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

|   | For the quarterly period ended June 30, 2009 |
|--------|----------------------------------------------|

|   | OR |
|--------|----|

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

| California(State or other Jurisdiction of Incorporation or Organization)                                                                   |   | 94-2723335(IRS Employer Identification No.) |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|
| 875 Prospect Street, Suite 301La Jolla, California  92037(Address of principal executive offices, excluding zip code) (Zip code) |

|  Large accelerated filer                                                  ý     | Accelerated filer                                         ¨ |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Non-accelerated filer                                                     ¨     | Smaller reporting company                       ¨                                                                                           |

----

|                                     |                                                                                                            |
|------------------------------------------|-----------------------------------------------------------------------------------------------------------------|
|                                     | Page No.                                                                                                        |
|                                     |                                                                                                            |
| Part I:  Financial Information |                                                                                                            |
|                                     |                                                                                                            |
| Item 1:                                  | Condensed Consolidated Financial Statements (Unaudited)                                                         |   |
|                                     |                                                                                                            |   |
|                                     | Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008                            | 2 |
|                                     |                                                                                                            |   |
|                                     | Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008  | 3 |
|                                     |                                                                                                            |   |
|                                     | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008                 | 4 |
|                                     |                                                                                                            |   |
|                                     | Notes to Condensed Consolidated Financial Statements                                                            | 5 |
|                                     |                                                                                                            |   |
| Item 2:                                  | Management’s Discussion and Analysis of Financial Condition and the Results of Operations                 | 12 |
|                                     |                                                                                                            |   |
| Item 3:                                  | Quantitative and Qualitative Disclosure About Market Risk                                                       | 21 |
|                                     |                                                                                                            |   |
| Item 4:                                  | Controls and Procedures                                                                                         | 22 |
|                                     |                                                                                                            |   |
| Part II:  Other Information    |                                                                                                            |
|                                     |                                                                                                            |
| Item 1:                                  | Legal Proceedings                                                                                               | 22 |
|                                     |                                                                                                            |   |
| Item 1A:                                 | Risk Factors                                                                                                    | 23 |
|                                     |                                                                                                            |   |
| Item 2:                                  | Unregistered Sales of Equity Securities and Use of Proceeds                                                     | 23 |
|                                     |                                                                                                            |   |
| Item 3:                                  | Defaults Upon Senior Securities                                                                                 | 23 |
|                                     |                                                                                                            |   |
| Item 4:                                  | Submission of Matters to a Vote of Security Holders                                                             | 23 |
|                                     |                                                                                                            |   |
| Item 5:                                  | Other Information                                                                                               | 23 |
|                                     |                                                                                                            |   |
| Item 6:                                  | Exhibits                                                                                                        | 25 |

----

CONDENSED CONSOLIDATED BALANCE SHEETS 

|                                                                                                                                                                                             | June 30, 2009 |        | December 31, 2008 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|-------------|-------------------|--------|
| ASSETS                                                                                                                                                                                           |          |        |              |   |
| Investments                                                                                                                                                                                      | $             | 146,189,224 |              | $      | 149,417,023 |   |
| Cash and cash equivalents                                                                                                                                                                        |          | 197,624,548 |              |   | 96,316,018 |   |
| Notes and other receivables, net                                                                                                                                                                 |          | 18,146,630  |              |   | 24,352,367 |   |
| Reinsurance receivables                                                                                                                                                                          |          | 15,524,905  |              |   | 16,373,132 |   |
| Real estate and water assets, net                                                                                                                                                                |          | 265,953,754 |              |   | 271,714,300 |   |
| Property and equipment, net                                                                                                                                                                      |          | 1,464,883   |              |   | 1,512,370 |   |
| Deferred income taxes                                                                                                                                                                            |          | 27,493,706  |              |   | 25,274,232 |   |
| Federal, foreign and state income taxes                                                                                                                                                          |          |        |              |   | 4,519,920 |   |
| Other assets                                                                                                                                                                                     |          | 3,548,329   |              |   | 3,154,434 |   |
| Total assets                                                                                                                                                                                     | $             | 675,945,979 |              | $      | 592,633,796 |   |
|                                                                                                                                                                                             |          |        |              |   |   |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                             |          |        |              |   |   |   |
| Unpaid losses and loss adjustment expenses                                                                                                                                                       | $             | 26,710,363  |              | $      | 27,773,320 |   |
| Deferred compensation                                                                                                                                                                            |          | 27,977,619  |              |   | 27,744,528 |   |
| Bank and other borrowings                                                                                                                                                                        |          | 37,307,482  |              |   | 42,381,718 |   |
| Federal, foreign and state income taxes                                                                                                                                                          |          | 5,490,230   |              |   |   |   |
| Other liabilities                                                                                                                                                                                |          | 17,144,607  |              |   | 16,988,040 |   |
| Total liabilities                                                                                                                                                                                |          | 114,630,301 |              |   | 114,887,606 |   |
|                                                                                                                                                                                             |          |        |              |   |   |   |
| Commitments and Contingencies (Note 8)                                                                                                                                                           |          |        |              |   |   |   |
|                                                                                                                                                                                             |          |        |              |   |   |   |
| Common stock, $.001 par value; authorized 100,000,000 shares, 27,019,387 issued and 22,594,592 outstandingat June 30, 2009 and 23,265,187 issued and 18,840,392 outstanding at December 31, 2008 |          | 27,019      |              |   | 23,265 |   |
| Additional paid-in capital                                                                                                                                                                       |          | 537,789,238 |              |   | 439,381,715 |   |
| Retained earnings                                                                                                                                                                                |          | 97,172,776  |              |   | 118,036,716 |   |
| Accumulated other comprehensive income                                                                                                                                                           |          | 6,492,198   |              |   | (1,423,863 | ) |
| Treasury stock, at cost (common shares: 4,424,795 in 2009 and 2008)                                                                                                                              |          | (78,271,643 | )                 |   | (78,271,643 | ) |
| Total PICO Holdings, Inc. shareholders’ equity                                                                                                                                             |          | 563,209,588 |              |   | 477,746,190 |   |
| Noncontrolling interest in subsidiaries                                                                                                                                                          |          | (1,893,910  | )                 |   |   |   |
| Total shareholders' equity                                                                                                                                                                       |          | 561,315,678 |              |   | 477,746,190 |   |
| Total liabilities and shareholders' equity                                                                                                                                                       | $             | 675,945,979 |              | $      | 592,633,796 |   |

The accompanying notes are an integral part of the condensed consolidated financial statements.

----

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

|                                                           | Three Months EndedJune 30, 2009 |       | Three Months EndedJune 30, 2008                         |   | Six Months EndedJune 30, 2009 |   | Six Months EndedJune 30, 2008 |        |
|----------------------------------------------------------------|---------------------------------|------------|---------------------------------------------------------|--------|-------------------------------|--------|-------------------------------|-------------|
| Revenues:                                                      |                            |       |                                                    |   |                          |   |                          |        |
| Net investment income                                          | $                               | 2,080,938  |                                                    | $      | 3,082,923                     |   | $                             | 3,007,510   |   | $ | 6,110,549 |   |
| Net realized gain (loss) on sale and impairment of investments |                            | 1,020,794  |                                                    |   | 49,600,581                    |   |                          | (11,080,627 | ) |   | 50,072,435 |   |
| Sale of real estate and water assets                           |                            | 4,957,616  |                                                    |   | 811,363                       |   |                          | 5,268,030   |   |   | 1,305,771 |   |
| Rents, royalties and lease income                              |                            | 287,914    |                                                    |   | 162,375                       |   |                          | 544,291     |   |   | 321,931 |   |
| Other                                                          |                            | 652,576    |                                                    |   | 266,253                       |   |                          | 935,382     |   |   | 589,874 |   |
| Total revenues (charges)                                       |                            | 8,999,838  |                                                    |   | 53,923,495                    |   |                          | (1,325,414  | ) |   | 58,400,560 |   |
| Costs and Expenses:                                            |                            |       |                                                    |   |                          |   |                          |        |   |   |   |   |
| Operating and other costs                                      |                            | 12,764,184 |                                                    |   | 7,172,817                     |   |                          | 20,100,392  |   |   | 9,189,081 |   |
| Impairment loss                                                |                            |       |                                                    |   |                          |   |                          | 12,378,000  |   |   |   |   |
| Interest expense                                               |                            | 458,875    |                                                    |   |                          |   |                          | 949,279     |   |   |   |   |
| Cost of real estate and water assets sold                      |                            | 1,419,772  |                                                    |   | 172,053                       |   |                          | 1,500,305   |   |   | 321,898 |   |
| Depreciation and amortization                                  |                            | 337,748    |                                                    |   | 308,255                       |   |                          | 672,315     |   |   | 604,668 |   |
| Total costs and expenses                                       |                            | 14,980,579 |                                                    |   | 7,653,125                     |   |                          | 35,600,291  |   |   | 10,115,647 |   |
| Income (loss) before income taxes                              |                            | (5,980,741 | )                                                       |   | 46,270,370                    |   |                          | (36,925,705 | ) |   | 48,284,913 |   |
| Provision (benefit) for income taxes                           |                            | (2,783,126 | )                                                       |   | 18,328,066                    |   |                          | (13,917,855 | ) |   | 22,295,061 |   |
| Net income (loss)                                              |                            | (3,197,615 | )                                                       |   | 27,942,304                    |   |                          | (23,007,850 | ) |   | 25,989,852 |   |
| Net loss attributable to the noncontrolling interests          |                            | 839,317    |                                                    |   | 300,353                       |   |                          | 2,143,910   |   |   | 606,130 |   |
| Net Income (loss) attributable to PICO Holdings, Inc.          | $                               | (2,358,298 | )                                                       | $      | 28,242,657                    |   | $                             | (20,863,940 | ) | $ | 26,595,982 |   |
|                                                           |                            |       |                                                    |   |                          |   |                          |        |   |   |   |   |
|                                                           |                            |       |                                                    |   |                          |   |                          |        |   |   |   |   |
|                                                           |                            |       |                                                    |   |                          |   |                          |        |   |   |   |   |
| Net income (loss) per common share – basic:              | $                               | (0.12      | )          | $      | 1.50                          |   | $                             | (1.08       | ) | $ | 1.41 |   |
| Weighted average shares outstanding                            |                            | 19,637,945 |                                                    |   | 18,836,607                    |   |                          | 19,239,169  |   |   | 18,835,172 |   |

| Net income (loss) per common share – diluted: | $      | (0.12      | )      | $      |      1.49 |   | $      | (1.08      | )      | $      | 1.41       |   |
|-----------------------------------------------------|--------|------------|--------|--------|-------------------------------|--------|--------|------------|--------|--------|------------|--------|
| Weighted average shares outstanding                 |   | 19,637,945 |   |   |   18,946,837             |   |   | 19,239,169 |   |   | 18,872,797 |   |

The accompanying notes are an integral part of the condensed consolidated financial statements.

----

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

|                                                                 | Six Months EndedJune 30, 2009 |        | Six Months EndedJune 30, 2008 |   |
|----------------------------------------------------------------------|-------------------------------|-------------|-------------------------------|--------|
| OPERATING ACTIVITIES:                                                |                          |        |                          |   |
| Net cash provided by (used in) operating activities                  | $                             | 4,542,290   |                          | $      | (28,375,943 | ) |
|                                                                 |                          |        |                          |   |   |   |
| INVESTING ACTIVITIES:                                                |                          |        |                          |   |   |   |
| Purchases of investments                                             |                          | (4,214,079  | )                        |   | (20,208,159 | ) |
| Proceeds from sale of investments                                    |                          | 8,198,832   |                          |   | 90,383,043 |   |
| Proceeds from maturity of investments                                |                          | 1,510,000   |                          |   | 61,192,968 |   |
| Real estate and water asset capital expenditure                      |                          | (301,257    | )                             |   | (10,972,382 | ) |
| Net cash provided by investing activities                            |                          | 5,193,496   |                          |   | 120,395,470 |   |
|                                                                 |                          |        |                          |   |   |   |
| FINANCING ACTIVITIES:                                                |                          |        |                          |   |   |   |
| Proceeds from common stock offering, net                             |                          | 95,743,489  |                          |   |   |   |
| Sale of treasury stock for deferred compensation plans               |                          |        |                          |   | 28,374 |   |
| Excess tax benefits from stock based payment arrangements            |                          |        |                          |   | 479,114 |   |
| Repayments of borrowings                                             |                          | (7,739,244  | )                             |   |   |   |
| Proceeds from borrowings                                             |                          | 3,111,627   |                          |   | 6,928,629 |   |
| Net cash provided by financing activities                            |                          | 91,115,872  |                          |   | 7,436,117 |   |
|                                                                 |                          |        |                          |   |   |   |
| Effect of exchange rate changes on cash                              |                          | 456,872     |                          |   | (4,315,817 | ) |
|                                                                 |                          |        |                          |   |   |   |
| INCREASE IN CASH AND CASH EQUIVALENTS                                |                          | 101,308,530 |                          |   | 95,139,827 |   |
|                                                                 |                          |        |                          |   |   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                       |                          | 96,316,018  |                          |   | 70,791,025 |   |
|                                                                 |                          |        |                          |   |   |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                             | $                             | 197,624,548 |                          | $      | 165,930,852 |   |
|                                                                 |                          |        |                          |   |   |   |
| SUPPLEMENTAL CASH FLOW INFORMATION:                                  |                          |        |                          |   |   |   |
| Net cash paid (refunded) for Federal, foreign and state income taxes | $                             | (20,864,667 | )                             | $      | 638,106 |   |
| Cash paid for interest (net of amounts capitalized)                  | $                             | 767,003     |                          |   |   |   |
| Non-cash investing and financing activities:                         |                          |        |                          |   |   |   |
| Construction in progress incurred but not paid                       | $                             | 11,198      |                          | $      | 4,872,491 |   |

The accompanying notes are an integral part of the condensed consolidated financial statements.

----

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

| Outstanding at January 1, 2009 (all RSA)                | 4,200   |
|---------------------------------------------------------|---------|
| Granted (RSU – expected to vest on March 3, 2012) | 300,000 |
| Granted (RSA – expected to vest on May10, 2012)   | 4,200   |
| Total RSA and RSU Outstanding at June 30, 2009          | 308,400 |

The fair value of each award was estimated on the date of grant using a Black-Scholes option pricing model that uses various assumptions and estimates to calculate a fair value as described below. 

| Expected volatility      |  29% — 31%   |
|--------------------------|-------------------------|
| Expected term            |  7 years           |
| Risk-free rate           |  4.3% — 4.7% |
| Expected dividend yield  |  0%                |
| Expected forfeiture rate |  0%                |

|                           | SAR       |   | Weighted AverageExercise Price |   | Weighted AverageContractual Term |
|--------------------------------|-----------|--------|--------------------------------|--------|----------------------------------|
| Outstanding at January 1, 2009 | 1,995,018 |   | $                              | 36.89  |                             | 7 years |
| Granted                        |   -  |   |                           |   |                             |   |
| Exercised                      |   -  |   |                           |   |                             |   |
| Outstanding at June 30, 2009   | 1,995,018 |   | $                              | 36.89  |                             |   |
| Exercisable at June 30, 2009   | 1,719,190 |   | $                              | 35.83  |                             |                                          7 years |

----

|                                                                 | SAR     |   | Weighted Average GrantDate Fair Value |   |
|----------------------------------------------------------------------|---------|--------|---------------------------------------|--------|
| Unvested at January 1, 2009                                          | 275,828 |   | $                                     | 18.31  |   |
| Granted                                                              | -       |   |                                  |   |   |
| Vested                                                               | -       |   |                                  |   |   |
| Unvested at June 30, 2009 (expected to vest over the next 15 months) | 275,828 |   | $                                     | 18.31  |   |

----

The adoption of FSP FAS 107-1 resulted in additional disclosures included inthis quarterly report on Form 10-Q.

----

|                                                                                  |   | Three Months EndedJune 30, 2009 |       |   | Three Months EndedJune 30, 2008 |   |        | Six Months EndedJune 30, 2009 |   |   | Six Months EndedJune 30, 2008 |   |
|---------------------------------------------------------------------------------------|--------|---------------------------------|------------|--------|---------------------------------|--------|-------------|-------------------------------|--------|--------|-------------------------------|--------|
| Net income (loss)                                                                     |   | $                               | (3,197,615 | )      |                            | $      | 27,942,304  |                          |   | $      | (23,007,850                   | )      |   | $ | 25,989,852 |   |
| Other comprehensive income (loss), net of tax:                                        |   |                            |       |   |                            |   |        |                          |   |   |                          |   |   |   |   |   |
| Net change in unrealized appreciation (depreciation) on available for sale securities |   |                            | 9,928,070  |   |                            |   | (34,675,913 | )                             |   |   | 6,523,083                     |   |   |   | (37,308,019 | ) |
| Net change in foreign currency translation                                            |   |                            | 925,282    |   |                            |   | (1,440,394  | )                             |   |   | 1,392,978                     |   |   |   | 771,199 |   |
| Total other comprehensive income (loss), net of tax                                   |   |                            | 10,853,352 |   |                            |   | (36,116,307 | )                             |   |   | 7,916,061                     |   |   |   | (36,536,820 | ) |
| Comprehensive income (loss)                                                           |   |                            | 7,655,737  |   |                            |   | (8,174,003  | )                             |   |   | (15,091,789                   | )      |   |   | (10,546,968 | ) |
| Comprehensive loss attributable to the noncontrolling interest                        |   |                            | 839,317    |   |                            |   | 300,353     |                          |   |   | 2,143,910                     |   |   |   | 606,130 |   |
| Comprehensive income (loss) attributable to PICO Holdings, Inc.                       |   | $                               | 8,495,054  |   |                            | $      | (7,873,650  | )                             |   | $      | (12,947,879                   | )      |   | $ | (9,940,838 | ) |

|                                                                                  | June 30, 2009 |        | December 31, 2008 |   |
|---------------------------------------------------------------------------------------|---------------|-------------|-------------------|--------|
|                                                                                  |          |        |              |   |
|     Net unrealized appreciation on available for sale investments | $             | 18,090,059  |              | $      | 11,566,976 |   |
|     Foreign currency translation                                  |          | (11,597,861 | )                 |   | (12,990,839 | ) |
|     Accumulated other comprehensive income (loss)                 | $             | 6,492,198   |              | $      | (1,423,863 | ) |

|   | The following table reports the cost and carrying value of investments at June 30, 2009 and December 31, 2008: |
|--------|----------------------------------------------------------------------------------------------------------------|

|                             |   |   | Gross       |   | Gross      |   |       |   |
|----------------------------------|--------|--------|-------------|--------|------------|--------|------------|--------|
|                             |   |   | Unrealized  |   | Unrealized |   | Carrying   |   |
| June 30, 2009:                   | Cost   |   | Gains       |   | Losses     |   | Value      |   |
| Fixed maturities:                |   |   |        |   |       |   |       |   |
| U.S. Treasury securities         |   | $      | 1,108,132   |   |       | $      | 83,353     |   |   |   |   |   | $ | 1,191,485 |   |
| Municipal bonds                  |   |   | 3,188,301   |   |       |   |       |   |   | $ | (77,921) |   |   |   | 3,110,380 |   |
| Corporate bonds                  |   |   | 19,047,295  |   |       |   | 1,776,059  |   |   |   | (3,232,687) |   |   |   | 17,590,667 |   |
| Government sponsored enterprises |   |   | 6,415,765   |   |       |   | 369,433    |   |   |   |   |   |   |   | 6,785,198 |   |
|                             |   |   | 29,759,493  |   |       |   | 2,228,845  |   |   |   | (3,310,608) |   |   |   | 28,677,730 |   |
| Marketable equity securities     |   |   | 93,319,539  |   |       |   | 29,429,404 |   |   |   | (5,237,449) |   |   |   | 117,511,494 |   |
| Total                            |   | $      | 123,079,032 |   |       | $      | 31,658,249 |   |   | $ | (8,548,057) |   |   | $ | 146,189,224 |   |

|                             |   |   | Gross           |   | Gross      |                                                                                                                                                                                                                                                                                    |          |
|----------------------------------|--------|--------|-----------------|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|
|                             |   |   | Unrealized      |   | Unrealized |                                                                                                                                                                                                                                                                                    | Carrying      |
| December 31, 2008:               | Cost   |   | Gains           |   | Losses     |                                                                                                                                                                                                                                                                                    | Value         |
| Fixed maturities:                |   |   |            |   |       |                                                                                                                                                                                                                                                                                    |          |
| U.S. Treasury securities         |   | $      | 1,110,327       |   |       | $                                              111,407 |          |   |   |   |   | $                                           1,221,734 |
| Municipal Bonds                  |   |   | 2,137,003       |   |       |                                                                                                                                                                                                                                                                                    |          |   |   | $ | (8,523) |   | 2,128,480 |
| Corporate bonds                  |   |   | 25,627,851      |   |       |                                                                                                                                                                                                                                                                                    | 34,460        |   |   |   | (7,822,451) |   | 17,839,860 |
| Government sponsored enterprises |   |   | 7,442,611  |   |       |                                                                                                                                                                                                                                                                                    | 425,877  |   |   |   |   |   | 7,868,488 |
|                             |   |   | 36,317,792      |   |       |                                                                                                                                                                                                                                                                                    | 571,744       |   |   |   | (7,830,974) |   | 29,058,562 |
| Marketable equity securities     |   |   | 102,322,281     |   |       |                                                                                                                                                                                                                                                                                    | 27,348,470    |   |   |   | (9,312,290) |   | 120,358,461 |
| Total                            |   | $      | 138,640,073     |   |       | $                                                                                                                                                                                                                                                                                       | 27,920,214    |   |   | $ | (17,143,264) |   | $                                       149,417,023 |

----

|                         | 2009       |    | 2008             |   |
|------------------------------|------------|---------|------------------|--------|
|                         |       |    | Gross            |   |   |   | Gross |   |
|                         |       |    | Unrealized       |   |   |   | Unrealized |   |
| Less than 12 months          | Fair Value |    | Loss             |   | Fair Value |   | Loss |   |
| Fixed maturities:            |       |    |             |   |   |   |   |   |
| Municipal bonds              |       | $  | 2,067,000        |   |   | $  |  59,231 |   |   | $  | 2,128,480 |   |   | $  |   8,523 |   |
| Corporate bonds              |       |    |             |   |   |   |   |   |   |   | 5,290,363 |   |   |   | 1,586,298 |   |
|                         |       |    | 2,067,000        |   |   |   | 59,231 |   |   |   | 7,418,843 |   |   |   | 1,594,821 |   |
| Marketable equity securities |       |    | 26,739,269       |   |   |   | 4,146,887 |   |   |   | 40,880,566 |   |   |   | 9,290,041 |   |
| Total                        |       | $       |  28,806,269 |   |   | $ | 4,206,118 |   |   | $ |  48,299,409 |   |   | $ | 10,884,862 |   |

|                         | 2009       |   | 2008       |   |
|------------------------------|------------|--------|------------|--------|
|                         |       |   | Gross      |   |   |   | Gross |   |
|                         |       |   | Unrealized |   |   |   | Unrealized |   |
| Greater than 12 months  | Fair Value |   | Loss       |   | Fair Value |   | Loss |   |
| Fixed maturities:            |       |   |       |   |   |   |   |   |
| Municipal bonds              |       | $      | 1,043,380  |   |   | $ | 18,690 |   |   |   |   |   |   |   |   |   |
| Corporate bonds              |       |   | 10,771,266 |   |   |   | 3,232,687 |   |   | $  | 10,044,022 |   |   | $  | 6,236,152 |   |
|                         |       |   | 11,814,646 |   |   |   | 3,251,377 |   |   |   | 10,044,022 |   |   |   | 6,236,152 |   |
| Marketable equity securities |       |   | 7,593,197  |   |   |   | 1,090,562 |   |   |   | 160,430 |   |   |   | 22,250 |   |
| Total                        |       | $      | 19,407,843 |   |   | $ | 4,341,939 |   |   | $ | 10,204,452 |   |   | $ | 6,258,402 |   |

| Assets                            |   | Quoted Prices In Active Markets for Identical Assets(Level 1) |        | Significant Other Observable Inputs (Level 2) |   | Significant Unobservable Inputs(Level 3) |   | Balance at June 30, 2009 |   |
|-----------------------------------|--------|---------------------------------------------------------------|-------------|-----------------------------------------------|--------|------------------------------------------|--------|--------------------------|--------|
| Available for sale securities (A) |   | $                                                             | 141,709,331 |                                          |   |                                     | $      | 3,117,565                |   | $ | 144,826,896 |   |
| Liabilities                       |   |                                                          |        |                                          |   |                                     |   |                     |   |   |   |   |
| Deferred compensation (B)         |   | $                                                             | 27,977,619  |                                          |   |                                     |   |                     |   | $ | 27,977,619 |   |

| (A) Where there are quoted market prices that are readily available in an active market, securities are classified as Level 1 of the valuation hierarchy.  Level 1 marketable equity securities are valued using quoted market prices multiplied by the number of shares owned and debt securities are valued using a market quote in an activemarket.  Level 2 available for sale securities include securities where the markets are not active, that is where there are few transactions, or the prices are not current or the prices vary considerably over time. Level 3 available for sale securities include securities where valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. This includes certain pricing models, discounted cash flow methodologies andsimilar techniques that use significant unobservable inputs.  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (B) Deferred compensation plans are compensation plans directed by the Company and structured as a Rabbi Trust for certain executives and non-employee directors.  The investment assets of the Rabbi Trust are valued using quoted market prices multiplied by the number of shares held in each trust account including the shares of PICOHoldings common stock held in the trusts. The related deferred compensation liability represents the fair value of the investment assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

| Asset Description                                                             |   | Fair Value at Beginning of Period |      | Unrealized Gains Included in Income | Accumulated Other Comprehensive Income | Purchases, Sales, and Issuances |   | Transfers In |   | Fair Value atEnd of Period |   |
|-------------------------------------------------------------------------------|--------|----------------------------------------|-----------|------------------------------------------|----------------------------------------|---------------------------------|--------|--------------|--------|---------------------------------|--------|
|         Available for sale securities |   | $                                      | 2,998,055 |                                     |                                   |                            |   |         | $      | 119,510                         |   | $ | 3,117,565 |   |

| Asset Description                                                                                | Quoted Prices In ActiveMarkets for Identical Assets (Level 1) |   | Significant Other Observable Inputs(Level 2) |      | SignificantUnobservable Inputs (Level 3) |   | Total Losses |   |
|--------------------------------------------------------------------------------------------------|--------------------------------------------------------------------|--------|----------------------------------------------|-----------|------------------------------------------|--------|--------------|--------|
|         Intangible asset (applications for water rights) |                                                               |   | $                                            | 3,953,033 |                                     |   |         | $      | 12,378,000 |   |

----

|   |
|--------|
Disclosures 

|   | - | Cash and Cash Equivalents:  Carrying amounts for these items approximate fair value because of the short maturity of these instruments. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | Investments in fixed maturities and equity securities: Fair values are estimated based on quoted market prices, or dealer quotes for the actual or comparable securities. Fair value for equity securities that do not have a readily determinable fair value is estimated based on the value of the underlying common stock. The Company regularly evaluatesthe carrying value of securities to determine whether there has been any diminution in value that is other-than-temporary. |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | Borrowings: Carrying amounts for these items approximates fair value because current interest rates and, therefore, discounted future cash flows for the terms and amounts of loans are not significantly different from the original terms. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                      | June 30, 2009 |    |
|---------------------------|---------------|---------|
|                      | Carrying      |    | Estimated |   |
|                      | Amount        |    | Fair Value |   |
| Financial assets:         |          |    |   |   |
| Cash and cash equivalents |          | $  | 197,624,548 |   |   | $  | 197,624,548 |   |
| Fixed maturities          |          | $       | 28,677,730 |   |   | $ | 28,677,730 |   |
| Equity securities         |          | $  | 117,511,494 |   |   | $  | 117,511,494 |   |
| Notes receivable          |          | $       | 11,161,207 |   |   | $ | 11,161,207 |   |
| Financial liabilities:    |          |    |   |   |   |   |   |   |
| Borrowings                |          | $       | 37,307,482 |   |   | $  | 37,307,482 |   |

| 5.   Segment Reporting |
|----------------------------------|

|                                        |   | June 30, 2009 |        | December 31, 2008 |   |
|---------------------------------------------|--------|---------------|-------------|-------------------|--------|
| Total Assets:                               |   |          |        |              |   |
| Water Resource and Water Storage Operations |   | $             | 212,340,451 |              | $      | 225,870,410 |   |
| Real Estate Operations                      |   |          | 98,642,361  |              |   | 97,592,062 |   |
| Corporate                                   |   |          | 211,140,892 |              |   | 111,984,967 |   |
| Insurance Operations in Run Off             |   |          | 153,822,275 |              |   | 157,186,357 |   |
|                                        |   | $             | 675,945,979 |              | $      | 592,633,796 |   |

|                                                          |   | Three Months Ended June 30, |       |   | Six Months Ended June 30, |   |
|---------------------------------------------------------------|--------|-----------------------------|------------|--------|---------------------------|--------|
|                                                          |   | 2009                        |       |   | 2008                      |   |   | 2009 |   |   | 2008 |   |
| Revenues (Charges):                                           |   |                        |       |   |                      |   |   |   |   |   |   |   |
| Water Resource and Water Storage Operations                   |   | $                           | 3,377,269  |   |                      | $      | 377,896 |   |   | $ | 3,584,937 |   |   | $ | 1,197,181 |   |
| Real Estate Operations                                        |   |                        | 2,315,259  |   |                      |   | 1,571,758 |   |   |   | 2,976,921 |   |   |   | 3,166,178 |   |
| Corporate                                                     |   |                        | 1,665,860  |   |                      |   | 47,139,402 |   |   |   | (3,296,099 | ) |   |   | 47,529,630 |   |
| Insurance Operations in Run Off                               |   |                        | 1,641,450  |   |                      |   | 4,834,439 |   |   |   | (4,591,173 | ) |   |   | 6,507,571 |   |
| Total revenues (charges)                                      |   | $                           | 8,999,838  |   |                      | $      | 53,923,495 |   |   | $ | (1,325,414 | ) |   | $ | 58,400,560 |   |
|                                                          |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Income (Loss) Before Taxes and Noncontrolling Interests:      |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Water Resource and Water Storage Operations                   |   | $                           | 1,121,244  |   |                      | $      | (1,227,923 | ) |   | $ | (12,796,041 | ) |   | $ | (2,187,961 | ) |
| Real Estate Operations                                        |   |                        | (1,141,764 | )      |                      |   | 440,656 |   |   |   | (2,070,956 | ) |   |   | 862,780 |   |
| Corporate                                                     |   |                        | (7,024,366 | )      |                      |   | 42,559,084 |   |   |   | (16,230,175 | ) |   |   | 43,902,284 |   |
| Insurance Operations in Run Off                               |   |                        | 1,064,145  |   |                      |   | 4,498,553 |   |   |   | (5,828,533 | ) |   |   | 5,707,810 |   |
| Income (loss) before income taxes and noncontrolling interest |   | $                           | (5,980,741 | )      |                      | $      | 46,270,370 |   |   | $ | (36,925,705 | ) |   | $ | 48,284,913 |   |

----

| 7.   Stock Offering |
|-------------------------------|
|                          |

----

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

| · | Water Resource and Water Storage Operations;       |
|--------|----------------------------------------------------|
| · | Real Estate Operations;                            |
| · | Insurance Operations in “Run Off”; and |
| · | Corporate.                                         |

| · | Vidler Water Company, Inc. (“Vidler”), a business that we started more than 11 years ago, which acquires and develops water resources and water storage operations in the southwestern United States, with assets in Nevada, Arizona, Idaho, Colorado, and New Mexico;                   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | UCP, LLC (“UCP”), a business we started in 2008, which acquires and develops partially-developed and finished residential housing lots in selected markets in California;                                                                                                                |
| · | Nevada Land & Resource Company, LLC (“Nevada Land”), an operation that we built since we acquired the company more than 11 years ago, which owns approximately 440,000 acres of former railroad land in Nevada, and certain mineral rights and water rights related to the property; |
| · | Physicians Insurance Company of Ohio (“Physicians”), which is “running off” its medical professional liability insurance loss reserves; and                                                                                                                                  |
| · | Citation Insurance Company (“Citation”), which is “running off” its property & casualty insurance and workers’ compensation loss reserves.                                                                                                                         |

----

|                                                                |   | Three Months Ended June 30, |       |   | Six Months Ended June 30, |   |
|---------------------------------------------------------------------|--------|-----------------------------|------------|--------|---------------------------|--------|
|                                                                |   | 2009                        |       |   | 2008                      |   |   | 2009 |   |   | 2008 |   |
| Revenues:                                                           |   |                        |       |   |                      |   |   |   |   |   |   |   |
| Water Resource and Water Storage Operations                         |   | $                           | 3,377,000  |   |                      | $      | 378,000 |   |   | $ | 3,585,000 |   |   | $ | 1,197,000 |   |
| Real Estate Operations                                              |   |                        | 2,315,000  |   |                      |   | 1,572,000 |   |   |   | 2,977,000 |   |   |   | 3,166,000 |   |
| Insurance Operations in “Run Off”                       |   |                        | 1,642,000  |   |                      |   | 4,834,000 |   |   |   | (4,591,000 | ) |   |   | 6,508,000 |   |
| Corporate                                                           |   |                        | 1,666,000  |   |                      |   | 47,139,000 |   |   |   | (3,296,000 | ) |   |   | 47,530,000 |   |
| Total Revenues (Charges)                                            |   | $                           | 9,000,000  |   |                      | $      | 53,923,000 |   |   | $ | (1,325,000 | ) |   | $ | 58,401,000 |   |
|                                                                |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Income (Loss) before income taxes and noncontrolling interest:      |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Water Resource and Water Storage Operations                         |   | $                           | 1,121,000  |   |                      | $      | (1,228,000 | ) |   | $ | (12,796,000 | ) |   | $ | (2,188,000 | ) |
| Real Estate Operations                                              |   |                        | (1,142,000 | )      |                      |   | 441,000 |   |   |   | (2,071,000 | ) |   |   | 863,000 |   |
| Insurance Operations in “Run Off”                       |   |                        | 1,064,000  |   |                      |   | 4,498,000 |   |   |   | (5,829,000 | ) |   |   | 5,708,000 |   |
| Corporate                                                           |   |                        | (7,024,000 | )      |                      |   | 42,559,000 |   |   |   | (16,230,000 | ) |   |   | 43,902,000 |   |
| Total Income (Loss) before income taxes and noncontrolling interest |   | $                           | (5,981,000 | )      |                      | $      | 46,270,000 |   |   | $ | (36,926,000 | ) |   | $ | 48,285,000 |   |

----

WATER RESOURCE AND WATER STORAGE OPERATIONS 

|                                                           |   | Three Months Ended June 30, |       |   | Six Months Ended June 30, |   |
|----------------------------------------------------------------|--------|-----------------------------|------------|--------|---------------------------|--------|
|                                                           |   | 2009                        |       |   | 2008                      |   |   | 2009 |   |   | 2008 |   |
| Revenues:                                                      |   |                        |       |   |                      |   |   |   |   |   |   |   |
| Sale of real estate and water assets                           |   | $                           | 3,158,000  |   |                      | $      | 116,000 |   |   | $ | 3,180,000 |   |   | $ | 246,000 |   |
| Net investment income                                          |   |                        | 23,000     |   |                      |   | 183,000 |   |   |   | 43,000 |   |   |   | 749,000 |   |
| Other                                                          |   |                        | 196,000    |   |                      |   | 79,000 |   |   |   | 362,000 |   |   |   | 202,000 |   |
| Segment total revenues                                         |   | $                           | 3,377,000  |   |                      | $      | 378,000 |   |   | $ | 3,585,000 |   |   | $ | 1,197,000 |   |
|                                                           |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                      |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Cost of real estate and water assets                           |   | $                           | (215,000   | )      |                      | $      | (18,000 | ) |   | $ | (220,000 | ) |   | $ | (40,000 | ) |
| Impairment of water assets                                     |   |                        |       |   |                      |   |   |   |   |   | (12,378,000 | ) |   |   |   |   |
| Depreciation and amortization                                  |   |                        | (269,000   | )      |                      |   | (282,000 | ) |   |   | (535,000 | ) |   |   | (559,000 | ) |
| Overhead                                                       |   |                        | (733,000   | )      |                      |   | (715,000 | ) |   |   | (1,552,000 | ) |   |   | (1,573,000 | ) |
| Project expenses                                               |   |                        | (1,039,000 | )      |                      |   | (591,000 | ) |   |   | (1,696,000 | ) |   |   | (1,213,000 | ) |
| Segment total expenses                                         |   | $                           | (2,256,000 | )      |                      | $      | (1,606,000 | ) |   | $ | (16,381,000 | ) |   | $ | (3,385,000 | ) |
| Income (Loss) before income taxes and noncontrolling interests |   | $                           | 1,121,000  |   |                      | $      | (1,228,000 | ) |   | $ | (12,796,000 | ) |   | $ | (2,188,000 | ) |

Tule Desert Groundwater Basin and Impairment of Water Assets 

----

| · | the operation and maintenance of the Vidler Arizona Recharge Facility;                                                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------|
| · | the development of water rights in the Tule Desert groundwater basin (part of the Lincoln County agreement);                       |
| · | the utilization of water rights at Fish Springs Ranch as a future municipal water supply for the north valleys of the Reno, Nevada area; and |
| · | the operating and financing costs of our farm properties in Idaho and maintenance of the associated water rights.                            |

----

REAL ESTATE OPERATIONS 

|                                                           |   | Three Months Ended June 30, |       |   | Six Months Ended June 30, |   |
|----------------------------------------------------------------|--------|-----------------------------|------------|--------|---------------------------|--------|
|                                                           |   | 2009                        |       |   | 2008                      |   |   | 2009 |   |   | 2008 |   |
| Revenues:                                                      |   |                        |       |   |                      |   |   |   |   |   |   |   |
| Sale of real estate – Nevada Land                        |   | $                           | 166,000    |   |                      | $      | 689,000 |   |   | $ | 385,000 |   |   | $ | 1,054,000 |   |
| Sale of real estate  UCP                             |   |                        | 1,702,000  |   |                      |   |   |   |   |   | 1,702,000 |   |   |   |   |   |
| Net investment income                                          |   |                        | 290,000    |   |                      |   | 613,000 |   |   |   | 554,000 |   |   |   | 1,536,000 |   |
| Other                                                          |   |                        | 157,000    |   |                      |   | 270,000 |   |   |   | 336,000 |   |   |   | 576,000 |   |
| Total revenues                                                 |   | $                           | 2,315,000  |   |                      | $      | 1,572,000 |   |   | $ | 2,977,000 |   |   | $ | 3,166,000 |   |
|                                                           |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                      |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Cost of real estate – Nevada Land                        |   | $                           | (46,000    | )      |                      | $      | (154,000 | ) |   | $ | (120,000 | ) |   | $ | (281,000 | ) |
| Cost of real estate - UCP                                      |   |                        | (1,159,000 | )      |                      |   |   |   |   |   | (1,159,000 | ) |   |   |   |   |
| Operating expenses                                             |   |                        | (2,252,000 | )      |                      |   | (977,000 | ) |   |   | (3,769,000 | ) |   |   | (2,022,000 | ) |
| Segment total expenses                                         |   |                        | (3,457,000 | )      |                      |   | (1,131,000 | ) |   |   | (5,048,000 | ) |   |   | (2,303,000 | ) |
| Income (Loss) before income taxes and noncontrolling interests |   | $                           | (1,142,000 | )      |                      | $      | 441,000 |   |   |  $ | (2,071,000 | ) |   | $ | 863,000 |   |

| ·   | a decline in investment income of $982,000 due to both the redeployment of  liquid funds for real estate acquisitions as well as decreased rates of interest available on liquid funds in the first half of 2009 compared to the first half of 2008; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the complete write-off in the second quarter of 2009 of a note connected to a property held by us for potential alternative energy development which amounted to $807,000, as noted above; and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a year over year increase in operating expenses at UCP of approximately $945,000. UCP’s operating expenses in the first half of 2009 include interest expense of $349,000 from the non-recourse debt financing we have assumed on certain development properties compared to zero interest expense in 2008. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                     |   | Three Months Ended June 30, |      |   | Six Months Ended June 30, |   |
|--------------------------------------------------------------------------|--------|-----------------------------|-----------|--------|---------------------------|--------|
|                                                                     |   | 2009                        |      |   | 2008                      |   |   | 2009 |   |   | 2008 |   |
| Revenues:                                                                |   |                        |      |   |                      |   |   |   |   |   |   |   |
| Net investment income                                                    |   | $                           | 1,261,000 |   |                      | $      | 1,272,000 |   |   | $ | 1,633,000 |   |   | $ | 1,891,000 |   |
| Net realized gain (loss) on sale or impairment of  investments |   |                        | 357,000   |   |                      |   | 3,537,000 |   |   |   | (6,290,000 | ) |   |   | 4,551,000 |   |
| Other                                                                    |   |                        | 24,000    |   |                      |   | 25,000 |   |   |   | 66,000 |   |   |   | 66,000 |   |
| Segment total revenues (charges)                                         |   | $                           | 1,642,000 |   |                      | $      | 4,834,000 |   |   | $ | (4,591,000 | ) |   | $ | 6,508,000 |   |
|                                                                     |   |                        |      |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Segment total expenses                                                   |   | $                           | (578,000  | )      |                      | $      | (336,000 | ) |   | $ | (1,238,000 | ) |   | $ | (800,000 | ) |
| Income (Loss) before income taxes and noncontrolling interests           |   | $                           | 1,064,000 |   |                      | $      | 4,498,000 |   |   | $ | (5,829,000 | ) |   | $ | 5,708,000 |   |

| PHYSICIANS INSURANCE COMPANY OF OHIO -- LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES  |          |
|-----------------------------------------------------------------------------------------|---------------|
|                                                                                    | June 30, 2009 |   | December 31, 2008 |   |
| Net direct medical professional liability insurance reserves                            | $             | 3,744,000 |   | $ | 3,834,000 |   |

----

| CITATION INSURANCE COMPANY -- LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES |   |
|-------------------------------------------------------------------------|--------|
|                                                                    |   | June 30, 2009 |   | December 31, 2008 |   |
| Property & Casualty Insurance                                       |   |   |   |   |   |
| Direct Reserves                                                         |   | $ | 688,000 |   | $ | 741,000 |   |
| Ceded Reserves                                                          |   |   | (96,000 | ) |   | (96,000 | ) |
| Net property and casualty insurance reserves                       |   | $ | 592,000 |   | $ | 645,000 |   |
|                                                                    |   |   |   |   |   |   |   |
| Workers’ Compensation                                             |   |   |   |   |   |   |   |
| Direct Reserves                                                         |   | $ | 22,279,000 |   | $ | 23,198,000 |   |
| Ceded Reserves                                                          |   |   | (15,213,000 | ) |   | (15,781,000 | ) |
| Net workers’ compensation insurance reserves                      |   | $ | 7,066,000 |   | $ | 7,417,000 |   |
| Total net reserves                                                      |   | $ | 7,658,000 |   | $ | 8,062,000 |   |

|                                                           |   | Three Months Ended June 30, |       |   | Six Months Ended June 30, |   |
|----------------------------------------------------------------|--------|-----------------------------|------------|--------|---------------------------|--------|
|                                                           |   | 2009                        |       |   | 2008                      |   |   | 2009 |   |   | 2008 |   |
| Revenues:                                                      |   |                        |       |   |                      |   |   |   |   |   |   |   |
| Net realized gain (loss) on sale or impairment of investments  |   | $                           | 664,000    |   |                      | $      | 46,060,000 |   |   | $ | (4,790,000 | ) |   | $ | 45,519,000 |   |
| Net investment income                                          |   |                        | 508,000    |   |                      |   | 1,014,000 |   |   |   | 779,000 |   |   |   | 1,934,000 |   |
| Other                                                          |   |                        | 494,000    |   |                      |   | 65,000 |   |   |   | 715,000 |   |   |   | 77,000 |   |
| Segment total revenues (charges)                               |   | $                           | 1,666,000  |   |                      | $      | 47,139,000 |   |   | $ | (3,296,000 | ) |   | $ | 47,530,000 |   |
|                                                           |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                      |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Stock appreciation rights expense                              |   | $                           | (997,000   | )      |                      | $      | (997,000 | ) |   | $ | (1,994,000 | ) |   | $ | (1,994,000 | ) |
| Restricted stock units expense                                 |   |                        | (493,000   | )      |                      |   |   |   |   |   | (658,000 | ) |   |   |   |   |
| Foreign exchange gain (loss)                                   |   |                        | 1,319,000  |   |                      |   | (647,000 | ) |   |   | (1,707,000 | ) |   |   | 3,125,000 |   |
|  Other                                                    |   |                        | (8,519,000 | )      |                      |   | (2,936,000 | ) |   |   | (8,575,000 | ) |   |   | (4,759,000 | ) |
| Segment total expenses                                         |   | $                           | (8,690,000 | )      |                      | $      | (4,580,000 | ) |   | $ | (12,934,000 | ) |   | $ | (3,628,000 | ) |
| Income (loss) before income taxes and noncontrolling interests |   | $                           | (7,024,000 | )      |                      | $      | 42,559,000 |   |   | $ | (16,230,000 | ) |   | $ | 43,902,000 |   |

----

| · | included Stock-Settled Stock Appreciation Rights (“SAR”) expense of $997,000; |
|--------|-------------------------------------------------------------------------------------------|
| · | included RSU expense of $493,000;                                                         |

| · | included deferred compensation expense of $5.5 million; and                                                                                                                  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | were reduced by a $1.3 million net foreign exchange gain, consisting of two different foreign exchange effects (see “Foreign Exchange Gain or Loss” below). |

| · | included SAR expense of $997,000;                 |
|--------|---------------------------------------------------|
| · | included a $647,000 foreign exchange expense; and |

| · | included deferred compensation expense of $537,000. |
|--------|-----------------------------------------------------|

| · | included SAR expense of $2 million; |
|--------|-------------------------------------|
| · | included RSU expense of $658,000;   |

| · | included a $1.7 million foreign exchange expense; and   |
|--------|---------------------------------------------------------|
| · | included deferred compensation expense of $2.3 million. |

| · | included SAR expense of $2 million; and                |
|--------|--------------------------------------------------------|
| · | were reduced by a $3.1 million exchange rate gain; and |
| · | an $839,000 recovery of deferred compensation expense. |

----

| · | the Water Resource and Water Storage Operations segment contains cash of $7.5 million;                                                                                                                                                                                                                                                                                                                                                  |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | the Real Estate Operations segment holds cash of $23 million;                                                                                                                                                                                                                                                                                                                                                                           |
| · | the Insurance in “Run Off” segment has cash of $5.4 million, fixed-income securities with a market value of $14.2 million, and equities with a market value of $108.3 million; and                                                                                                                                                                                                                                          |
| · | the Corporate segment contains cash of $155.6 million and a fixed-income security with a market value of $2 million.  In addition, cash of $6.1 million, fixed-income securities with a market value of $12.6 million, and equity securities with a market value of $7.9 million are held in deferred compensation Rabbi Trusts within theCorporate segment, which will be used to pay the deferred compensation liabilities. |

| · | As Vidler’s water assets are monetized, Vidler should generate free cash flow as receipts from the sale of real estate and water assets will have overtaken maintenance capital expenditure, development costs, financing costs, and operating expenses;                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| · | Although UCP made some initial sales of lots during the second quarter of 2009, we are still acquiring finished and partially-developed residential lots in selected California markets; subsequent to June 30, 2009, we closed on a loan purchase and sale agreement dated July 1, 2009. The note acquired under this Loan Purchase and Sale Agreementis secured by, among other things, a deed of trust and security agreement over a 244 acre property.  The Company estimates that the total cost of the acquisition of the note and these future development costs will be approximately $40 million which is expected to be incurred over the next 12 to 24 months. |

| · | Nevada Land is actively selling real estate which has reached its highest and best use. Nevada Land’s principal sources of cash flow are the proceeds of cash real estate sales and collections of principal and interest on sales contracts where Nevada Land has provided vendor financing. These receipts and other revenues exceed NevadaLand’s operating and development costs, so Nevada Land is generating positive cash flow; and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Investment income more than covers the operating expenses of the “run off” insurance companies, Physicians and Citation. The funds to pay claims come from the maturity of fixed-income securities, the realization of fixed-income investments and stocks held in their investment portfolios, and recoveries from reinsurance companies.  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ISSUER                                           | Fair ValueJune 30, 2009 |       | Percentage |   |
|--------------------------------------------------|-------------------------|------------|------------|--------|
|                                             |                    |       |       |   |
| Government-sponsored enterprises                 | $                       | 6,785,000  |       | 48%    |   |
| Other investment grade corporate                 |                    | 3,065,000  |       | 22%    |   |
| State of California general obligation municipal |                    | 3,110,000  |       | 22%    |   |
| U.S. Treasury                                    |                    | 1,192,000  |       | 8%     |   |
|                                             | $                       | 14,152,000 |       | 100%   |   |

----

Quantitative and Qualitative Disclosure about Market Risk 

----

Item 4:  Controls and Procedures 

Other Information

Legal Proceedings

----

Factors 

Unregistered Sales of Equity Securities and Use of Proceeds

Defaults Upon Senior Securities

Item 4:  Submission of Matters to a Vote of Security Holders 

|                                        |   | For        |   | Against/Withheld |   | Abstained | BrokerNon-Votes |
|---------------------------------------------|--------|------------|--------|------------------|--------|-----------|-----------------|
| (1)  Election of Directors:       |   |       |   |             |   |      |            |
| NOMINEE                                     |   |       |   |             |   |      |            |
| S. Walter Foulkrod, III, Esq.               |   | 15,790,728 |   | 2,627,518        |   |      |            |
| Richard D. Ruppert, MD                      |   | 12,871,631 |   | 5,546,615        |   |      |            |
|                                        |   |       |   |             |   |      |            |
|                                        |   |       |   |             |   |      |            |
| (2) Ratification of the Independent Auditor |   | 18,198,145 |   | 203,121          |   | 16,380    |            |

----

| ·   | Provide that for an annual meeting of the shareholders, written notice of a shareholder’s intention to nominate persons for election to the Board of Directors must be delivered to us not later than the ninetieth (90th) day or earlier than the one hundred twentieth (120th) day prior to the first anniversary of the preceding year’s annual meeting.If an annual meeting of shareholders is held more than thirty (30) days before or more than sixty (60) days after the first anniversary of the preceding year’s annual meeting, notice by the shareholder must be delivered not earlier than one hundred twenty (120) days prior to such annual meeting and not later than the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following our first public announcement of the date of the annual meeting. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Provide that if the Board of Directors has determined that directors will be elected at a special meeting of the shareholders, written notice of a shareholder’s intention to nominate persons for election to the Board of Directors before such special meeting must be delivered to us not later than the ninetieth (90th) day or earlier than the one hundredtwentieth (120th) day prior to the special meeting or the tenth (10th) day following our first public announcement of the date of the special meeting. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Provides specifications for the contents of the shareholder notice, including: |
|--------------------|--------------------------------------------------------------------------------|

| (1)   | the name and address of such shareholder and of such beneficial owner; |
|-----------------|------------------------------------------------------------------------|

| (2)   | the class or series and number of shares of our capital stock that are, directly or indirectly, owned beneficially and of record by such shareholder and by such beneficial owner; |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | any derivative positions with respect to shares of our capital stock held or beneficially held by or on behalf of such shareholder and by or on behalf of such beneficial owner, the extent to which any hedging or other transaction or series of transactions has been entered into with respect to the shares of our capital stock by or on behalf of such shareholderand by or on behalf of such beneficial owner, and the extent to which any other agreement, arrangement or understanding has been made, the effect or intent of which is to increase or decrease the voting power of such shareholder and such beneficial owner with respect to shares of our capital stock; |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | a representation that the shareholder is a holder of record of stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination; |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5)   | a representation whether the shareholder or the beneficial owner, if any, intends or is part of a group that intends (a) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of our outstanding capital stock required to approve or adopt the proposal or elect the nominee or (b) otherwise to solicit proxies from shareholdersin support of such proposal or nomination; and |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6)   | as to each person whom the shareholder proposes to nominate for election as a director (x) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the United StatesSecurities Exchange Act of 1934, as amended, and (y) such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Exhibits 

| ExhibitNumber |              | Description                               |
|---------------|-------------------|-------------------------------------------|
|          | 3(i)              |                                      | Amended and Restated Articles of Incorporation of PICO. (1) |
| 3(ii)         |              | Amended and Restated By-laws of PICO. (2) |
|          | 4.1               |                                      | Form of Indenture relating to Debt Securities. (3) |
|          | 10. 1† |                                      | Amendment to PICO Holdings, Inc. 2005 Long-Term Incentive Plan 2009 Restricted Stock Unit Award Agreement, dated as of April 2, 2009, by and between the Company and W. Raymond Webb. (4) |
|          | 23.1              |                                      | Consent of Daniel B. Stephens and Associates, Inc. |
|          | 23.2              |                                      | Consent of Peter A. Mock, Ph. D., R. G., P. H. |
|          | 31.1              |                                      | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|          | 31.2              |                                      | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|          | 32.1              |                                      | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002). |
|          | 32.2              |                                      | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002). |

| † | Indicates compensatory plan, contract or arrangement in which directors or executive officers may participate.  |
|---------|----------------------------------------------------------------------------------------------------------------------|

| (1) | Incorporated by reference to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 7, 2007. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 19, 2009. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Incorporated by reference to the Form S-3 filed with Securities and Exchange Commission on November 20, 2007. |
|-----|---------------------------------------------------------------------------------------------------------------|

| (4) | Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 7, 2009. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------|

----

SIGNATURE