
      beginning of period
    (4,723)
    
    -Issuance
      of restricted common stock (167,669 shares -- 2005)
    (2,842)
    
    -Amortization
      of deferred compensation on restricted stock
    399
    
    -Balance,
      end of period
    (7,166)
    
    -**Treasury
      Stock**Balance,
      beginning of period
    (2,965)
    
    (2,563)Acquisition
      of treasury stock (434,100 shares -- 2005, 2,608 shares -- 2004)
    (6,778)
    
    (69)Balance,
      end of period
    (9,743)
    
    (2,632)**Stock
      Subscription Receivable**Balance,
      beginning of period
    (120)
    
    (393)Payment
      of stock subscriptions receivable
    13
    
    104Balance,
      end of period
    (107)
    
    (289)**Accumulated
      Other Comprehensive (Loss) Income**Balance,
      beginning of period
    640
    
    2,132Unrealized
      holdings (losses) gains arising during the period
    (3,617)
    
    893Less:
      reclassification adjustment
    (32)
    
    -Net
      unrealized (losses) gains on securities
    (3,649)
    
    893Balance,
      end of period
    (3,009)
    
    3,025**Total
      Stockholders' Equity**
    $           
               327,641
    
    $         
                 274,885**COMPREHENSIVE
      INCOME:**Net
      income
    $          
                  16,821
    
    $          
                  14,546Net
      unrealized (losses) gains on securities
    (3,649)
    
    893**Comprehensive
      Income**
    $          
                  13,172
    
    $           
                 15,439The
      accompanying notes are an integral part of the consolidated financial
      statements.
 5
 Index
  **BRISTOL
      WEST HOLDINGS, INC.****CONSOLIDATED STATEMENTS OF CASH
      FLOW******(Unaudited)**********Three
      Months Ended March 31,****2005**
    
    **2004****(in
      thousands)****CASH
      FLOWS FROM OPERATING ACTIVITIES:**Net
      income
    $     
                
            16,821
    
    $            
                14,546Adjustments
      to reconcile net income to net cash provided byoperating
      activities:Accretion
      of fixed maturity investments
    868
    
    379Depreciation
      and amortization
    1,680
    
    1,128Realized
      investment losses
    1
    
    -Deferred
      federal income taxes
    (2,156)
    
    127Stock
      based compensation
    406
    
    579Extinguishment
      of debt
    -
    
    1,613Changes
      in assets and liabilities:Premiums
      and other receivables
    1,340
    
    (41,032)Reinsurance
      receivables
    277,436
    
    (9,092)Prepaid
      reinsurance premiums
    92,636
    
    (12,209)Deferred
      policy acquisition costs
    (25,972)
    
    (7,549)Losses
      and loss adjustment expenses
    (4,362)
    
    (3,880)Unearned
      premiums
    602
    
    42,370Drafts
      outstanding
    (1,237)
    
    16Reinsurance
      payables
    (146,271)
    
    8,915Other
      assets and liabilities
    2,858
    
    9,880Tax
      benefit on exercise of stock options
    16
    
    4,061Net
      cash provided by operating activities
    214,666
    
    9,852**CASH
      FLOWS FROM INVESTING ACTIVITIES:**Purchase
      of fixed maturity investments - available-for-sale
    (126,292)
    
    (104,162)Sales
      and maturities of fixed maturity investments -
      available-for-sale
    1,829
    
    4,458Purchase
      of equity securities
    -
    
    (400)Acquisition
      of property, software and equipment
    (1,663)
    
    (3,340)Net
      cash used in investing activities
    (126,126)
    
    (103,444)**CASH
      FLOWS FROM FINANCING ACTIVITIES:**Proceeds
      from initial public offering of stock
    -
    
    113,161Proceeds
      from exercise of stock options
    13
    
    2,875Acquisition
      of treasury stock
    (6,778)
    
    (69)Principal
      repayment at time of debt extinguishment
    -
    
    (71,500)Principal
      payments on long-term debt
    (538)
    
    -Proceeds
      from acquisition of long-term bank debt
    -
    
    75,000Payment
      of fees and expenses related to acquisition of long-term debt
    -
    
    (2,140)Payment
      of dividends to stockholders
    (1,579)
    
    -Other
    13
    
    89Net
      cash (used in) provided by financing activities
    (8,869)
    
    117,416NET
      INCREASE IN CASH AND CASH EQUIVALENTS
    79,671
    
    23,824Cash
      and cash equivalents, January 1
    11,508
    
    9,256Cash
      and cash equivalents, March 31
    $            
                91,179
    
    $          
                  33,080The
      accompanying notes are an integral part of the consolidated financial
      statements.
 6
 Index
 ****
 **BRISTOL
WEST HOLDINGS, INC.**
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
thousands, except per share data)**
 
 **1.** **Nature
of Operations**
 
 Bristol West
Holdings, Inc. (the “Company”) is a holding company engaged in the distribution
and underwriting of private passenger automobile insurance through its
subsidiaries. The Company conducts its business as a single segment, given that
the product, the regulatory framework, the type of customer and the method of
distribution vary little from state to state. As of March 31, 2005, the
Company was licensed in 37 states and the District of Columbia. The Company
consists of a holding company, four property and liability insurance companies
(Bristol West Casualty Insurance Company, Bristol West Insurance Company,
Security National Insurance Company and Coast National Insurance Company),
agencies and claims servicing companies.
  **2.**  **Basis
of Presentation**
 
 The unaudited
consolidated financial statements included herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP) have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 2005, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2005. These
unaudited consolidated financial statements and the notes thereto should be read
in conjunction with the Company’s audited financial statements and accompanying
notes included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2004.
 
 On
February 12, 2004, the Company declared a 130.38-for-one split of its
outstanding common stock (see Note 4). All references to number of shares, per
share amounts and stock option data have been restated to reflect the stock
split. The authorized number of shares of common stock has been increased to
200,000,000. In addition, 15,000,000 shares of preferred stock, par value $0.01
per share, are authorized.
  **3.**  **Debt**
 
 On
February 18, 2004, the Company completed a refinancing of its secured
credit facility. This bank agreement (“Bank Agreement”) consists of: (1) a
$50,000 Secured Revolving Credit Facility, which includes up to $15,000 of
letters of credit and matures in 2009, (2) a $35,000 Term A Loan, which matures
in 2010 and (3) a $40,000 Term B Loan, which matures in 2011. The Company’s
interest rate on borrowings under the Bank Agreement is London Interbank Offered
Rate (LIBOR) plus a margin (1% to 2.25%), which is determined based on the
Company’s consolidated total debt to consolidated total capitalization ratio.
The Company also pays certain commitment fees. The Bank Agreement is secured by
a pledge of stock of certain of the Company’s subsidiaries. The refinancing
extended the maturity of the Company’s debt coming due in 2005 through 2007. In
connection with the refinancing, the Company recorded a charge of $1,613 during
the three months ended March 31, 2004 related primarily to the write-off of
deferred financing fees. The amount of debt outstanding at March 31, 2005
was $72,850.  The Company had no borrowings on the revolving credit line at
March 31, 2005.
 
 The Bank
Agreement requires compliance with certain financial loan covenants relating to
leverage and debt service coverage. As of, and for the twelve-month period ended
March 31, 2005, the Company was in compliance with all such
covenants.
  **4.** **** **Initial
Public Offering**
 
 On
February 12, 2004, an initial public offering of 17,250,000 shares of the
Company’s common stock (after effect of a 130.38-for-one stock split (see Note
2)) was completed. The Company sold 6,250,000 shares resulting in net proceeds
to the Company (after deducting issuance costs) of approximately $113,405. 
The Company contributed $110,000 of the proceeds to its insurance subsidiaries,
which increased their statutory surplus.  The additional capital has
permitted the Company to reduce its reinsurance purchases and to retain more
gross premiums
 
 7
 Index
 
 written
over time. The Company used the remaining $3,405 for general corporate purposes
at the holding company level.
  **5.** **** **Net
Income per Share**
 
 The following
table sets forth the computation of basic and diluted earnings per
share:
  **Three
      Months Ended March 31,****2005**
    
    **2004**Net
      income applicable to common stockholders
    $          
           16,821
    
    $        
             14,546Weighted
      average common shares - basic
    31,518,617
    
    28,477,799Effect
      of dilutive securities:Options
    1,183,033
    
    1,670,801Restricted
      stock
    52,988
    
    -Warrants
    217,999
    
    306,008Weighted
      average common shares - dilutive
    32,972,637
    
    30,454,608Basic
      Earnings Per Share
    $         
                0.53
    
    $        
                 0.51Diluted
      Earnings Per Share
    $          
               0.51
    
    $        
                 0.48
 ****
 **6. 
Stock Options**
 
 In
December 2002, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 148, *Accounting
for Stock-Based Compensation-Transition and Disclosure.* This
statement provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
It also amends the disclosure requirements of SFAS No. 123, *Accounting
for Stock-Based Compensation* , to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method on reported results. The Company has elected to continue to
apply APB No. 25, *Accounting for Stock Issued to Employees,* and
related interpretations in accounting for stock options.
 
 The following
table illustrates the effect on net income and net income per share if the
Company had applied SFAS No. 123 to stock-based compensation.
 
 **Three
      Months Ended March 31,****2005**
    
    **2004**Net
      income, as reported
    $               
      16,821
    
    $              
       14,546Deduct:
      Total stock-based employee compensation expense determined under fair
      value method for all awards, net of related tax effects
    (83)
    
    (61)Pro
      forma net income
    $              
       16,738
    
    $              
       14,485**Net
      income per share**Basic—As
      reported
    $                  
       0.53
    
    $                  
       0.51Basic—Pro
      forma
    $                   
      0.53
    
    $                  
       0.51Diluted—As
      reported
    $                   
      0.51
    
    $                    0.48Diluted—Pro
      forma
    $                   
      0.51
    
    $                  
       0.48
 8
 Index
 
 In December
2004, the FASB issued SFAS No. 123, Share-Based Payments (revised 2004), (“SFAS
No. 123R”). This statement eliminates the option to apply the intrinsic value
measurement provisions of APB No. 25 to stock compensation awards issued to
employees. Rather, SFAS No. 123R requires companies to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant date fair value of the award. That cost will be recognized over the
period during which an employee is required to provide services in exchange for
the award - the requisite service period (usually the vesting period). SFAS No.
123R will also require companies to measure the cost of employee services
received in exchange for employee stock purchase plan awards. SFAS No. 123R will
be effective for the Company’s fiscal quarter beginning January 1, 2006. Based
on the number of stock options outstanding as of March 31, 2005, the effect of
the adoption of SFAS No. 123R would be to decrease net income by approximately
$84 in 2006.
  **7.**  **Commitments
and Contingencies**
 
 In the course
of pursuing its normal business activities, the Company is involved in various
legal proceedings and claims.  Management
does not expect that amounts, if any, which may be required to be paid by reason
of such proceedings or claims will have a material effect on the Company’s
financial position or results of operations.
  **8.**  **Subsequent
Event**
 
 On April 21,
2005, the Company received a subpoena from the Florida Office of Insurance
Regulation requesting documents related to all reinsurance agreements to which
the Company has been a party since January 1, 1998. On May 2, 2005 the
Company received a subpoena from the Securities & Exchange Commission
seeking documents relating to "certain loss mitigation insurance products." The
Company intends to cooperate fully with both subpoenas. The outcome of these
proceedings is uncertain and their potential impact upon the Company cannot be
determined at the present time. Other
than the current quota share agreement, which incepted January 1, 2005, all of
the material reinsurance agreements to which the Company has been a party have
terminated and have been settled, and the reinsurers have been released
from all future liabilities under the agreements.
  9
 Index
  **Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations**
 
 The following
discussion and analysis of the results of operations for the three months ended
March 31, 2005 and March 31, 2004, provides commentary relating to, and
should be read in conjunction with, the consolidated financial statements
included elsewhere in this document.
  **General**
 
 We provide
non-standard private passenger automobile insurance and related services in 21
states. Non-standard automobile insurance affords coverage to drivers who find
it difficult to purchase standard automobile insurance as a result of a number
of factors, including their driving record, vehicle, age or claims history, or
because they have limited financial resources. Many of these drivers purchase
state-mandated minimum limits of coverage to comply with financial
responsibility laws. Premium rates for non-standard automobile insurance
policies are generally higher than for standard or preferred automobile
insurance policies for comparable coverage.
 
 The
non-standard automobile insurance business is highly competitive, and we compete
with both large national insurance providers and smaller regional companies.
Some of our competitors have more capital, higher ratings and greater resources
than we have, and they may offer a broader range of products and lower prices
and down payments than we offer.
  The operating
results of property and casualty insurance companies are subject to fluctuations
from quarter-to-quarter and year-to-year due to a number of factors, including
but not limited to general economic conditions, the regulatory climate in states
where an insurer operates, state regulation of premium rates, changes in pricing
and underwriting practices of the insurer and its competitors, the frequency and
severity of losses, natural disasters and other factors. Historically, results
of property and casualty insurance companies have been cyclical, with periods of
high premium rates and strong profitability followed by periods of price
competition, falling premium rates and reduced profitability.
 
 We continue
to direct our operations in view of the market conditions and anticipated
changes to those conditions in each state in which we operate. One facet of our
strategy is to be a long-term, stable market for our producers and insureds. We
possess licenses, systems and professional staff to service the markets in each
state in which we operate.
 
 We provide
systems and processes to help our agents and producers improve customer
retention, such as our online point-of-sale application systems,
OneStep Ô and
OneStep-Raptor Ô ,
electronic funds transfer bill plans, check by phone and BWProducers.com, which
web enables a producer’s customer management.  We continue to target
profitable areas within the states in which we operate, and we continuously add
new producers to increase new business production.
 ****
 **Operating
Results - Key States**
 
 In certain
states in which we operate, most notably California, market conditions have
become increasingly competitive in recent quarters.  We are observing a
limited number of rate filings where companies are raising rates, and in several
states, companies with which we compete have filed rate decreases.  In
addition, some companies with which we compete have relaxed underwriting
standards and/or lowered rates in an effort to attract more
business.
 
 We monitor
the rate and underwriting activity of the other market participants in each
state in which we do business.  During the first quarter of 2005, we
observed 75 rate revisions by companies we monitor in the states in which we do
business.  Fifteen of these filed changes were rate increases, 46 were rate
reductions, one was revenue neutral and 13 were introductions of new
products.
 
 The table
below shows our direct written premium by state.  Overall, direct written
premium was 17% lower in the first quarter of 2005 than in the first quarter of
2004. Our written premiums in California were 37% below those for the first
quarter of 2004, while our written premiums for the remaining states in which we
operate improved 17% in the first quarter of 2005 compared to the respective
period of 2004. Our reported gross written premiums are adjusted for expected
policy cancellations; the change in the adjustment had an insignificant effect
upon reported gross written premiums for the respective first quarters of both
2005 and 2004. The purpose of the provision is to adjust the balance of
installment premiums due from policyholders to the amount the
Company  expects
to ultimately
 
 10
 Index
 
 collect.
Likewise, the Company’s liability for unearned premiums related to the
installment premiums is reduced to reflect expected policy cancellations related
to expected non-payments.
  **DIRECT
      WRITTEN PREMIUM PRODUCTION BY STATE****($
      in millions)****Three
      months ended****March
      31,**
    **%****State**
    **2005**
    **2004**
    **Change**California
    $        
      83.7
    $     132.0
    -36.6%Florida
    25.2
    22.9
    10.0%Michigan
    22.5
    17.5
    28.6%Texas
    6.2
    3.1
    100.0%South
      Carolina
    6.1
    4.0
    52.5%New
      Hampshire
    3.8
    2.9
    31.0%Maine
    3.8
    3.4
    11.8%Pennsylvania
    3.4
    4.0
    -15.0%Georgia
    3.0
    3.0
    0.0%Virginia
    2.6
    3.6
    -27.8%All
      Other (includes 11 states)
    10.3
    9.6
    7.3%**Total**
    $       170.6
    $     206.0
    -17.2%Change
      in expected policy cancellation provision
    (0.2)
    (0.4)
    n/m**Total,
      net of change in expected policy cancellation
      provision**
    $      
      170.4
    $     205.6
    -17.1%
 Average
policies in force increased 2% for the three months ended March 31, 2005
compared to the corresponding period of 2004, and our gross earned premiums
increased by 4%. At the end of the first quarter of 2005, our in force policy
count was 475,000 compared to 481,000 at December 31, 2004, a decrease of
1%.
 
 One important
aspect of our growth strategy is to increase the number of producers with which
we do business. We attempt to target producers in geographic areas where we are
under-represented and where we believe we can write profitable business. 
During the first quarter of 2005, we increased our total number of producers to
6,600 and our total number of producer locations to 8,800. This compares to
6,300 producers and 8,300 producer locations as of December 31,
2004.
 
 Over time, it
is our goal to increase our geographic diversification. California continues to
be our largest state, and it represented 49% of our first quarter 2005 premium
volume. California, Florida and Michigan, our three largest states, collectively
accounted for 77% of our volume for the first quarter of 2005.
Quarter-to-quarter changes in written premium, as enumerated above, vary
significantly by state and are dependent upon a variety of factors, including
competitive conditions and regulatory environments within those states, our
strategies with respect to product pricing and the number and location of
producers.
 
 Our written
premiums in California, for the first quarter of 2005, were 37% below the
comparable period of 2004. While our competitors’ rates, as filed, remain
stable, some have relaxed underwriting standards by not verifying mileage bands
and other underwriting information, such as driving experience.  This
behavior has resulted in lower policy premiums for some drivers, making it more
difficult for companies not engaging in such practices to attract new customers
or retain those that seek alternate quotes at renewal.  We have not relaxed
our underwriting standards and do not intend to do so in the future. We believe
that several of our competitors are operating at unprofitable combined ratios,
and that they will need to adjust their underwriting practices in the future in
order to raise the effective price of their policies.
 
 11
 Index
 
 New business
application volume in California for the first quarter of 2005 decreased by 50%
compared to the first quarter of 2004 and by 13% compared to the fourth quarter
of 2004. We have increased the number of producers in California to 966 at March
31, 2005 compared to 917 at December 31, 2004, an increase of 5%.  Producer
locations in California have increased to 1,689 as of March 31, 2005 from 1,602
as of December 31, 2004.
 
 In Florida,
our second largest state, gross written premium for the first quarter of 2005
grew by 10% compared to the first quarter of 2004, on the strength of a new
product design introduced in April 2004.  We continue to increase our
producer representation in Florida, and had 1,116 producers as of March 31,
2005, an increase of 41% from the same time a year ago. We have been active in
combating insurance fraud in Florida, working with federal, state, and local
authorities, and these efforts have resulted in multiple arrests in recent
months. Overall the market remains stable in Florida, and recently we have seen
two large competitors increase their rates modestly.
 
 We continue
to experience strong growth in Michigan where our premium volume for the first
quarter of 2005 increased 29% compared to the first quarter of 2004.  One
of our strategies in Michigan and elsewhere is to grow by increasing the number
of producers in profitable geographic areas where we are
under-represented.
 
 Texas is
becoming a more important market for the Company. Written premiums doubled in
the quarter ended March 31, 2005 compared to the same quarter of the previous
year. We introduced a more segmented product there in August of 2004, and have
increased our agency representation to 658 agencies as of March 31, 2005 from
343 agencies a year earlier. As with all states, we are closely monitoring
trends, and we are encouraged by our observations and analysis of such trends to
date.
 
 Our strategy
of increasing the number of producers without over-saturating the market is
contributing to our overall premium volume, as smaller and newer producers have
grown more rapidly than our largest producers.  We closely monitor the
behavior of our new producers to ensure adherence to our underwriting standards.
  **Operations**
 
 We continue
to stress productivity gains, and staff count has decreased by 3.6% to 1,278 as
of the end of March 2005 compared to 1,326 as of December 31, 2004. We continue
to monitor our staffing levels in relation to the volume in our claims and
policyholder services operations.  In addition, we use a number of metrics
to track performance, and, generally, performance is meeting or exceeding our
internal benchmarks.
 
 We have
modified rates 21 times thus far in 2005.  Two such modifications were
increases, 18 were revenue neutral and 1 was a decrease of 5% in Arizona. We
plan to continue to seek rate increases in states where necessary to stay ahead
of loss cost trends. In addition, we believe we can continue to improve our
product structure by filing class plan changes that, through segmentation, are
designed to attract certain risks that we have observed to produce favorable
results relative to the overall market in a given state.
 
 In the
aggregate, we utilized point of sale underwriting on 88% of new business
applications in the first quarter of 2005.  OneStep is fully implemented in
South Carolina for both new business and endorsements. Additionally, it is fully
rolled out for new business in California, and the roll-out of policy
endorsement functionality will occur before the end of the second quarter of
2005.  One Step-Raptor has been implemented in all but 6 of our other
states, so that we have point-of-sale underwriting deployed in 15 states,
representing approximately 88% of the business we write.
  **Reinsurance**
 
 We terminated
and commuted our 2002 to 2004 quota share reinsurance agreement on a cut-off
basis effective January 1, 2005. The termination and commutation resulted in the
reinsurers’ release from all future liability in return for settlement of all
balances due to us of $196.6 million, which was received on January 21, 2005.
These monies have been invested in high-quality fixed income
securities.
 
 The
commutation resulted in significant increases/(decreases) in certain balance
sheet accounts in 2005, as follows:
  12
 Index
  Cash
    $196,648Reinsurance
      recoverable on paid and unpaid losses and loss adjustment
      expenses
    (147,683)Prepaid
      reinsurance
    (106,310)Ceding
      commission receivable
    (138,197)Reinsurance
      payables
    (164,824)Deferred
      policy acquisition costs
    30,609
 On August 12,
2004, we entered into a new quota share reinsurance agreement effective January
1, 2005 with National Union Fire Insurance Company of Pittsburgh, PA, a
subsidiary of American International Group, Inc. (AIG). The agreement
permits us to cede from 5% to 30% of our business written for 2005 with an
option for 2006 subject to certain performance criteria being met. The ceding
percentage is 10% of business written during the 2005 underwriting year. This
contrasts with a ceding percentage of 50% of business written in the 2004
underwriting year. For the three months ended March 31, 2005, the Company ceded
$4.1 million of its earned premium under this agreement with a net pre-tax cost,
excluding lost investment income, to the Company of 3% of the ceded earned
premium.
  13
 Index
 ****
 **Results
of Operations**
 
 The table
below displays certain measures we use in monitoring and evaluating our
operations.
  **Three
      Months Ended March 31,****2005**
    
    **2004****(in
      thousands, except per share data)****Statement
      of Operations Data:****Revenue:**Net
      earned premium
    $                    
      163,459
    
    $                     
       69,609Net
      investment income
    3,633
    
    1,805Realized
      (loss) gain on investments, net
    (1)
    
    -Policy
      service fee revenues
    17,766
    
    17,850Other
      income
    748
    
    613Total
      revenue
    185,605
    
    89,877**Costs
      and Expenses:**Losses
      and loss adjustment expenses incurred
    107,765
    
    47,566Commissions
      and other underwriting expenses
    40,815
    
    9,497Other
      operating and general expenses
    9,265
    
    7,064Interest
      expense
    968
    
    651Extinguishment
      of debt
    -
    
    1,613Stock
      based compensation expense
    406
    
    579Total
      costs and expenses
    159,219
    
    66,970Income
      before income taxes
    26,386
    
    22,907Income
      taxes
    9,565
    
    8,361**Net
      Income**
    $                      
      16,821
    
    $                      
      14,546**Per
      Share Data:**Net
      income per common share - Basic
    $              
                  0.53
    
    $                          
      0.51Net
      income per common share - Diluted
    $                          
      0.51
    
    $                          
      0.48**Operating
      Data:**Gross
      written premium
    $                    
      170,350
    
    $                   
       205,617Net
      written premium
    256,695
    
    99,771Gross
      earned premium
    169,749
    
    163,246**Ratios:**Loss
      ratio (a)
    59.2%
    
    54.0%Expense
      ratio (b)
    27.5%
    
    18.8%Combined
      ratio (c)
    86.7%
    
    72.8%(a)
      Loss ratio is the ratio, expressed as a percentage, of (i) losses and loss
      adjustment expenses incurred, divided by (ii) the sum of
      (A)
      net earned premium, (B) policy service fee revenues and (C) other
      income.(b)
      Expense ratio is the ratio, expressed as a percentage, of (i) the sum of
      (A) commissions and other undewriting expenses and (B)
      other operating and
      general expenses divided by (ii) the sum of (A) net earned premium, (B)
      policy service fee revenues and
      (C) other
      income.(c)
      Combined ratio is the sum of the loss ratio and the expense ratio. This
      ratio is used by our management to evaluate our
      operating
      profitability.
 14
 Index
 ******
 ***Overview
of Operating Results***
 
 Net income
for the three months ended March 31, 2005 was $16.8 million compared to $14.5
million for the three months ended March 31, 2004, an increase of 16%. There
were no unusual income or expense items in the first quarter of 2005; however,
net income for the first quarter of 2004 included charges of $1.4 million after
tax related to the refinancing of the Company’s credit facilities and stock
awards to employees in connection with the Company’s initial public offering
(the “IPO”) in February 2004. Exclusive of these two charges, net income for the
first quarter of 2004 would have been $15.9 million.
 
 The increase
in net income in the first quarter of 2005 relative to the same period in 2004
is primarily attributable to the aforementioned charges of $1.4 million that did
not recur in the first quarter of 2005 and an increase in net investment income
of $1.8 million before taxes, which increased after tax net income by
approximately $1.5 million based on the marginal tax rates for the respective
periods.
 ******
 ***Three
Months Ended March 31, 2005 compared to Three Months Ended March 31,
2004***
 **
 *Gross Written
Premium* . Gross
written premium decreased to $170.4 million for the three months ended March 31,
2005, or by 17%, compared to $205.6 million for the same period in 2004. 
Average policies in force increased by 2% for the three months ended March 31,
2005, compared to the corresponding period of 2004.
 
 In
California, our largest market, gross written premium declined to $83.7 million
for the three months ended March 31, 2005 compared to $132.0 million for the
comparable period of 2004, a decrease of 37%. Gross written premium decreased
primarily due to continued competition in this market.
 
 In Florida,
our second largest market, gross written premium increased by 10% to $25.2
million for the three months ended March 31, 2005 compared to $22.9 million for
the three months ended March 31, 2004. In April 2004, we introduced a more
highly segmented product, which is more broadly competitive than the products it
replaced.
 
 In Michigan,
our third largest market, gross written premium increased by 29% to $22.5
million for the three months ended March 31, 2005 from $17.5 million for the
three months ended March 31, 2004.
 **
 *Net Written
Premium.* Net
written premium for the three months ended March 31, 2005 was $256.7
million, compared to $99.8 million for the same period in 2004, an increase of
157%. The increase is due to the termination and commutation of the
Company’s 2002-2004 quota share treaty, which contributed a one time increase of
$106.3 million to net written premium for the first quarter of 2005, and a
decrease in the percentage of gross written premium ceded under quota share
reinsurance agreements to 10% on business written in 2005 from 50% in 2004,
which contributed an additional $68.4 million.
 **
 *Net Earned
Premium.* Net
earned premium for the three months ended March 31, 2005 was $163.5
million, compared to $69.6 million for the same period in 2004, representing an
increase of 135%.  The increase was primarily due to the decrease in the
percentage of earned premiums ceded to our reinsurers. Pursuant to the quota
share reinsurance agreement in effect in 2004, we ceded 50% of 2004 policy
premiums. For 2005, we have a new quota share reinsurance agreement under which
we are ceding 10% of the premiums earned on policies written in 2005. The
following table shows the gross and ceded amounts of written and earned premium
for the three months ended March 31, 2005 and 2004.
  15
 Index
  **Three
      months ended March 31,****2005**
    
    **2004****(in
      thousands)**Gross
      written premium
    $      
              170,350
    
    $             
       205,617Ceded
      written premium
    (86,345)
    
    105,846Effect
      of reinsurance commutation on ceded written premium
    (106,310)
    *
    -Ceded
      written premium, excluding effect of reinsurance
    commutation
    19,965
    
    105,846%
      Ceded, excluding effect of reinsurance commutation
    11.7%
    
    51.5%Gross
      Earned Premium
    $    
                169,749
    
    $   
                 163,246Ceded
      Earned Premium
    6,290
    
    93,637%
      Ceded
    3.7%
    
    57.4%
 * Amount
represents the unearned premium previously ceded under the 2002-2004 quota share
reinsurance agreement, which was returned as a result of the termination and
commutation of this agreement.
 **
 *Net
Investment Income.* Net
investment income for the three months ended March 31, 2005 was $3.6
million, compared to $1.8 million for the same period in 2004.  This
increase is attributable to a larger average invested asset base during the
three months ended March 31, 2005 as compared to the same period of 2004. The
Company’s IPO completed in February 2004 provided $113.4 million of net
proceeds, and termination and commutation of the Company’s 2002-2004 quota share
treaty resulted in the receipt of $196.6 million in January 2005.
 **
 *Policy
Service Fee Revenues* . Policy
service fee revenues for the three months ended March 31, 2005 were $17.8
million, as compared to $17.9 million for the same period in 2004.  Absent
changes in the mix of business by state, policy service fee revenues would be
expected to change from period to period commensurate with the change in gross
earned premium.
  ***Costs
and Expenses***
 **
 *Losses and
Loss Adjustment Expenses* . 
Loss and loss adjustment expenses incurred for the three months ended
March 31, 2005 were $107.8 million, compared to $47.6 million for the same
period in 2004.  The increase was caused by the reduction in losses ceded
under the Company’s quota share reinsurance agreements to 3.9 % of gross losses
in the first quarter of 2005 from 55.6% during the comparable 2004 period, in
keeping with the changes in ceding percentages under the agreements. The loss
and loss adjustment expense ratio was 59.2% for the three months ended
March 31, 2005 compared to 54.0% for the same period in 2004.
 
 The following
table displays the Company’s incurred loss and loss adjustment expenses (“LAE”)
as related to the current accident year (losses and LAE occurring in the current
fiscal year) and prior accident years (losses and LAE recognized in the current
fiscal year related to accidents which took place in a prior fiscal
year).
  16
 Index
 
 **Three
      months ended March 31,****2005**
    
    **2004****(in
      thousands)**Current
      Accident Year Loss and LAE Incurred
    $           
      107,877
    
    $            
       46,253Prior
      Accident Years Loss and LAE Incurred
    (112)
    
    1,313Total
      Loss and LAE Incurred
    $          
       107,765
    
    $            
       47,566Current
      Accident Year Loss and LAE Ratio
    59.3%
    
    52.5%Prior
      Accident Years Loss and LAE Ratio
    -0.1%
    
    1.5%Total
      Loss and LAE Ratio
    59.2%
    
    54.0%
 Loss
development occurs when loss and loss adjustment expense reserves established
for accidents that took place in years prior to the current year prove to be
redundant or inadequate, and management adjusts those loss and loss adjustment
expense reserves to reflect the revised estimate of the ultimate losses and loss
adjustment expenses related to such accidents.  Such changes impact loss
and loss adjustment expenses in the current year.
 
 The large
change in ceding percentage under our quota share agreements diminishes the
relevance of the quarter over quarter comparisons, and our gross loss and loss
adjustment expense ratios (excluding the impact of reinsurance) are more
meaningful. Our gross losses divided by gross earned premiums were 66.1% in the
first quarter of 2005 compared to 65.6% in the first quarter of 2004, a modest
increase.
 **
 *Commissions
and Other Underwriting Expenses.* Commissions
and other underwriting expenses for the three months ended March 31, 2005
were $40.8 million compared to $9.5 million for the same period in 2004. Most of
the increase is the result of the large change in ceding percentage under our
quota share agreements. In the first quarter of 2005, we ceded approximately
3.7% of our gross earned premiums compared to 57.4% in the first quarter of
2004. The ceding commission (reflected as a reduction in net commission expense)
was $1.2 million in the first quarter of 2005 compared to $29.2 million in the
first quarter of 2004, or a net commission expense increase of $28.0 million.
Additionally, the Company’s other underwriting expenses grew by $3 million for
the first quarter of 2005 compared to the first quarter of 2004. This was the
result of a lower net deferral of acquisition related expenses in the first
quarter of 2005 than in the first quarter of 2004 due to lower production in the
first quarter of 2005.
 **
 *Other
Operating and General Expenses.* Other
operating and general expenses for the quarter ended March 31, 2005 were
$9.3 million compared to $7.1 million for the same period in 2004, an increase
of $2.2 million.  The increase was primarily due to increased expenses
related to being a public company and higher depreciation expense.
 **
 *Interest
Expense* . 
Interest expense for the three months ended March 31, 2005 was $1.0
million, compared to $0.7 million for the same period in 2004.  The
aggregate weighted average interest rate was 4.4% during the three months ended
March 31, 2005 compared to 2.9% during the three months ended March 31,
2004. As of March 31, 2005, the Company had $72.9 million of outstanding
debt as compared to $75.0 million at March 31, 2004.
 **
 *Ratios* . Our
combined ratio was 86.7% for the three months ended March 31, 2005,
compared to 72.8% for the same period in 2004. Because the Company has
significantly reduced its quota share reinsurance cessions, the loss, expense,
and combined ratios are not comparable on a net (after reinsurance) basis. Our
gross combined ratio was 86.8% for the first quarter of 2005 compared to 84.2%
for the first quarter of 2004. The gross loss and loss adjustment expense ratio
for the first quarter of 2005 was 59.6% compared to 59.0% in the first quarter
of 2004. The acquisition expense ratio was up by a point as was the operating
and general expense ratio.
 **
 *Income
Taxe* s. 
Income taxes for the three months ended March 31, 2005 were $9.6 million
representing an effective tax rate of approximately 36.25%.  The effective
rate is comprised of 32.9% for federal income taxes and 3.35% for state income
taxes.
  17
 Index
 
 **Financial
Condition**
 ******
 ***Liquidity and
Capital Resources***
 
 We are
organized as a holding company with all of our operations being conducted by our
subsidiaries.  Our insurance subsidiaries underwrite the risks associated
with our insurance policies. Our non-insurance subsidiaries provide services to
our policyholders and our insurance subsidiaries related to the insurance
policies we issue. We have continuing cash needs for the payment of principal
and interest on borrowings, dividends, taxes and administrative expenses. These
ongoing obligations are funded with dividends from our non-insurance
subsidiaries and taxes paid by each subsidiary through an inter-company tax
allocation agreement.
 
 In
February 2004, we completed an initial public offering of 17,250,000 shares
of our common stock. We sold 6,250,000 shares providing net proceeds to us,
after deducting issuance costs, of approximately $113.4 million. We
contributed $110.0 million of the proceeds to our principal insurance
subsidiary, which increased its statutory surplus. We used the $3.4 million
not contributed to our insurance subsidiary for general corporate purposes at
the holding company. The additional capital has provided us with the ability to
reduce our reinsurance purchases and retain more of our written premium. For
2005 written premium, we have reduced the percentage of premiums ceded to
reinsurers under quota share agreements to 10% from 50% for 2004.
 
 In
February 2004, we completed a refinancing of our secured credit facility.
This bank agreement (the “Bank Agreement”) consists of: (1) a
$50.0 million Secured Revolving Credit Facility, which includes up to
$15.0 million of letters of credit, (2) a $35.0 million Term A
Loan and (3) a $40.0 million Term B Loan. The Company’s interest rate
on borrowings under the Bank Agreement is LIBOR plus a margin ranging from 1.0%
to 2.25%, which is determined based on our consolidated total debt to
consolidated total capitalization ratio. The Company also pays certain
commitment fees. The Bank Agreement is secured by a pledge of stock of certain
of our subsidiaries. The Bank Agreement requires compliance with certain
financial loan covenants relating to leverage and debt service coverage. As of,
and for the twelve-month period ended March 31, 2005, the Company was in
compliance with all such covenants.
 
 There are no
restrictions on the payment of dividends by our non-insurance subsidiaries other
than customary state corporation laws regarding solvency. Dividends from our
insurance subsidiaries are subject to restrictions relating to statutory surplus
and earnings.  Our insurance subsidiaries are permitted to pay dividends of
$21.9 million without first seeking regulatory approval.  Our
insurance subsidiaries have not paid any dividends since 1999, which has not
impacted our ability to meet our obligations. We do not anticipate that our
insurance subsidiaries will pay dividends in the foreseeable future. Because our
non-insurance subsidiaries generate revenues, profits and net cash flows that
are generally unrestricted as to their availability for the payment of
dividends, we expect to use those funds to service all of our corporate
financial obligations, such as debt service and stockholder
dividends.
 
 Our insurance
subsidiaries’ primary sources of funds are premiums received, investment income
and proceeds from the sale and redemption of investment securities. Our
non-insurance subsidiaries’ primary sources of funds are policy service fee
revenues and commission income received from our insurance subsidiaries. These
subsidiaries use these funds to pay claims and operating expenses, make payments
under the tax allocation agreement, purchase investments and pay dividends to
us.
 
 On February
10, 2005, the Board of Directors declared a dividend of $0.05 per common share
resulting in a total payout of approximately $1.6 million from Bristol West
Holdings, Inc.  The dividend was paid on March 10, 2005 to shareholders of
record on February 24, 2005.
 
 On March 14,
2005, our Board of Directors authorized the repurchase of up to $30 million of
the Company's outstanding common stock. Under this program, share purchases may
be made from time to time in the open market depending on share price, market
conditions and other factors. The Company has engaged Bear, Stearns & Co.
Inc. to administer the stock repurchase program. As of March 31, 2005, the
Company had repurchased 434,100 shares of its common stock at a cost of $6.8
million. The Company intends to continue making purchases of its common shares
from time to time as permitted by applicable securities laws.
 
 On May 9,
2005, the Board of Directors declared a dividend of $0.07 per common share that
will result in a total payout of approximately $2.2 million from available cash
at Bristol West Holdings, Inc. The dividend will be paid on or before June 9,
2005 to shareholders of record on May 26, 2005.
 
 
 18
 Index
 
 Net cash
provided by operating activities was $214.7 million for the quarter ended
March 31, 2005, compared to $9.9 million for the same period in 2004. 
Most of the quarter over quarter increase was provided by the termination and
commutation of the 2002-2004 quota share reinsurance agreement, which resulted
in a cash settlement from the Company’s reinsurers on January 21, 2005 in
the amount of $196.6 million.
 
 Net cash used
in investment activities amounted to $126.1 million and $103.4 million for the
quarter ended March 31, 2005 and 2004, respectively, and was primarily used
to purchase high-quality fixed income securities.  The funds for the
investment purchases in the current quarter were provided principally by the
commutation proceeds from the Company’s 2002-2004 quota share reinsurance
agreement. The funds for the investment purchases in last year’s first quarter
were provided principally by the Company’s IPO.
 
 Net cash used
in financing activities was $8.9 million for the quarter ended March 31,
2005 compared to net cash provided by financing activities of $117.4 million for
the same period in 2004.  For the quarter ended March 31, 2005, cash used
in financing activities related primarily to the repurchase of 434,100 shares of
the Company’s common stock at a cost of $6.8 million, as well as the payment of
stockholder dividends of $1.6 million. For the same period of 2004, cash of
$113.4 million was provided from the Company’s IPO as discussed
above.
 ****
 **Investments**
 
 We had total
cash, cash equivalents and invested assets of $491.6 million as of
March 31, 2005. The following table summarizes our cash, cash equivalents
and invested assets as of March 31, 2005.
 
 **Cost
      /**
    
    **Fair**
    
    **%
      of Total****Amortized
      Cost**
    
    **Value**
    
    **at
      Fair Value****(in
      millions)**Debt
      securities, available for sale
    $                 
       403.1
    
    $          
       398.4
    
    81.0%Equity
      securities, available for sale
    2.0
    
    2.0
    
    0.4%Cash
      and cash equivalents
    91.2
    
    91.2
    
    18.6%Total
    $                 
       496.3
    
    $            491.6
    
    100.0%
**
 *Investment
Strategy.* Our investment portfolio is highly marketable and consists of publicly traded,
high quality investment-grade debt securities. We hold no equity securities,
other than our investment in OneShield, Inc., and we have no exposure to foreign
currency risk. Hyperion Capital Management, Inc. manages our portfolio and
provides related accounting services. Our investment strategy is intended to
preserve and grow capital adequate to support our insurance
operations.
 **
 *Investment
Portfolio.* Our
investment portfolio consists primarily of debt securities, all of which are
classified as available for sale, and are carried at fair value with unrealized
gains and losses reported in our financial statements as a separate component of
stockholders’ equity on an after-tax basis. As of March 31, 2005, the fair
value of our investment portfolio, including short-term investments, was
$491.6 million, which included $4.7 million in pre-tax net unrealized
losses.  The weighted average pre-tax equivalent book yield of the fixed
maturity portfolio was 4.10% at March 31, 2005.
 
 Our
investment objective is to maximize book income, while maintaining strong credit
quality and satisfactory liquidity. Our portfolio at March 31, 2005 had an
average Standard & Poor’s rating of “AA+”.
 
 
 19
 Index
  The following table presents the
composition of our investment portfolio by type of investment as of
March 31, 2005 (in millions):
 
 Cash
      and cash equivalents
    $            91.2
    
    18.6%U.S.
      Government securities
    4.4
    
    0.9%Mortgage
      backed bonds
    51.6
    
    10.5%Tax-exempt
      bonds
    167.3
    
    34.0%Collateralized
      mortgage obligations
    21.5
    
    4.4%Corporate
      and other
    158.3
    
    32.2%Preferred
      stocks
    2.0
    
    0.4%Net
      unrealized (losses) on fixed maturities
    (4.7)
    
    -1.0%Total
      investments at market value
    $          491.6
    
    100.0%
 Tax-exempt
bonds represented 34.0% of the portfolio as of March 31, 2005. Given the
Company’s federal income tax position, we intend to continue to commit
additional monies to tax-exempt bonds as long as the after-tax return is
favorable.
 
 The following
table presents the composition, by type of security, including the amortized
cost, gross unrealized gains, gross unrealized losses and fair value of debt
securities available for sale in our investment portfolio as of March 31,
2005.
  **Amortized**
    
    **Unrealized**
    
    **Unrealized**
    
    **Estimated****Cost**
    
    **Gains**
    
    **Losses**
    
    **Market
      Value****(in
      millions)**U.S.
      Government securities
    $   
              4.4
    
    $        
             -
    
    $       
              -
    
    $     
                 
       4.4Mortgage
      backed bonds
    51.6
    
    0.1
    
    0.7
    
    51.0Tax-exempt
      bonds
    167.3
    
    0.4
    
    2.6
    
    165.1Collateralized
      mortgage obligations
    21.5
    
    0.1
    
    0.3
    
    21.3Corporate
      and other
    158.3
    
    0.6
    
    2.3
    
    156.6Total
      fixed maturities
    403.1
    
    1.2
    
    5.9
    
    398.4Preferred
      stock
    2.0
    
    -
    
    -
    
    2.0Total
    $      
       405.1
    
    $            1.2
    
    $     
            5.9
    
    $      
              400.4
 20
 Index
 
 The quality
distribution of our fixed maturity portfolio as of March 31, 2005 was as
follows:
  **NAIC**
    
    **Amortized**
    
    **Fair**
    
    **%
      of Total****Rating**
    
    **Cost**
    
    **Value**
    
    **at
      Fair Value****(in
      millions)****Standard
      & Poor's Rating**AAA
    1
    
    $      
       265.3
    
    $      
       261.4
    
    65.6%AA
    1
    
    76.0
    
    75.3
    
    18.9%A
    1
    
    52.9
    
    52.7
    
    13.2%BBB
    2
    
    4.5
    
    4.6
    
    1.2%U.S.
      Treasuries agencies
    1
    
    4.4
    
    4.4
    
    1.1%Total
      fixed maturity investments
    
    
    $      
       403.1
    
    $      
       398.4
    
    100.0%
 On a
quarterly basis, we examine our investment portfolio for evidence of impairment.
The assessment of whether impairment has occurred is based on our evaluation, on
an individual security basis, of the underlying reasons for any decline in fair
value, which are discussed with our investment advisor and evaluated to
determine the extent to which such changes are attributable to interest rates,
market-related factors other than interest rates, as well as financial
condition, business prospects and other fundamental factors specific to the
issuer. Declines attributable to issuer fundamentals are reviewed in further
detail. When one of our securities has a decline in fair value that is
determined to be other than temporary, we reduce the carrying value of the
security to its current fair value as required by GAAP.
 
 Based upon
our analysis, we believe that we will recover all contractual principal and
interest payments related to those securities that currently reflect unrealized
losses. We also believe that we have the ability and intent to hold these
securities until they mature or recover in value. Should either of these beliefs
change with regard to a particular security, a charge for impairment would
likely be required. In the last three years, we have not needed to record any
impairment charges.
 
 As of
March 31, 2005, investments carried at a fair value of $12.0 million
and approximately $0.3 million of cash were on deposit with state insurance
regulatory authorities.
 ****
 **Forward-Looking
Statements**
 
 This report
includes various forward-looking statements regarding the Company that are
subject to risks and uncertainties including, without limitation, the factors
set forth below and under the caption “Risk Factors” in the prospectus filed
with the United States Securities and Exchange Commission on February 11,
2004, pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended,
in connection with the Company’s Registration Statement on Form S-1 (File
No. 333-111259). Forward-looking statements include, but are not limited
to, discussions regarding our operating strategy, growth strategy, acquisition
strategy, cost savings initiatives, industry, economic conditions, financial
condition, liquidity and capital resources and results of operations. Such
statements include, but are not limited to, statements preceded by, followed by
or that otherwise include the words “believes,” “expects,” “anticipates,”
“intends,” “estimates” or similar expressions. For those statements, we claim
the protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995.
 
 Certain
important factors, which are discussed elsewhere in this document and in our
Registration Statement on Form S-1 described above, could affect our future
financial results and could cause actual results to differ materially from those
expressed in forward-looking statements contained or incorporated by reference
in this document.
 
 **Item 3. Quantitative and Qualitative
Disclosures About Market Risk**
 
 We believe
that we are principally exposed to two types of market risk: interest rate risk
and credit risk.
  21
 Index
 ******
 ***Interest
Rate Risk***
 **
 *Investments.* Our
investment portfolio consists primarily of debt securities, all of which are
classified as available for sale. Accordingly, the primary market risk exposure
to our debt securities portfolio is interest rate risk, which we strive to limit
by managing duration to a defined range of three to four years and laddering or
utilizing an even distribution in the maturities of the securities we purchase
to achieve our duration target. Interest rate risk includes the risk from
movements in the underlying market rate and in the credit spread of the
respective sectors of the debt securities held in our portfolio. The fair value
of our fixed maturity portfolio is impacted directly by changes in market
interest rates. As interest rates rise, the market value of our fixed-income
portfolio falls, and the converse is also true. We expect to manage interest
rate risk by selecting investments with characteristics such as duration, yield
and liquidity tailored to the anticipated cash outflow characteristics of our
liabilities. The effective duration of the portfolio as of March 31, 2005
was 3.20 years. Should market interest rates increase 1.0%, our fixed
income portfolio would be expected to decline in market value by approximately
$15.1 million, or 3.2%. Conversely, a 1.0% decline in interest rates would
result in approximately $15.2 million, or 3.2%, appreciation in the market
value of our fixed income portfolio. These market value changes are a result of
the effective duration of the portfolio, as well as the slightly negative
convexity of the portfolio.
 **
 *Credit
Facility.* Our
exposure to market risk for changes in interest rates also relates to the
interest expense of variable rate debt under a bank credit agreement that we
entered into on February 18, 2004. The credit agreement is a floating rate
borrowing facility and the interest rate we pay increases or decreases with the
changes in interest rates, specifically LIBOR. Based on our borrowings under the
floating rate credit agreement at March 31, 2005, a 10% increase in market
interest rates would increase our annual net interest expense by approximately
$211,000.
  ***Credit
Risk***
 **
 *Investments.* An
additional exposure to our debt securities portfolio is credit risk. We attempt
to manage our credit risk through issuer and industry diversification. We
regularly monitor our overall investment results and review compliance with our
investment objectives and guidelines. Our investment guidelines include
limitations on the minimum rating of debt securities in our investment
portfolio, as well as restrictions on investments in debt securities of a single
issuer.
 **
 *Reinsurance* . 
We are subject to credit risks with respect to our reinsurers. Although our
reinsurers are liable to us to the extent we cede risk to them, we are
ultimately liable to our policyholders on all risks we have reinsured. As a
result, reinsurance agreements do not limit our ultimate obligations to pay
claims to policyholders and we may not recover claims made to our reinsurers.
A.M. Best ratings of the reinsurers from which we have net recoverables range
from “A-” to “A+”.
 
 **Item 4. Controls and
Procedures**
 
 Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this
quarterly report. Any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives.  Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures provide reasonable assurance that material information relating to us
and our consolidated subsidiaries is made known to such officers by others
within these entities, particularly during the period this quarterly report was
prepared, in order to allow timely decisions regarding required
disclosure.
 
 There have
not been any changes in our internal control over financial reporting during our
fiscal quarter ended March 31, 2005 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
 ****
  **PART II-OTHER
INFORMATION**
  **Item 1.  Legal Proceedings**
 
 22
 Index
 
 On April 21,
2005, the Company received a subpoena from the Florida Office of Insurance
Regulation requesting documents related to all reinsurance agreements to which
the Company has been a party since January 1, 1998. On May 2, 2005 the
Company received a subpoena from the Securities & Exchange Commission
seeking documents relating to "certain loss mitigation insurance products." The
Company intends to cooperate fully with both subpoenas. The outcome of these
proceedings is uncertain and their potential impact upon the Company cannot be
determined at the present time. Other
than the current quota share agreement, which incepted January 1, 2005, all of
the material reinsurance agreements to which the Company has been a party have
terminated and have been settled, and the reinsurers have been released from all
future liabilities under the agreements.
 
 The Company
is named as a defendant in a number of class action and individual lawsuits, the
outcomes of which are uncertain at this time.  These cases include those
plaintiffs who are seeking restitution, damages and other remedies as a result
of the Company’s alleged failure to timely return unearned premium, the
Company’s use of allegedly improper rates and discounts and other cases
challenging various aspects of the Company’s claims and marketing practices and
business operations.  The Company plans to contest the outstanding suits
vigorously. Based upon currently available information, the Company believes
that its reserves for these lawsuits are reasonable.  However, if any one
or more of these lawsuits results in a judgment against or settlement by the
Company in an amount that is significantly in excess of the reserve established
for such lawsuit (if any), the resulting liability could have a material adverse
impact on the Company’s financial condition, cash flows and results of
operations.
 
 For a further
discussion on the Company’s pending litigation, see Item 3 - Legal Proceedings
in the Company’s Annual Report on Form 10-K for the year ended December 31,
2004.
 
 **Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds**
 
 On March 14,
2005, the Company’s Board of Directors authorized the repurchase of up to $30
million of the Company’s outstanding common stock. Under this program, share
purchases may be made from time to time in the open market depending on share
price, market conditions, and other factors. During the three months ended March
31, 2005, the Company repurchased 434,100 shares of its common stock at a cost
of $6.8 million, summarized as follows:
 **Repurchase
      of Equity Securities****Total
      Number of**
    
    **Maximum
      Dollar Value****Total
      Number**
    
    **Average**
    
    **Shares
      Purchased as**
    
    **of
      Shares that May Yet****of
      Shares**
    
    **Price
      Paid**
    
    **Part
      of Publicly Announced**
    
    **Be
      Purchased Under****Period**
    
    **Purchased**
    
    **per
      Share**
    
    **Plans
      or Programs**
    
    **the
      Plans or Programs**January
      1, 2005 to January 31, 2005
    
    -
    
    $                        
      -
    
    -
    
    $                   
                         
       -February
      1, 2005 to February 28, 2005
    
    -
    
    -
    
    -
    
    -March
      1, 2005 to March 31, 2005
    
    434,100
    
    15.61
    
    434,100
    
    23,222,297Total
    
    434,100
    
    $            
           15.61
    
    434,100
    
    $            
                 23,222,297
  **Item
3.********Defaults
Upon Senior Securities**
 
 None
  **Item
4.********Submission
of Matters to a Vote of Security Holders**
 
 None
 
 **Item
5.********Other
Information**
  None
  23
 Index
   **Item 6. Exhibits**
 
 List of
exhibits:
 
 **Exhibit
      Number**
    
    **Description
      of Document**31.1
    
    Rule 13a-14(a)/15d-14(a)
      Certification of Chief Executive Officer (pursuant to Section 302 of
      the Sarbanes-Oxley Act of
      2002)31.2
    
    Rule 13a-14(a)/15d-14(a)
      Certification of Chief Financial Officer (pursuant to Section 302 of
      the Sarbanes-Oxley Act of
      2002)32
    
    Section 1350
      Certification of Chief Executive Officer and Chief Financial Officer
      (pursuant to Section 906 of the
      Sarbanes-Oxley
      Act of 2002)*
 *
Pursuant to Commission Release No. 33-8212, this certification will be treated
as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of
such report for purposes of Section 18 of Exchange Act, or otherwise subject to
the liability of Section 18 of the Exchange Act and this certification will not
be deemed to be incorporated by reference into any filing under the Securities
Act of 1933, as amended, or the Exchange Act, except to the extent that the
registrant specifically incorporates it by reference.
  24
 Index
  
 
 
 
 **SIGNATURES**
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 BRISTOL
      WEST HOLDINGS, INC.
      (Registrant)May
      13, 2005
    
    By:
    /s/
      JAMES R. FISHERDate
    
    
    (Signature)Name:
    James
      R. FisherTitle:
    Chairman,
      Chief Executive Officer (Principal
      Executive
      Officer)May
      13, 2005
    
    By:
    /s/
      CRAIG E. EISENACHERDate
    
    
    (Signature)Name:
    Craig
      E. EisenacherTitle:
    Chief
      Financial Officer (Principal Financial
      Officer
      and Principal Accounting Officer)
  25
 Index
  **Exhibit 31.1**
 
 **Certification**
 
 I, James
R. Fisher, certify that:
 
 1.  I have
reviewed this Quarterly Report on Form 10-Q of Bristol West
Holdings, Inc.;
 
 2.  Based on
my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
 light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
 
 3.  Based on
my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition,
 results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
 
 4.  The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-
 15(e)
and 15d-15(e)) for the registrant and have:
 
 a.  Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that
 material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the
 period in which this report is being prepared;
 
 b.  Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
 disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
 
 c.  Disclosed
in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s first fiscal quarter that has
 materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
 
 5.  The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors
 and
the audit committee of registrant’s board of directors (or persons performing
the equivalent functions):
 
 a.  All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
 adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
 
 b.  Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal controls over financial
 reporting.
 
 
 Date:
      May 13, 2005/s/  JAMES
      R. FISHERJames
      R. FisherChairman
      and Chief Executive Officer
 
 
  26
 Index
  **Exhibit 31.2**
 
 **Certification**
 
 I, Craig
E. Eisenacher, certify that:
 
 1.  I have
reviewed this Quarterly Report on Form 10-Q of Bristol West
Holdings, Inc.;
 
 2.   
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light
 of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
 
 3.  Based on
my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition,
 results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
 
 4.  The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-
 15(e)
and 15d-15(e)) for the registrant and have:
 
 a.  Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
 information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in
 which this report is being prepared;
 
 b.  Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
 disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
 
 c.  Disclosed
in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s first fiscal quarter that has
 materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
 
 5.  The
registrant’s other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors
 and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
 
 a.  All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely
 affect the registrant’s ability to record, process, summarize and report
financial information; and
 
 b.  Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal controls over financial
 reporting.
 
 Date:
      May 13, 2005/s/ CRAIG
      E. EISENACHERCraig
      E. EisenacherSenior
      Vice President and Chief Financial Officer
  27
 Index
  **Exhibit 32**
 
 **CERTIFICATION
PURSUANT TO**
 **18
U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO**
 **SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002**
 
 In
connection with the Quarterly Report of Bristol West Holdings, Inc. (the
“Company”) on Form 10-Q for the period ending March 31, 2005, as filed
with the Securities and Exchange Commission on the date hereof (the “Report”),
we, James R. Fisher and Craig E. Eisenacher, Chief Executive Officer and Chief
Financial Officer, respectively, of the Company, certify, pursuant to 18 U.S.C.
section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to our knowledge:
 
 (1)  The
Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
 
 (2)  The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
 
 
 May 13,
2005
 
 /s/  JAMES
      R. FISHER
    
    /s/  CRAIG
      E. EISENACHERJames
      R. Fisher
    
    Craig
      E. EisenacherChairman
      and Chief Executive Officer
    
    Senior
      Vice President and Chief Financial Officer
 
 
 
 28
 Index