----

----

| California (State                  or other jurisdiction of incorporation or organization)                                                                                  |   | 94-2723335 (I.R.S.                  Employer Identification No.) |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|
|  **875                  Prospect Street , Suite 301****La                  Jolla, CA** (Address                  of Principal Executive                  Offices) |   |   **92037** (Zip                  Code)                |

----

|                                                      |                                                                                                                                                                     |
|-----------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                      | Page                  No.                                                                                                                                                |
|                                                      |                                                                                                                                                                     |
| Part                  I.  Financial Information |                                                                                                                                                                     |
|                                                      |                                                                                                                                                                     |
| Item                  1.                                  | Condensed                  Consolidated Financial Statements (Unaudited)                                                                                                 |   |
|                                                      |                                                                                                                                                                     |   |
|                                                      | Condensed                  Consolidated Balance Sheets as of September 30, 2007 and December                  31,                  2006                                  | 2 |
|                                                      |                                                                                                                                                                     |   |
|                                                      | Condensed                  Consolidated Statements of Operations for the Three and Nine Months                  Ended                  September 30, 2007 and 2006  | 3 |
|                                                      |                                                                                                                                                                     |   |
|                                                      | Condensed                  Consolidated Statements of Cash Flows for the Nine Months Ended                  September                  30, 2007 and 2006                 | 4 |
|                                                      |                                                                                                                                                                     |   |
|                                                      | Notes                  to Condensed Consolidated Financial Statements                                                                                                    | 5 |
|                                                      |                                                                                                                                                                     |   |
| Item                  2.                                  | Management’s                  Discussion and Analysis of Financial Condition and the Results                  of                  Operations                       |  13 |
|                                                      |                                                                                                                                                                     |   |
| Item                  3.                                  | Quantitative                  and Qualitative Disclosure About Market Risk                                                                                               |  26 |
|                                                      |                                                                                                                                                                     |   |
| Item                  4.                                  | Controls                  and Procedures                                                                                                                                 |  26 |
|                                                      |                                                                                                                                                                     |   |
| Part                  II:  Other Information    |                                                                                                                                                                     |
|                                                      |                                                                                                                                                                     |
| Item                  1.                                  | Legal                  Proceedings                                                                                                                                       |  27 |
|                                                      |                                                                                                                                                                     |   |
| Item                  1A.                                 | Risk                  Factors                                                                                                                                            |  28 |
|                                                      |                                                                                                                                                                     |   |
| Item                  2.                                  | Unregistered                  Sales of Equity Securities and Use of Proceeds                                                                                             |  28 |
|                                                      |                                                                                                                                                                     |   |
| Item                  3.                                  | Defaults                  Upon Senior Securities                                                                                                                         |  28 |
|                                                      |                                                                                                                                                                     |   |
| Item                  4.                                  | Submission                  of Matters to a Vote of Security Holders                                                                                                     |  28 |
|                                                      |                                                                                                                                                                     |   |
| Item                  5.                                  | Other                  Information                                                                                                                                       |  28 |
|                                                      |                                                                                                                                                                     |   |
| Item                  6.                                  | Exhibits                                                                                                                                                                 |  29 |

----

|   | Part                  I.Financial                  Information |
|--------|----------------------------------------------------------------|
|   |   |
|--------|--------|

| Item                  1. | Condensed                  Consolidated Financial Statements |
|--------------------------|--------------------------------------------------------------|

|                                                                                                                                                                                   |   | September                  30, 2007 |        |   | December                  31, 2006 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|-------------|--------|------------------------------------|--------|
| ASSETS                                                                                                                                                                                 |   |                                |        |   |                               |   |
| Investments                                                                                                                                                                            |   | $                                   | 406,283,676 |   |                               | $      | 271,961,941 |   |
| Cash                  and cash equivalents                                                                                                                                             |   |                                | 71,406,567  |   |                               |   | 136,621,578 |   |
| Notes                  and other receivables, net                                                                                                                                      |   |                                | 15,115,924  |   |                               |   | 17,177,827 |   |
| Reinsurance                  receivables                                                                                                                                               |   |                                | 16,182,076  |   |                               |   | 17,290,039 |   |
| Real                  estate and water assets, net                                                                                                                                     |   |                                | 172,754,463 |   |                               |   | 102,538,859 |   |
| Property                  and equipment, net                                                                                                                                           |   |                                | 1,167,164   |   |                               |   | 518,564 |   |
| Other                  assets                                                                                                                                                          |   |                                | 3,931,370   |   |                               |   | 2,934,131 |   |
| Total                  assets                                                                                                                                                          |   | $                                   | 686,841,240 |   |                               | $      | 549,042,939 |   |
|                                                                                                                                                                                   |   |                                |        |   |                               |   |   |   |
| LIABILITIES                  AND SHAREHOLDERS' EQUITY                                                                                                                                  |   |                                |        |   |                               |   |   |   |
| Unpaid                  losses and loss adjustment expenses                                                                                                                            |   | $                                   | 37,393,203  |   |                               | $      | 41,083,301 |   |
| Deferred                  compensation                                                                                                                                                 |   |                                | 53,374,293  |   |                               |   | 49,776,043 |   |
| Bank                  and other borrowings                                                                                                                                             |   |                                | 18,495,007  |   |                               |   | 12,720,558 |   |
| Deferred                  income taxes, net                                                                                                                                            |   |                                | 21,162,949  |   |                               |   | 17,952,916 |   |
| Other                  liabilities                                                                                                                                                     |   |                                | 25,554,293  |   |                               |   | 22,282,822 |   |
| Total                  liabilities                                                                                                                                                     |   |                                | 155,979,745 |   |                               |   | 143,815,640 |   |
|                                                                                                                                                                                   |   |                                |        |   |                               |   |   |   |
| Commitments                  and Contingencies (Note 4)                                                                                                                                |   |                                |        |   |                               |   |   |   |
|                                                                                                                                                                                   |   |                                |        |   |                               |   |   |   |
| Common                  stock, $.001 par value; authorized 100,000,000 shares, 23,259,367                  shares                  issued in 2007 and 20,306,923 shares issued in 2006 |   |                                | 23,259      |   |                               |   | 20,307 |   |
| Additional                  paid-in capital                                                                                                                                            |   |                                | 434,717,263 |   |                               |   | 331,582,308 |   |
| Accumulated                  other comprehensive income                                                                                                                                |   |                                | 86,447,450  |   |                               |   | 60,950,679 |   |
| Retained                  earnings                                                                                                                                                     |   |                                | 87,956,752  |   |                               |   | 90,968,815 |   |
|                                                                                                                                                                                   |   |                                | 609,144,724 |   |                               |   | 483,522,109 |   |
| Treasury                  stock, at cost (common shares: 4,425,630 in 2007 and 4,426,465                  in                  2006)                                                    |   |                                | (78,283,229 | )      |                               |   | (78,294,810 | ) |
| Total                  shareholders' equity                                                                                                                                            |   |                                | 530,861,495 |   |                               |   | 405,227,299 |   |
| Total                  liabilities and shareholders' equity                                                                                                                            |   | $                                   | 686,841,240 |   |                               | $      | 549,042,939 |   |

----

|                                                                          |   | Three                  Months Ended September 30, 2007 |         |   | Three                  Months Ended September 30, 2006 |   |       | Nine                  Months Ended September 30, 2007 |   |   | Nine                  Months Ended September 30, 2006 |   |
|-------------------------------------------------------------------------------|--------|--------------------------------------------------------|--------------|--------|--------------------------------------------------------|--------|------------|-------------------------------------------------------|--------|--------|-------------------------------------------------------|--------|
| Revenues:                                                                     |   |                                                   |         |   |                                                   |   |       |                                                  |   |   |                                                  |   |
| Net                  investment income                                        |   | $                                                      | 4,180,743    |   |                                                   | $      | 3,308,869  |                                                  |   | $      | 13,723,147                                            |   |   | $ | 9,812,410 |   |
| Net                  realized gain (loss) on investments                      |   |                                                   | (848,488     | )      |                                                   |   | 3,906,008  |                                                  |   |   | 769,605                                               |   |   |   | 19,279,304 |   |
| Sale                  of real estate and water assets                         |   |                                                   | 1,477,434    |   |                                                   |   | 28,310,663 |                                                  |   |   | 5,903,810                                             |   |   |   | 33,399,627 |   |
| Rents,                  royalties and lease income                            |   |                                                   | 170,101      |   |                                                   |   | 87,178     |                                                  |   |   | 471,640                                               |   |   |   | 722,161 |   |
| Other                  (principally gain on exchange during 2007, see Note 1) |   |                                                   | 3,435,709    |   |                                                   |   | 586,113    |                                                  |   |   | 3,574,974                                             |   |   |   | 779,989 |   |
| Total                  revenues                                               |   |                                                   | 8,415,499    |   |                                                   |   | 36,198,831 |                                                  |   |   | 24,443,176                                            |   |   |   | 63,993,491 |   |
| Costs                  and Expenses:                                          |   |                                                   |         |   |                                                   |   |       |                                                  |   |   |                                                  |   |   |   |   |   |
| Operating                  and other costs                                    |   |                                                   | 6,056,598    |   |                                                   |   | 7,883,674  |                                                  |   |   | 24,308,664                                            |   |   |   | 16,245,379 |   |
| Cost                  of real estate and water assets sold                    |   |                                                   | 426,008      |   |                                                   |   | 5,816,820  |                                                  |   |   | 1,897,214                                             |   |   |   | 7,498,442 |   |
| Depreciation                  and amortization                                |   |                                                   | 269,431      |   |                                                   |   | 337,437    |                                                  |   |   | 818,126                                               |   |   |   | 1,012,844 |   |
| Interest                  expense                                             |   |                                                   |         |   |                                                   |   | 121,826    |                                                  |   |   |                                                  |   |   |   | 332,586 |   |
| Total                  costs and expenses                                     |   |                                                   | 6,752,037    |   |                                                   |   | 14,159,757 |                                                  |   |   | 27,024,004                                            |   |   |   | 25,089,251 |   |
| Income                  (loss) before income taxes and minority interest      |   |                                                   | 1,663,462    |   |                                                   |   | 22,039,074 |                                                  |   |   | (2,580,828                                            | )      |   |   | 38,904,240 |   |
| Provision                  for income taxes                                   |   |                                                   | 1,189,928    |   |                                                   |   | 8,286,040  |                                                  |   |   | 137,890                                               |   |   |   | 14,497,530 |   |
| Income                  (loss) before minority interest                       |   |                                                   | 473,534      |   |                                                   |   | 13,753,034 |                                                  |   |   | (2,718,718                                            | )      |   |   | 24,406,710 |   |
| Minority                  interest in loss of subsidiaries                    |   |                                                   |    |   |                                                   |   | 8,843      |                                                  |   |   |                                             |   |   |   | 34,252 |   |
| Income                  (loss) from continuing operations                     |   |                                                   | 473,534      |   |                                                   |   | 13,761,877 |                                                  |   |   | (2,718,718                                            | )      |   |   | 24,440,962 |   |
| Loss                  from discontinued operations, net of tax                |   |                                                   |    |   |                                                   |   | (1,932,299 | )                                                     |   |   |                                                  |   |   |   | (5,011,000 | ) |
| Net                  income (loss)                                            |   | $                                                      | 473,534      |   |                                                   | $      | 11,829,578 |                                                  |   | $      | (2,718,718                                            | )      |   | $ | 19,429,962 |   |
|                                                                          |   |                                                   |         |   |                                                   |   |       |                                                  |   |   |                                                  |   |   |   |   |   |
|                                                                          |   |                                                   |         |   |                                                   |   |       |                                                  |   |   |                                                  |   |   |   |   |   |
| Net                  income (loss) per common share – basic:            |   |                                                   |         |   |                                                   |   |       |                                                  |   |   |                                                  |   |   |   |   |   |
| Income                  (loss) from continuing operations                     |   | $                                                      | 0.03         |   |                                                   | $      | 0.87       |                                                  |   | $      | (0.15                                                 | )      |   | $ | 1.66 |   |
| Loss                  from discontinued operations                            |   |                                                   |    |   |                                                   |   | (0.13      | )                                                     |   |   |                                             |   |   |   | (0.34 | ) |
| Net                  income (loss) per common share                           |   | $                                                      | 0.03         |   |                                                   | $      | 0.74       |                                                  |   | $      | (0.15                                                 | )      |   | $ | 1.32 |   |
| Weighted                  average shares outstanding                          |   |                                                   | 18,833,737   |   |                                                   |   | 15,880,458 |                                                  |   |   | 18,174,007                                            |   |   |   | 14,712,267 |   |

| Net                  income (loss) per common share – diluted: |   |   |         |   |   |   |       |   |   |   |         |   |
|----------------------------------------------------------------------|--------|--------|--------------|--------|--------|--------|------------|--------|--------|--------|--------------|--------|
| Income                  (loss) from continuing operations            |   | $      | 0.02         |   |   | $      | 0.87       |   |   | $      | (0.15        | )      |   | $ | 1.66 |   |
| Loss                  from discontinued operations                   |   |   |    |   |   |   | (0.13      | )      |   |   |    |   |   |   | (0.34 | ) |
| Net                  income (loss) per common share                  |   | $      | 0.02         |   |   | $      | 0.74       |   |   | $      | (0.15        | )      |   | $ | 1.32 |   |
| Weighted                  average shares outstanding                 |   |   | 19,026,136   |   |   |   | 15,880,458 |   |   |   | 18,174,007   |   |   |   | 14,712,267 |   |

----

|                                                                                                                                        |   | Nine                  Months Ended September 30, 2007 |            |   | Nine                  Months Ended September 30, 2006 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|-----------------|--------|------------------------------------------------------------|--------|
| OPERATING                  ACTIVITIES:                                                                                                      |   |                                                       |            |   |                                                       |   |
| Net                  cash provided by (used in) operating activities - continuing                  operations                               |   | $                                                          | (38,048,344     | )      |                                                       | $      | 12,356,244 |   |
| Net                  cash used in operating activities - discontinued                  operations                                           |   |                                                       |       |   |                                                       |   | (3,063,279 | ) |
|                                                                                                                                        |   |                                                       | (38,048,344     | )      |                                                       |   | 9,292,965 |   |
| INVESTING                  ACTIVITIES:                                                                                                      |   |                                                       |            |   |                                                       |   |   |   |
| Purchases                  of investments                                                                                                   |   |                                                       | (145,643,885    | )      |                                                       |   | (72,087,599 | ) |
| Proceeds                  from sale of investments                                                                                          |   |                                                       | 5,128,795       |   |                                                       |   | 39,342,472 |   |
| Proceeds                  from maturity of investments                                                                                      |   |                                                       | 44,609,747      |   |                                                       |   | 45,728,000 |   |
| Purchases                  of property and equipment and costs capitalized to water                  infrastructure                         |   |                                                       | (35,044,316     | )      |                                                       |   | (13,419,890 | ) |
| Cash                  used in investing activities - discontinued operations                                                                |   |                                                       |       |   |                                                       |   | (1,936,237 | ) |
| Net                  cash used in investing activities                                                                                      |   |                                                       | (130,949,659    | )      |                                                       |   | (2,373,254 | ) |
|                                                                                                                                        |   |                                                       |            |   |                                                       |   |   |   |
| FINANCING                  ACTIVITIES:                                                                                                      |   |                                                       |            |   |                                                       |   |   |   |
| Proceeds                  from common stock offering, net                                                                                   |   |                                                       | 100,141,935     |   |                                                       |   | 73,945,144 |   |
| Sale                  of treasury stock for deferred compensation plans                                                                     |   |                                                       | 29,392          |   |                                                       |   |   |   |
| Excess                  tax benefits from share based payment arrangements                                                                  |   |                                                       | 4,905,804       |   |                                                       |   |   |   |
| Distributions                to minority partner                                                                                            |   |                                                       |            |   |                                                       |   | (700,000 | )  |
| Repayment                  of borrowings                                                                                                    |   |                                                       |            |   |                                                       |   | (37,929 | ) |
| Cash                  used in financing activities - discontinued operations                                                                |   |                                                       |       |   |                                                       |   | (498,272 | ) |
| Net                  cash provided by financing activities                                                                                  |   |                                                       | 105,077,131     |   |                                                       |   | 72,708,943 |   |
|                                                                                                                                        |   |                                                       |            |   |                                                       |   |   |   |
| Effect                  of exchange rate changes on cash                                                                                    |   |                                                       | (1,294,138      | )      |                                                       |   | (1,617,069 | ) |
|                                                                                                                                        |   |                                                       |            |   |                                                       |   |   |   |
| INCREASE                  (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                           |   |                                                       | (65,215,011     | )      |                                                       |   | 78,011,587 |   |
|                                                                                                                                        |   |                                                       |            |   |                                                       |   |   |   |
| CASH                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                             |   |                                                       | 136,621,578     |   |                                                       |   | 37,794,416 |   |
|                                                                                                                                        |   |                                                       |            |   |                                                       |   |   |   |
| CASH                  AND CASH EQUIVALENTS, END OF PERIOD                                                                                   |   | $                                                          | 71,406,567      |   |                                                       | $      | 115,806,003 |   |
|                                                                                                                                        |   |                                                       |            |   |                                                       |   |   |   |
| SUPPLEMENTAL                  CASH FLOW INFORMATION:                                                                                        |   |                                                       |            |   |                                                       |   |   |   |
| Cash                  paid for interest, net of amounts capitalized                                                                         |   |                                                       |            |   |                                                       | $      | 330,427 |   |
|                                                                                                                                        |   |                                                       |            |   |                                                       |   |   |   |
| Cash                  paid for income taxes, net of refunds                                                                                 |   | $                                                          | 5,461,341       |   |                                                       | $      | 5,646,797 |   |
| Non-cash                  Investing and Financing Activities:                                                                               |   |                                                       |            |   |                                                       |   |   |   |
| Change                  in capitalized costs included in other liabilities                                                                  |   | $                                                          | 12,566,254      |   |                                                       |   |   |   |
|                                                                                                                                        |   |                                                       |            |   |                                                       |   |   |   |
| Mortgage                  incurred to purchase land                                                                                         |   | $                                                          | 5,180,00        |   |                                                       |   |   |   |
|                                                                                                                                        |   |                                                       |            |   |                                                       |   |   |   |
|  Withholding                taxes recorded in additional paid in capital related to stock apprecaition                rights exercised |   | $                                                     | 5,398,767  |   |                                                       |   |   |   |

----

NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

----

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

|                                               |   | SARs   |      |   | Weighted                  Average Exercise Price |   |   | Weighted                  Average Contractual Term (In years) |   |   | Intrinsic                  Value (In millions) |   |
|----------------------------------------------------|--------|--------|-----------|--------|--------------------------------------------------|--------|--------|---------------------------------------------------------------|--------|--------|------------------------------------------------|--------|
| Outstanding                  at January 1, 2007    |   |   | 2,185,965 |   |                                             | $      | 33.76  |                                                          |   |   |                                           |   |   |   |
| Granted                                            |   |   | 659,409   |   |                                             | $      | 43.23  |                                                          |   |   |                                           |   |   |   |
| Exercised                                          |   |   | (838,356  | )      |                                             | $      | 33.76  |                                                          |   |   |                                           |   |   |   |
| Outstanding                  at September 30, 2007 |   |   | 2,007,018 |   |                                             | $      | 36.87  |                                                          |   |   | 8.7                                            |   |   | $ | 10.3 |   |
|                                               |   |   |      |   |                                             |   |   |                                                          |   |   |                                           |   |   |   |   |   |
| Exercisable                  at September 30, 2007 |   |   | 1,509,766 |   |                                             | $      | 34.72  |                                                          |   |   | 8.4                                            |   |   | $ | 10.3 |   |

|                                            |   | SARs   |     |   | Weighted                  Average Gant Date Fair Value |   |
|-------------------------------------------------|--------|--------|----------|--------|--------------------------------------------------------|--------|
| Unvested                  at January 1, 2007    |   |   |     |   |                                                   |   |   |
| Granted                                         |   |   | 659,409  |   |                                                   | $      | 18.15 |   |
| Vested                                          |   |   | (162,157 | )      |                                                   | $      | 17.87 |   |
|                                            |   |   |     |   |                                                   |   |   |   |
| Unvested                  at September 30, 2007 |   |   | 497,252  |   |                                                   | $      | 18.24 |   |

----

Notes        and Other        Receivables:

:

----

|                                |   | Three                  Months Ended September 30, 2006 |      |   | Nine                  Months Ended September 30, 2006 |   |
|-------------------------------------|--------|--------------------------------------------------------|-----------|--------|-------------------------------------------------------|--------|
| Revenues                            |   | $                                                      | 1,029,141 |   |                                                  | $      | 2,911,160 |   |
| Expenses                            |   | $                                                      | 8,803,834 |   |                                                  | $      | 15,704,441 |   |
| Income                  tax benefit |   | $                                                      | 5,677,394 |   |                                                  | $      | 7,452,281 |   |

----

|                                                              |   | Three                  Months Ended September 30, 2007 |      |   | Three                  Months Ended September 30, 2006 |   |       | Nine                  Months Ended September 30, 2007 |   |   | Nine                  Months Ended September 30, 2006 |   |
|-------------------------------------------------------------------|--------|--------------------------------------------------------|-----------|--------|--------------------------------------------------------|--------|------------|-------------------------------------------------------|--------|--------|-------------------------------------------------------|--------|
| Net                  income (loss)                                |   | $                                                      | 473,534   |   |                                                   | $      | 11,829,578 |                                                  |   | $      | (2,718,718                                            | )      |   | $ | 19,429,962 |   |
| Net                  change in unrealized appreciation            |   |                                                   |      |   |                                                   |   |       |                                                  |   |   |                                                  |   |   |   |   |   |
| (depreciation)                  on available for sale investments |   |                                                   | 3,515,628 |   |                                                   |   | 1,956,060  |                                                  |   |   | 23,488,873                                            |   |   |   | (4,791,041 | ) |
| Net                  change in foreign currency translation       |   |                                                   | 950,645   |   |                                                   |   | 202,084    |                                                  |   |   | 2,007,898                                             |   |   |   | 163,770 |   |
| Total                  comprehensive income                       |   | $                                                      | 4,939,807 |   |                                                   | $      | 13,987,722 |                                                  |   | $      | 22,778,053                                            |   |   | $ | 14,802,691 |   |

|                                                                       |   | September                  30, 2007 |       |   | December                  31, 2006 |   |
|----------------------------------------------------------------------------|--------|-------------------------------------|------------|--------|------------------------------------|--------|
| Unrealized                  appreciation on available for sale investments |   | $                                   | 89,682,301 |   |                               | $      | 66,193,428 |   |
| Foreign                  currency translation                              |   |                                | (3,234,851 | )      |                               |   | (5,242,749 | ) |
| Accumulated                  other comprehensive income                    |   | $                                   | 86,447,450 |   |                               | $      | 60,950,679 |   |

----

| ·   | pay                  $500,000 upon signing of agreement;                                                                                                                                                                                                                                                                                               |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | transfer                  6,214 acres of real estate Fish Spring owns (fair value of $500,000                  and a                  book value of $139,000);                                                                                                                                                                                         |
| ·   | pay                  $3.1 million on January 8, 2008; and                                                                                                                                                                                                                                                                                              |
| ·   | pay                  $3.6 million on the later of January 8, 2009 or the date an Act                  of                  Congress ratifies the settlement agreement (Interest accrues at                  the London                  Inter-Bank Rate ("LIBOR")  from January 8, 2009, if the payment is                  made after that date). |

----

----

|                                                         |   | At                  September 30, 2007 |        |   | At                  December 31, 2006 |   |        | Increase |   |
|--------------------------------------------------------------|--------|----------------------------------------|-------------|--------|---------------------------------------|--------|-------------|----------|--------|
| Segment Assets:                                         |   |                                   |        |   |                                  |   |        |     |   |
| Water                  Resource and Water Storage Operations |   | $                                      | 235,720,726 |   |                                  | $      | 146,115,727 |     |   | $ | 89,604,999 |   |
| Real                  Estate Operations                      |   |                                   | 79,725,018  |   |                                  |   | 73,266,067  |     |   |   | 6,458,951 |   |
| Business                  Acquisitions and Financing         |   |                                   | 143,025,621 |   |                                  |   | 127,304,477 |     |   |   | 15,721,144 |   |
| Insurance                  Operations in Run Off             |   |                                   | 228,369,875 |   |                                  |   | 202,356,668 |     |   |   | 26,013,207 |   |
|                                                         |   | $                                      | 686,841,240 |   |                                  | $      | 549,042,939 |     |   | $ | 137,798,301 |   |

|                                                                   |   | Three                  Months EndedSeptember 30, |       |   | Nine                  Months EndedSeptember                  30, |   |
|------------------------------------------------------------------------|--------|-------------------------------------------------------|------------|--------|------------------------------------------------------------------|--------|
| **Segment                  Revenues:**                                 |   | 2007                                                  |       |   | 2006                                                             |   |   | 2007 |   |   | 2006 |   |
| Water                  Resource and Water Storage Operations           |   | $                                                     | 4,600,369  |   |                                                             | $      | 4,343,945 |   |   | $ | 7,067,360 |   |   | $ | 5,326,229 |   |
| Real                  Estate Operations                                |   |                                                  | 2,590,612  |   |                                                             |   | 26,021,029 |   |   |   | 9,057,837 |   |   |   | 32,412,616 |   |
| Business                  Acquisitions and Financing                   |   |                                                  | (286,138   | )      |                                                             |   | 1,852,718 |   |   |   | 3,537,914 |   |   |   | 14,013,587 |   |
| Insurance                  Operations in Run Off                       |   |                                                  | 1,510,656  |   |                                                             |   | 3,981,139 |   |   |   | 4,780,065 |   |   |   | 12,241,059 |   |
| Total                  Revenues                                        |   | $                                                     | 8,415,499  |   |                                                             | $      | 36,198,831 |   |   | $ | 24,443,176 |   |   | $ | 63,993,491 |   |
|                                                                   |   |                                                  |       |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| **Income                  (Loss) Before Taxes and Minority Interest:** |   |                                                  |       |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Water                  Resource and Water Storage Operations           |   | $                                                     | 2,933,054  |   |                                                             | $      | 452,045 |   |   | $ | (4,657,476 | ) |   | $ | (1,509,332 | ) |
| Real                  Estate Operations                                |   |                                                  | 1,486,908  |   |                                                             |   | 21,262,153 |   |   |   | 5,325,497 |   |   |   | 24,912,546 |   |
| Business                  Acquisitions and Financing                   |   |                                                  | (4,022,768 | )      |                                                             |   | (3,261,070 | ) |   |   | (7,078,347 | ) |   |   | 4,366,077 |   |
| Insurance                  Operations in Run Off                       |   |                                                  | 1,266,268  |   |                                                             |   | 3,585,946 |   |   |   | 3,829,498 |   |   |   | 11,134,949 |   |
| Income                  (Loss) Before Taxes and Minority Interest      |   | $                                                     | 1,663,462  |   |                                                             | $      | 22,039,074 |   |   | $ | (2,580,828 | ) |   | $ | 38,904,240 |   |

----

Discussion and Analysis of Financial        Condition and Results of Operations

| · | Water                    Resource and Water Storage Operations;                                                                                                        |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Real                    Estate Operations;                                                                                                                             |
| · | Business                    Acquisitions & Financing (which contains businesses, interests in                    businesses, and other parent company assets); and |
| · | Insurance                    Operations in “Run Off”.                                                                                                      |

| · | Vidler                    Water Company, Inc. (“Vidler”), a business which we started more than 10                    years ago, acquires and develops water resources and water storage                    operations in the southwestern United States, with assets in                    Nevada,                    Arizona, Colorado, California and Idaho;                                     |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Nevada                    Land & Resource Company, LLC (“Nevada Land”), an operation that we                    built since we acquired the company more than 10 years ago, which                    owns                    approximately 493,000 acres of 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;                                                                                                                                                                                                           |
| · | Citation                    Insurance Company (“Citation”), which is “running off” its historic                    property & casualty insurance and workers’ compensation loss reserves;                    and                                                                                                                                                              |
| · | Global                    Equity AG, which holds our interest in Jungfraubahn Holding AG                    (“Jungfraubahn”). Jungfraubahn is a Swiss public company that operates                    railway and related tourism and transport activities in the Swiss                    Alps.                    Jungfraubahn’s shares trade on the SWZ Swiss                    Exchange. |

----

|                                                               |   | Three                  Months Ended September 30, |           |   | Nine                  Months Ended September 30, |   |
|--------------------------------------------------------------------|--------|---------------------------------------------------|----------------|--------|--------------------------------------------------|--------|
|                                                               |   | 2007                                              |           |   | 2006                                             |   |   | 2007 |   |   | 2006 |   |
| Revenues:                                                          |   |                                              |           |   |                                             |   |   |   |   |   |   |   |
| Water                  Resource and Water Storage Operations       |   | $                                                 | 4,600,000      |   |                                             | $      | 4,344,000 |   |   | $ | 7,067,000 |   |   | $ | 5,326,000 |   |
| Real                  Estate Operations                            |   |                                              | 2,591,000      |   |                                             |   | 26,021,000 |   |   |   | 9,058,000 |   |   |   | 32,413,000 |   |
| Business                  Acquisitions and Financing               |   |                                              | ( 287,000 | )      |                                             |   | 1,853,000 |   |   |   | 3,538,000 |   |   |   | 14,013,000 |   |
| Insurance                  Operations in Run Off                   |   |                                              | 1,511,000      |   |                                             |   | 3,981,000 |   |   |   | 4,780,000 |   |   |   | 12,240,000 |   |
| Total                  Revenues                                    |   | $                                                 | 8,415,000      |   |                                             | $      | 36,199,000 |   |   | $ | 24,443,000 |   |   | $ | 63,992,000 |   |
|                                                               |   |                                              |           |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Income                  (Loss) Before Taxes and Minority Interest: |   |                                              |           |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Water                  Resource and Water Storage Operations       |   | $                                                 | 2,933,000      |   |                                             | $      | 452,000 |   |   | $ | (4,657,000 | ) |   | $ | (1,509,000 | ) |
| Real                  Estate Operations                            |   |                                              | 1,487,000      |   |                                             |   | 21,262,000 |   |   |   | 5,325,000 |   |   |   | 24,913,000 |   |
| Business                  Acquisitions and Financing               |   |                                              | (4,023,000     | )      |                                             |   | (3,261,000 | ) |   |   | (7,078,000 | ) |   |   | 4,365,000 |   |
| Insurance                  Operations in Run Off                   |   |                                              | 1,266,000      |   |                                             |   | 3,586,000 |   |   |   | 3,829,000 |   |   |   | 11,134,000 |   |
| Income                  (Loss) Before Taxes and Minority Interest  |   | $                                                 | 1,663,000      |   |                                             | $      | 22,039,000 |   |   | $ | (2,581,000 | ) |   | $ | 38,903,000 |   |

----

----

|                                                     |   | Three                  Months Ended September 30, |         |   | Nine                  Months Ended September 30, |   |
|----------------------------------------------------------|--------|---------------------------------------------------|--------------|--------|--------------------------------------------------|--------|
|                                                     |   | 2007                                              |         |   | 2006                                             |   |   | 2007 |   |   | 2006 |   |
| Revenues:                                                |   |                                              |         |   |                                             |   |   |   |   |   |   |   |
| Sale                  of Real Estate and Water Assets    |   | $                                                 | 12,000       |   |                                             | $      | 2,906,000 |   |   | $ | 20,000 |   |   | $ | 2,941,000 |   |
| Net                  Investment Income                   |   |                                              | 1,286,000    |   |                                             |   | 1,031,000 |   |   |   | 3,697,000 |   |   |   | 1,914,000 |   |
| Gain                  on Release of Restrictions on Land |   |                                              | 3,466,000    |   |                                             |   |   |   |   |   | 3,466,000 |   |   |   |   |   |
| Other                                                    |   |                                              | (164,000     | )      |                                             |   | 407,000 |   |   |   | (116,000 | ) |   |   | 471,000 |   |
| Segment                  Total Revenues                  |   | $                                                 | 4,600,000    |   |                                             | $      | 4,344,000 |   |   | $ | 7,067,000 |   |   | $ | 5,326,000 |   |
|                                                     |   |                                              |         |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                |   |                                              |         |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Cost                  of Real Estate and Water Assets    |   | $                                                 | ( 2,000 | )      |                                             | $      | (1,593,000 | ) |   | $ | ( 5,000 | ) |   | $ | (1,605,000 | ) |
| Depreciation                  and Amortization           |   |                                              | (254,000     | )      |                                             |   | ( 313,000 | ) |   |   | ( 771,000 | ) |   |   | ( 902,000 | ) |
| Overhead                                                 |   |                                              | (591,000     | )      |                                             |   | (1,424,000 | ) |   |   | (1,629,000 | ) |   |   | (2,475,000 | ) |
| Project                  Expenses                        |   |                                              | (820,000     | )      |                                             |   | ( 562,000 | ) |   |   | (9,319,000 | ) |   |   | (1,853,000 | ) |
| Segment                  Total Expenses                  |   | $                                                 | (1,667,000   | )      |                                             | $      | (3,892,000 | ) |   | $ | (11,724,000 | ) |   | $ | (6,835,000 | ) |
| Income                  (Loss) Before Tax                |   | $                                                 | 2,933,000    |   |                                             | $      | 452,000 |   |   | $ | (4,657,000 | ) |   | $ | (1,509,000 | ) |

|   | · | the                  Lincoln County Water District/Vidler undertaking (“Lincoln/Vidler”) sold                  approximately 570 acre-feet of water rights at Meadow Valley, Nevada                  for                  $6,050 per acre-foot.  Vidler’s 50% share of the sales price was                  $1.7 million; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Vidler                  sold its water rights at Golden, Colorado for $1.2                  million.  After deducting the $1.6 million cost of real estate                  and water assets sold, the resulting gross margin was $1.3                  million. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | 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 future municipal                  water supply for the north valleys of the Reno, Nevada                  area;                                                                                                                             |
| · | the                  operation of Fish Springs Ranch, and maintenance of the associated                  water                  rights; and                                                                                                                                                                           |
| · | in                  the first nine months of 2007, a settlement of all outstanding                  claims and                  legal actions with the Pyramid Lake Paiute Tribe (“the Tribe settlement”).                  See “Fish Springs                  Ranch”                  below. |

----

| · | a                    cash payment of $500,000, which was made during the second quarter                    of                    2007; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|

| · | the                    transfer of approximately 6,214 acres of land, with a fair value                    of                    $500,000 and a book value of $139,000, to the Tribe in the second                    quarter                    of 2007; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | a                    payment of $3.1 million scheduled for January 8, 2008;                    and |
|--------|----------------------------------------------------------------------------------------------------|

| · | a                    payment of $3.6 million on the later of January 8, 2009 or the date                    an Act of Congress ratifies the settlement agreement.  If the                    payment is made after January 8, 2009, interest will accrue at                    the London                    Inter-Bank Offered Rate (“LIBOR”) from January 8,                    2009. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                |   | Three                  Months Ended September 30, |                     |   | Nine                  Months Ended September 30, |   |
|---------------------------------------------------------------------|--------|---------------------------------------------------|--------------------------|--------|--------------------------------------------------|--------|
|                                                                |   | 2007                                              |                     |   | 2006                                             |   |   | 2007 |   |   | 2006 |   |
| Revenues:                                                           |   |                                              |                     |   |                                             |   |   |   |   |   |   |   |
| Sale                  of Land:                                 |   |                                              |                     |   |                                             |   |   |   |   |   |   |   |
|     Former                  Railroad Land  |   | $                                                 | 1,465,000                |   |                                             | $      | 3,405,000 |   |   | $ | 5,884,000 |   |   | $ | 8,459,000 |   |
|     Spring                  Valley Ranch        |   |                                              |                     |   |                                             |   | 22,000,000 |   |   |   |   |   |   |   | 22,000,000 |   |
| Net                  Investment Income                              |   |                                              | 926,000                  |   |                                             |   | 391,000 |   |   |   | 2,463,000 |   |   |   | 770,000 |   |
| Other                                                               |   |                                              | 200,000                  |   |                                             |   | 225,000 |   |   |   | 711,000 |   |   |   | 1,184,000 |   |
| Segment                  Total Revenues                             |   | $                                                 | 2,591,000                |   |                                             | $      | 26,021,000 |   |   | $ | 9,058,000 |   |   | $ | 32,413,000 |   |
|                                                                |   |                                              |                     |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                           |   |                                              |                     |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Cost                  of Land Sold:                                 |   |                                              |                     |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
|     Former                  Railroad Land  |   | $                                                 | (424                ,000 | )      |                                             | $      | (1,049,000 | ) |   | $ | (1,893,000 | ) |   | $ | (2,720,000 | ) |
|     Spring                  Valley Ranch        |   |                                              |                     |   |                                             |   | (3,174,000 | ) |   |   |   |   |   |   | (3,174,000 | ) |
| Operating                  Expenses                                 |   |                                              | (680,000                 | )      |                                             |   | ( 536,000 | ) |   |   | (1,840,000 | ) |   |   | (1,606,000 | ) |
| Segment                  Total Expenses                             |   | $                                                 | (1,104,000               | )      |                                             | $      | (4,759,000 | ) |   | $ | (3,733,000 | ) |   | $ | (7,500,000 | ) |
| Income                  Before Tax                                  |   | $                                                 | 1,487,000                |   |                                             | $      | 21,262,000 |   |   | $ | 5,325,000 |   |   | $ | 24,913,000 |   |

----

|                                                               |   | Three                  Months Ended September 30, |       |   | Nine                  Months Ended September 30, |   |
|--------------------------------------------------------------------|--------|---------------------------------------------------|------------|--------|--------------------------------------------------|--------|
|                                                               |   | 2007                                              |       |   | 2006                                             |   |   | 2007 |   |   | 2006 |   |
| Revenues:                                                          |   |                                              |       |   |                                             |   |   |   |   |   |   |   |
| Net                  Realized Gain (Loss) on Sale or Impairment of |   | $                                                 | (1,398,000 | )      |                                             | $      | 727,000 |   |   | $ | (1,392,000 | ) |   | $ | 9,424,000 |   |
|        Holdings                 |   |                                              |       |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Net                  Investment Income                             |   |                                              | 1,104,000  |   |                                             |   | 1,032,000 |   |   |   | 4,890,000 |   |   |   | 4,298,000 |   |
| Other                                                              |   |                                              | 7,000      |   |                                             |   | 94,000 |   |   |   | 40,000 |   |   |   | 291,000 |   |
| Segment                  Total Revenues                            |   | $                                                 | (287,000   | )      |                                             | $      | 1,853,000 |   |   | $ | 3,538,000 |   |   | $ | 14,013,000 |   |
|                                                               |   |                                              |       |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Segment                  Total Expenses                            |   | $                                                 | (3,736,000 | )      |                                             | $      | (5,114,000 | ) |   | $ | (10,616,000 | ) |   | $ | (9,648,000 | ) |
| Income                  (Loss) Before Tax                          |   | $                                                 | (4,023,000 | )      |                                             | $      | (3,261,000 | ) |   | $ | (7,078,000 | ) |   | $ | 4,365,000 |   |

----

|   | · | included                  a $1.8 million accrual for incentive compensation expense;                  and |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

|   | · | included                  a $775,000 exchange rate expense. |
|--------|--------|-------------------------------------------------------------|

|   | · | included                  a $3.5 million expense resulting from the granting, and partial                  vesting,                  of additional SAR during the third quarter of 2007.  See below;                  and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | were                  reduced by the $1.4 million decrease in deferred compensation payable,                  and                  by a $1.3 million exchange rate benefit, as discussed                  above. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | included                  a $3.9 million accrual for incentive compensation expense;                  and |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

|   | · | were                  reduced by a $1.6 million exchange rate                  benefit. |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | · | included                  a $3.5 million expense for SAR as described                  above |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | · | included                  legal costs of the litigation against Exegy , Inc. of $1.3                  million  (see Part II Item 1: “Legal                  Proceedings”);  and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | were                  reduced by the $1.4 million decrease in deferred compensation payable,                  and                  by a $1.3 million exchange rate benefit, as discussed                  above. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                  |   | Three                  Months EndedSeptember 30, |      |   | Nine                  Months EndedSeptember                  30, |   |
|-------------------------------------------------------|--------|-------------------------------------------------------|-----------|--------|------------------------------------------------------------------|--------|
|                                                  |   | 2007                                                  |      |   | 2006                                                             |   |   | 2007 |   |   | 2006 |   |
| Revenues:                                             |   |                                                  |      |   |                                                             |   |   |   |   |   |   |   |
| Realized                  Gains on Sale of Holdings   |   | $                                                     | 521,000   |   |                                                             | $      | 3,180,000 |   |   | $ | 1,953,000 |   |   | $ | 9,855,000 |   |
| Net                  Investment Income                |   |                                                  | 866,000   |   |                                                             |   | 800,000 |   |   |   | 2,673,000 |   |   |   | 2,385,000 |   |
| Earned                  Premium                       |   |                                                  | 99,000    |   |                                                             |   |   |   |   |   | 99,000 |   |   |   |   |   |
| Other                                                 |   |                                                  | 25,000    |   |                                                             |   | 1,000 |   |   |   | 55,000 |   |   |   | 1,000 |   |
| Segment                  Total Revenues               |   | $                                                     | 1,511,000 |   |                                                             | $      | 3,981,000 |   |   | $ | 4,780,000 |   |   | $ | 12,241,000 |   |
|                                                  |   |                                                  |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Segment                  Total Expenses               |   | $                                                     | (245,000  | )      |                                                             | $      | (395,000 | ) |   | $ | (951,000 | ) |   | $ | (1,106,000 | ) |
|                                                  |   |                                                  |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Income                  Before Taxes:                 |   |                                                  |      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Physicians                  Insurance Company of Ohio |   | $                                                     | 831,000   |   |                                                             | $      | 2,593,000 |   |   | $ | 2,821,000 |   |   | $ | 8,538,000 |   |
| Citation                  Insurance Company           |   |                                                  | 435,000   |   |                                                             |   | 993,000 |   |   |   | 1,008,000 |   |   |   | 2,597,000 |   |
| Income                  Before Tax                    |   | $                                                     | 1,266,000 |   |                                                             | $      | 3,586,000 |   |   | $ | 3,829,000 |   |   | $ | 11,135,000 |   |

| PHYSICIANS                  INSURANCE COMPANY OF OHIO -- LOSS AND LOSS ADJUSTMENT EXPENSE                  RESERVES |   |
|---------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                |   | September                  30,                  2007 |   |   | December                  31, 2006 |   |
|                                                                                                                |   |   |   |   |   |   |
| Direct                  Reserves                                                                                    |   | $ | 9,642,000 |   |   | $ | 10,374,000 |   |
| Ceded                  Reserves                                                                                     |   |   | ( 804,000 | ) |   |   | ( 989,000 | ) |
| Net                  Medical Professional Liability Insurance Reserves                                              |   | $ | 8,838,000 |   |   | $ | 9,385,000 |   |

----

| CITATION                  INSURANCE COMPANY -- LOSS AND LOSS ADJUSTMENT EXPENSE                  RESERVES |   |
|-----------------------------------------------------------------------------------------------------------|--------|
|                                                                                                      |   | September                  30,                  2007 |   |   | December                  31, 2006 |   |
| Property                  & Casualty Insurance                                                        |   |   |   |   |   |   |
| Direct                  Reserves                                                                          |   | $ | 6,119,000 |   |   | $ | 6,635,000 |   |
| Ceded                  Reserves                                                                           |   |   | (1,497,000 | ) |   |   | (1,558,000 | ) |
| Net                  Property & Casualty Insurance Reserves                                           |   | $ | 4,622,000 |   |   | $ | 5,077,000 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |
| Workers’                  Compensation                                                              |   |   |   |   |   |   |   |   |
| Direct                  Reserves                                                                          |   | $ | 21,633,000 |   |   | $ | 24,074,000 |   |
| Ceded                  Reserves                                                                           |   |   | (13,292,000 | ) |   |   | (14,425,000 | ) |
| Net                  Workers’ Compensation Insurance Reserves                                       |   | $ | 8,341,000 |   |   | $ | 9,649,000 |   |
|                                                                                                      |   |   |    |   |   |   |    |   |
| Total                  Reserves                                                                           |   | $ | 12,963,000 |   |   | $ | 14,726,000 |   |

|                                                                       |   | Three                  MonthsEnded                  September 30, |       |   | Nine                  MonthsEnded                  September 30, |   |
|----------------------------------------------------------------------------|--------|-------------------------------------------------------------------|------------|--------|------------------------------------------------------------------|--------|
|                                                                       |   | 2006                                                              |       |   | 2006                                                             |   |
| Loss                  Before Income Taxes                                  |   | $                                                                 | (7,775,000 | )      |                                                             | $      | (12,793,000 | ) |
| Income                  Tax Benefit                                        |   |                                                              | 5,678,000  |   |                                                             |   | 7,452,000 |   |
| Gain                  On Sale of HyperFeed’s Discontinued Operations |   |                                                              | 165,000    |   |                                                             |   | 330,000 |   |
| Loss                  After Tax                                            |   | $                                                                 | (1,932,000 | )      |                                                             | $      | (5,011,000 | ) |

----

| · | As                  Vidler’s water assets are monetized, Vidler should generate free cash                  flow                  as receipts from the sale of real estate and water assets have                  overtaken                  maintenance capital expenditure, development costs, financing costs,                  and                  operating expenses; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

**Contractual        Obligations / Off-Balance Sheet Arrangements **

----

Item        1.  Legal Proceedings

----

----

| Exhibit                  Number |   | Description                                                                                                                                                                                                             |
|---------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3(i)                            |   | Amended                  and Restated Articles of Incorporation of PICO.                                                                                                                                                |
| 3(ii)                           |   | Amended                  and Restated By-laws of PICO. (1)                                                                                                                                                              |
|  4.1                       |   | Form                  of Form of Securities Purchase Agreement dated February 28, 2007                  between                  PICO Holdings, Inc. and the Purchasers. (2)                                            |
| 10                         |   | Material                Contracts (3)                                                                                                                                                                                   |
| 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).                                         |

|   | (1) | Incorporated                  by reference to Form 8-K filed with the SEC on November 5,                  2007.                               |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (2) | Incorporated                  by reference to Exhibit 10.12 to the Form 8-K filed on March 2,                  2007.                               |
|   | (3) | Infrastructure                Dedication Agreement between Fish Springs Ranch LLC and Washoe County,                Nevada dated October 16, 2007. |

----

----